Jim Cramer breaks down the impact of the Fed and inflation on the stock market

CNBC’s Jim Cramer advised that market players have two ways to approach high-flying growth stocks that teetered and tottered their way through a volatile session on Wall Street Tuesday.

Investors can choose to join in on the sell-off that has dropped some tech names like Apple into negative trading territory this year.

The other choice — taking a cue from Federal Reserve Chair Jerome Powell’s restated commitment to leave interest rates at low levels — is to hold on for the ride and consider loading up on worthy stocks discounted from their highs, Cramer said after the market closed mixed.

“After today’s late afternoon rebound, it’s not too late to sell the more egregiously expensive stocks if you want to,” the “Mad Money” host said. “But as for the better growth stocks, down more than 10% from their highs, call me a buyer. Not all at once, not big, but a buyer nonetheless in any retest of that 9:47 a.m. low that we saw today.”

Cramer’s assessment of the current state of the market follows a roller-coaster trading day where major U.S. averages bounced from their session lows. The market suffered a steep sell-off in the morning, with the Nasdaq Composite down almost 4% at its trough, before the blue-chip Dow Jones and benchmark S&P 500 managed to etch out modest gains at the close.

The Dow advanced more than 15 points to 31,537.35 for a 0.05% gain. The S&P 500 finished 0.13% higher at 3,881.37 to end its losing streak at five. The tech-heavy Nasdaq could not muster enough for a positive day, falling 0.5% to 13,465.20, extending Monday’s losses.

“I’m happy to entertain the idea that you need to ring the register here, but I happen to like growth stocks in a reflation scare. I like growth stocks when risk is on. I like growth stocks when risk is off,” Cramer said.

“If you want to hold on to the growth stocks … you have to be prepared to take some pain, just like in late 2015 and early 2016 — that was the last great moment to buy these stocks — or you can just do some selling if you want to and try to swap back in at a lower level,” he added.

The market has toiled through a rotation as investors swap growth and tech stocks that outperformed throughout the pandemic for value plays of companies that are expected to see business return as the economy reopens. The Nasdaq is now 4.5% off its closing high earlier this month.

Worries that an inflation revival could trigger the Fed to raise interest rates, as it did in twice in a three-month span between 2015 and 2016, shook investors out of growth stocks in recent days, Cramer said. Higher rates pose a challenge to growth and utilities stocks.

Share prices in Apple, Salesforce, and ServiceNow are all down at least 3% this week.

During an appearance before Congress Tuesday, however, Powell told lawmakers that inflation remains “soft,” the labor market faces ongoing challenges and that the central bank was committed to its current monetary policy.

That reassured investors about interest rates, helping the market recover some losses.

“This time our Fed chief has vowed to hold off on raising rates — too many unemployed — but there will come a time and a point where these growth stocks will be somewhat hopeless,” Cramer said. “They’ll kind of look like they did today … before people came in to buy.”

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[Riggsnic_co]

The only American who won't acknowledge this Administration's failed economic policies is Joe Biden. "Shrink-flation' is the least of our worries compared to rising rents and stagnant wages, but it is an undeniable indicator of how bad our inflation has gotten. I have $100k that i like to invest in a non-retirement account, any advice on that?

[chrisbentsen]

This was actually a very good segment today.

[douglaspmatheny]

2 or 3 days before Powell speaks everyone gets out. He speaks and says the coast is clear every one is back in. It’s that simple.

[DarrenHollander]

Watched this 3 times, dude spits so much knowledge so fast, thank you Jim Cramer!!!

[ian]

He predicted the crash in 08. 3 days after it happened

[willieflores]

The big problem is that most people pay more attention to the shiniest positions on the graph to the cost of proper diversification, making investing look a lot more difficult. Having monitored my portfolio performance smashing a jaw dropping $293, 000 returns from the last 2 quarters, I have learned why experienced traders make enormous returns from the seemingly unknown markets.

[worldseas]

When Cramer changed his voice I almost dropped my plate of food LOL! It was like it was his real voice coming through. Trippy:)

[jhnyjoejoe]

Why does he sound like Yoda spittin Stock knowledge at 2:04

[PumbaTheDoggo]

2011: iPhone costs $650
2020: iPhone costs $1100
Cramer: I don't think Apple will raise its prices.
Me: LOL

[ameliapenelope]

I've been unsure about the market due to volatility, at the same time I still feel it's the right time to make profit cos of the price decrease, heard someone speaking of making over $300k from a $180k capital since the pandemic and I'm driven to ask what techniques/skillset is needed to achieve this.

[Dontworryaboutanything]

Him mentioning Cathie Wood was code for buy the hell out of PLTR.

[LFx]

"lets take a step further"
*takes a step forward*

[djayjp]

I could actually understand what he is saying this time. What happened?!

[jeremykelly]

Thank you for making it simple & plain 💯👍🏾

[linlingg]

Thanks Jim. Please talk slower so we can understand you better. Thanks again😊

[TK-setophaga]

Been following his touted stocks for years. The market did better.

[thegodhead]

Refrain from panic. Buy the dips! Rn, you can really take your pick. These tech stocks might lose more tomorrow. They might trade sideways for a year. But, rest assured, technology is the future.

[spliffsenseiroejogan]

I’ve learned so much from Cramer besides the shilling sometimes ur awesome 🔥‼️📈

[williamtrades]

So it's totally cool for Cramer to pump stocks on television but when WSB does it somehow it's different and we need lEgIsLaTiOn

[lowest_common_denominator]

Been listening for 20yrs, never been on more point. The fed my bff, take this vid home and peg it.