Markets are typically conditioned to believe bad economic news is good for stocks.
However, Friday’s jobs report, which showed just +22,000 payroll additions and the highest unemployment rate in nearly 4 years, pushes that belief too far.
Surprisingly, with rate-cut odds surging (96% chance of a Federal Reserve interest rate cut of 0.25% on September 17), the stock market pulled back anyway. The S&P 500 dipped 0.3%, while banks dropped even harder.
That’s where veteran analyst Jim Cramer stepped in to challenge the mantra he’s repeated for years.
If lower rates can’t lift growth or shield earnings, we’re looking at something deeper under the surface.
Accordingly, Cramer’s tone has shifted, and the market took notice.
After blowing through to fresh record highs on September 4, the index dipped 0.3% the next day on the back of a weak jobs print, souring risk appetite.
Nevertheless, year-to-date gains sit near an impressive 10% — solid, but increasingly concentrated and valuation-rich.
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Consequently, the markets are leaning hard toward a 0.25% cut on Sept. 16-17 (odds at over 90%), with only a modest chance of a 0.50% cut following the payrolls miss. Hence, policy support is likely to come, but with a softer growth backdrop.
Here are some of the S&P 500’s highlights this year:
Gains: Up 10.2% year-to-date through September 5; still near all-time highs despite Friday’s dip.
Concentration risk: “Magnificent 7” hovers around a startling one-third of the index value; Nvidia is at 8% alone.
Valuation remains elevated: Forward price earnings ratio is at 22.4 times, above 5-year (19.9) and 10-year (18.5) averages.
Earnings engine: Wall Street sees 10.6% EPS growth in 2025; Q3 2025 is at over 7.5%, which would mark a ninth straight year-over-year EPS gain.
It seems that 2025’s theme is “intact but mostly top-heavy,” and if the Fed eases as priced, the next leg likely turns as earnings deliver against those heavy multiples.
Jim Cramer feels it’s apt to rethink Wall Street’s favorite mantra.
On the latest edition of CNBC’s “Mad Money,” he reminded viewers of the old adage: When the economy shows cracks, stocks win because the Fed steps in.
“On Wall Street, we’ve all been conditioned to believe that good news is bad news and vice versa,” he said.
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However, this time Cramer isn’t buying it. The Sept. 5 labor report was so troubling that he thinks the usual rate-cut tailwind probably won’t be enough.
