CNBC’s Jim Cramer shared his playbook for the brutal global market sell-off on Monday.
The S&P 500 and the Dow Jones Industrial Average each posted their worst day in nearly two years. Plus, the major indexes, including Nasdaq Composite, closed their worst three-day declines since 2022, as stocks fell in response to Friday’s disappointing July jobs report stoking fears of a U.S. recession.
Identify what’s actually wrong
Although the global sell-off hit U.S. markets hard, “the epicenter of the damage” was Japan, Cramer said. The sell-off started when Japan’s stock market posted its worst drop since the stock market crash of 1987 known as Black Monday. As of now, Cramer said, we “can’t call a bottom.”
Analyze what people think is wrong
Those selling are “ill-advised,” Cramer said. The sell-off is sparked by money managers who think the Federal Reserve should have cut rates last week. Some think that the “Magnificent Seven” is “hopelessly overvalued” following the disappointing earnings reports, and delays in Nvidia’s latest high-end semiconductor iteration, Blackwell, he said. And others were spooked when Warren Buffett slashed his Berkshire Hathaway‘s shares in Apple by half.
Figure out what you can buy that’s not connected to the epicenter
Cramer suggests the sell-off is actually an opportunity to buy “outside the blast radius,” rather than a reason to sell.
“Remember, you only want to buy the kind of stocks that you’d be willing to buy more of on the way down, otherwise you’re going to get blown out,” Cramer said.
Banks are a good place to start, Cramer advised. The recession fears stemming from weaker macroeconomic numbers are overrated, he said, especially in light of the 4.3% unemployment rate for July and seeing that the economy continues to create jobs and that there are no big bankruptcies. Cramer likes Morgan Stanley with a 4% yield, betting on more acquisitions and initial public offerings in the next year.
Investors can also take advantage of the decline in interest rates and buy stocks that yield more than 4%, Cramer said.
Keep cash on hand for other potential drops
It’s crucial for investors to make sure they have “ample cash to take advantage of the next decline, if there is one,” Cramer said.
“We don’t want to put too much money to work at one level, we did not put net new money to work today,” Cramer said. “We had a fear level of 65 this morning, as measured by the Volatility Index. We haven’t had that since March of 2020, in the height of the Covid panic. I think we got to be ready for more fear.”
Wait until the market is oversold before putting money to work
The market needs to get really oversold before investors put a lot of money to work, Cramer said, and we are not there yet. In fact, if the liquidation continues, be prepared to buy more into further weakness, he added.
Cramer said he would be more comfortable with a minus 5 rating on the S&P Oscillator as “a sign of viable panic.”
Consider upcoming market events that can impact averages
Although it’s crucial to know if there are any surprises good or bad looming on the horizon, Cramer thinks things are looking good for American markets, adding that the commercial real estate fear seems to be overdone. As for the uncertainty that comes with an election year, Cramer is not worried, for example, that an incoming Harris administration would be anti-business.
“Her advisers include real business people, something President Biden never embraced,” he said.
