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The stock market is all about anticipation, CNBC’s Jim Cramer said. Investors don’t wait for the Federal Reserve to actually raise or lower interest rates, he said. Instead, he continued, they act as soon as the Fed indicates action might be coming.
“The key here is that nobody’s waiting around patiently to see how everything pans out,” he said. “If the Fed chief says we’re raising rates three times next year, traders don’t sell next year, they sell right now. If the Fed chief walks back that decision, well, the traders will turn around and buy those same stocks hand over fist.”
The Fed’s “pronouncements affect the trajectory of the economy,” Cramer said. The market reacts quickly to these changes, he continued, and they have the capacity to crush the averages or send them soaring. He said stocks tend to reflect Wall Street’s visions of the future, not the present.
For example, Cramer said, the economy seemed to be thriving in 2021 after the Fed made a slew of rate cuts during the pandemic. But in November, the Fed warned that inflation was becoming an issue and indicated it would hike up rates, Cramer said. High-flying growth stocks immediately started to plummet, he said, and the market saw losses even though the Fed first increased rates in March.
