Jim Cramer says bank stocks could become new market leaders

CNBC’s Jim Cramer said on Monday that financial stocks are replacing tech companies as the new market leaders.

“I always thought the group had the potential to be the leader again, but the banks could never achieve that because the Fed kept rates so low that it was hard for them to make money. It’s all over now,” he said.

Technology stocks surged in 2021 at the height of the pandemic, thanks to low interest rates that allowed investors to bet on high-risk fast-growing companies.

Those names were hammered this year after the Federal Reserve began raising interest rates to quell persistent inflation, pushing investors into less risky defensive stocks that can better withstand market turbulence. Banks are now seeing the benefits of higher rates, Cramer said.

“The Fed allows these companies to make a ton of money by paying you next to nothing for your deposits and then reinvesting that money risk-free in short-term Treasuries,” he explained.

The central bank will likely not stop its rate hike campaign any time soon. Officials noted that the increase will continue until inflation shows clear signs of slowing down, according to the minutes of the Fed’s September meeting.

The Mad Money host acknowledged that unemployment would increase if the central bank set the federal funds rate close to 5%, which could lead to a lot of bad loans for banks. However, he believes that banks will be able to compensate for any damage.

“There will be more defaults and delinquencies, but the net interest margin… the expansion will more than make up for it,“ he said.