The Federal Reserve’s pledge to be more “patient” with its interest rate hikes erased one of the biggest obstacles to a stock market rally that went on for much of President Donald Trump’s time in office, CNBC’s Jim Cramer said Friday.
Earlier on Friday, Fed Chair Jerome Powell said in an interview with two former Fed leaders that the central bank had “no preset path” for raising interest rates and was “listening very carefully” to the market, statements that sent stocks soaring in Friday’s trading session.
The stock market endured some debilitating declines in the final months of 2018, which saw several-hundred-point swings in the major averages, often back to back. At last week’s lows, the market was up a mere 3.3 percent since Trump’s inauguration and less than 10 percent since his election.
“It was like we had rolled back the entire Trump rally,” Cramer, host of “Mad Money,” said.
The Trump rally manifested itself in several ways, most prominently in the first year of his presidency. From election night in 2016 to the market’s peak on Sep. 21, the S&P 500 index had climbed 38 percent. But the rally was “derailed” by two manmade problems, Cramer said: the trade dispute with China and the Fed’s aggressive rate hike agenda.
“After today, gratefully and thankfully, we can take that off the table, and I bet a ton of money actually flows back into the market given that Powell’s come around,” Cramer said. “He gave this market a huge and justifiable boost: the Powell Pop. Suddenly, the biggest negative had been removed.”
Monday could bring the market even more fuel as U.S.-China trade talks resume, the “Mad Money” host said, adding that the Chinese government seems “ready to deal,” or even “ready to cave.”
Better yet, the fourth-quarter sell-off of 2018 created some ample opportunity in the stock market, which has now fallen behind its historical average performance in the first two years of Trump’s administration, he said.
Cramer pointed to the earnings growth at S&P 500 companies in the first two years of Trump’s presidency: 17 percent growth in 2017 and another 27 percent growth in 2018. This year, Wall Street analysts are anticipating 10 percent growth, which may need to be revised after the Fed’s slight reversal, Cramer said.
“To me, that means we should have more upside,” he argued. “However you slice it, the 10 percent gain since Trump’s inauguration I do not think captures the fabulous earnings growth we’ve seen over the same period. A move higher is justified.”
Now, investors can go back to valuing stocks based on earnings estimates, especially if Powell stays true to his word and the Trump administration is able to secure a trade deal with Chinese officials, Cramer said.
“Remember those terrific days of the Trump rally, when the market couldn’t stop roaring higher? I’m not saying they’re back, but I do think the Fed’s new stance means the slump ran its course on Dec. 24, the day before Christmas, and today might not be the last day where we roar higher,” he said.