Fed’s fight against inflation will bring down ‘fragile’ stocks

CNBC’s Jim Cramer said Friday that the Federal Reserve’s attempts to crush inflation by raising interest rates will inevitably drive down “once-high-flying stocks” — even those that are “legit” companies.

The stock market is “a major risk in containing inflation. It’s not just collateral damage, it’s one of the [Fed Chair Jay Powell’s] targets. Not all stocks, but certainly those with fragile valuations that were trading high on sales or even orders,” the “Mad Money” host said.

“While we wait for the Fed to finish curbing, once high-flying stocks with no profits and few sales will continue to drift lower and lower as they represent yet another front” in controlling the economy. inflation, he added.

Stocks fell on Friday, but to a lesser extent than Thursday’s slowdown, with the two days outpacing the rally following Wednesday’s Fed meeting.

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

“I don’t think Powell is deliberately trying to reduce the irrational exuberance of specific stocks like Shopify or…HubSpot, or Toast or Bill.com. They’re all legit companies, it’s just that their valuations were way too high . , and that froth helped fuel the overinflated bubble of IPOs and SPACs,” he said, referring to initial public offerings and special purpose acquisition companies.

Still, Cramer said high-quality companies with real products, profits and shareholder value have performed well during Fed tightening, and he thinks the economy as a whole is strong enough to support it. even a 100 basis point rate hike.

“Powell ruled out the possibility of a 75 basis point rate hike. I consider that a mistake. … To me, it’s better to end the pain as soon as possible,” he said.

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