Fed’s fight against inflation will lower wobbly stocks

CNBC’s Jim Cramer said Friday that the Federal Reserve’s attempts to tamp down inflation by raising interest rates will also inevitably send “previously high-flying stocks” — even those that are “legitimate” companies — falling.

The stock market represents ‘the main risk to contain inflation. It’s not just collateral damage, it’s one of the [Fed Chair Jay Powell’s] goals. Not all stocks, but certainly those with a shaky valuation basis that traded through the roof on sales or even orders,” the Mad Money host said.

“While we wait for the Fed to finish putting on the brakes, previously high-flying stocks with no gains and little selling will continue to drift lower and lower and lower because they represent another front” in controlling inflation, he added.

Stocks fell on Friday, albeit to a lesser extent than Thursday’s decline, with both days surpassing the rally that occurred after Wednesday’s Fed meeting.

The Fed raised interest rates by 50 basis points and noted that a larger rate hike “is not something the committee is actively considering” to control inflation.

“I don’t think Powell is intentionally trying to suppress the irrational exuberance of specific stocks like Shopify or… HubSpot or Toast or Bill.com. They are all legitimate companies, it’s just that their valuations were too high. , and that foam helped inflate the overblown IPO and SPAC bubble,” he said, referring to initial public offerings and special purpose acquisition companies.

However, Cramer said high-quality companies with real products, profits and shareholder value did well during the Fed’s tightening, and he believes the economy as a whole is strong enough to withstand even a 100 basis point rate hike.

“Powell ruled out a 75 basis point rate hike. I consider this a mistake … It is much better for me to get rid of the pain as quickly as possible, ”he said.

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Denial of responsibility