Core Focus
Prominent host Jim Cramer stated that with escalating Middle East conflict, rising oil prices, increasing interest rates, and surging corporate AI spending, investors should not be overly optimistic in the current market.
During his appearance on Wall Street Live on Thursday, he frankly remarked: "I find it very difficult to see the logic for going long; there are far more reasons to sell."
Host Jim Cramer warned that Wall Street is likely underestimating the multitude of market risks currently emerging, including the rebound in oil prices and massive corporate investments in artificial intelligence. Before the U.S. stock market opened, he stated on the Wall Street Live program: "I struggle to find a reason to buy, but I can easily list a substantial number of reasons to sell."
Major U.S. stock indices opened lower, with selling pressure intensifying in early trading. The Dow Jones Industrial Average fell over 400 points; the S&P 500 dropped more than 1%; and the tech-heavy Nasdaq Composite Index plunged about 2%. Both the S&P 500 and the Nasdaq recorded their fifth decline in six trading sessions.
Even so, Cramer pointed out that the overall resilience of U.S. stocks has exceeded many expectations. As of Wednesday's close, the S&P 500 was only 1.5% below its record closing high from June 2; the Nasdaq was about 5% below its peak from June 2; and the blue-chip Dow Jones Index, which hit a new closing high on July 6, was roughly 1.6% below that high point by Thursday.
Cramer commented: "With all these negative factors piling up, you'd think the indices would have fallen significantly from their highs, but in reality, there hasn't been a deep correction."
Among all the risks, oil prices are his biggest concern. Triggered by an attack by Iran-backed Houthi rebels in Yemen on two Saudi oil tankers in the Red Sea and fears of conflict spreading, Brent crude oil surged over 6% on Thursday, holding above $100 per barrel. Trump's threats of U.S. retaliation by striking Iranian infrastructure further boosted oil prices. Both Brent and West Texas Intermediate crude reached their highest levels since the U.S. and Iran reached a temporary truce agreement last month.
The sharp rise in oil prices has reignited inflation anxieties, pushing the 10-year U.S. Treasury yield to its highest since January 2025. Sustained high energy prices could re-ignite inflation, significantly complicating the Federal Reserve's ability to cut interest rates this year. Higher inflation typically increases the probability of rate hikes, which in turn pressures the economy and stock market performance. The Federal Reserve's Monetary Policy Committee is scheduled to meet next week, and the probability of a rate hike has surged recently. Data from the CME FedWatch Tool shows the probability of a 25-basis-point rate hike at this meeting has risen to 38%, compared to just 12% a week ago.
"Are we deluding ourselves? With oil prices stubbornly high and interest rates rising, the stock market currently lacks sufficient momentum to continue its advance," Cramer said.
Alphabet's latest earnings report confirmed another risk he has been monitoring: the enormous cost of AI construction. Cramer assessed the overall earnings report as decent, but questioned whether companies can sustain such high levels of AI spending in the long term. Alphabet has not only increased its bond issuance this year but also plans to raise approximately $85 billion through a stock offering. Cramer's charitable trust, managed by the investment club, holds Alphabet shares.
"I honestly can't think of where else companies will source more funds going forward," he stated. "The corporate bond market will likely be the first to buckle and refuse to continue financing this kind of high spending."
Comments