Jim Cramer explains why the bond market is causing a market sell-off

“Mad Money” host Jim Cramer breaks down the relationship between the bond and equities markets, explaining why rising interest rates are causing investors to unload on high-growth stocks. Subscribe to CNBC PRO for access to investor and analyst insights: https://cnb.cx/2Vtntx6

The debt market continued to weigh on the stock market Thursday, triggering another brutal sell-off that hurt growth names especially, CNBC’s Jim Cramer said.

“The bond market sees the economy getting ready to reopen … and it figures the last thing we need is more stimulus” the “Mad Money” host explained. “To these bond investors … that’s like throwing gasoline on the Kingsfords. They think the economy will overheat … [and that] we’re going to get some serious inflation.”

The yield on the 10-year U.S. Treasury note, a key interest rate barometer, breached 1.6% for the first time in a year on Thursday. Meanwhile, the tech-heavy Nasdaq Composite plunged 3.52%, its worst session since late October, to close at 13,119.43.

The Dow Jones Industrial Average and S&P 500 also suffered big losses, leaving investors with few opportunities to find gains that day in the market. The blue-chip index shed nearly 560 points to close at 31,402.01, a 1.75% decline. The benchmark fell 2.45% to 3,829.34.

Worries of inflation picking up spooked investors out of high-growth names for another day this week. Earlier this week, Federal Reserve Chair Jerome Powell recommitted to leaving the federal funds rate at near-zero levels to help the economy crawl out of the pandemic-induced downturn. Elsewhere in Washington, the Biden administration is looking to woo lawmakers to pass a $1.9 trillion coronavirus relief package, which has also sparked fears of a rising consumer price index.

Inflation weighs on currency and consumer purchasing power.

“As I see it, Powell and Biden are doing the right thing. I don’t mind a little inflation now and then,” but “investors are selling bonds, pushing long-term interest rates higher,” Cramer said. “When that happens, stock buyers pull back. They always do.”

“And they pull back hard on high-growth stocks that pay a high price in times of inflation,” he explained. “That’s what happened today.”

The market decline consumed all corners of industry. All 11 S&P sector indexes were in the red at the close, with the consumer discretionary and tech segments falling more than 3%. Out of the 30 stocks in the Dow index, only Merck, Johnson & Johnson and 3M managed to have a positive day of trading.

Apple, Boeing and Salesforce were among the biggest losers of the day.

» Subscribe to CNBC TV: https://cnb.cx/SubscribeCNBCtelevision
» Subscribe to CNBC: https://cnb.cx/SubscribeCNBC
» Subscribe to CNBC Classic: https://cnb.cx/SubscribeCNBCclassic

Turn to CNBC TV for the latest stock market news and analysis. From market futures to live price updates CNBC is the leader in business news worldwide.

The News with Shepard Smith is CNBC’s daily news podcast providing deep, non-partisan coverage and perspective on the day’s most important stories. Available to listen by 8:30pm ET / 5:30pm PT daily beginning September 30: https://www.cnbc.com/2020/09/29/the-news-with-shepard-smith-podcast.html?__source=youtube%7Cshepsmith%7Cpodcast

Connect with CNBC News Online
Get the latest news: http://www.cnbc.com/
Follow CNBC on LinkedIn: https://cnb.cx/LinkedInCNBC
Follow CNBC News on Facebook: https://cnb.cx/LikeCNBC
Follow CNBC News on Twitter: https://cnb.cx/FollowCNBC
Follow CNBC News on Instagram: https://cnb.cx/InstagramCNBC

https://www.cnbc.com/select/best-credit-cards/

#CNBC
#CNBCTV

Share This Post
Have your say!
00

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>