NEW YORK (Real Money) -- Here we go again with the markets headed down and the accompanying dire forecasts for the amorphous "economy" and the equally opaque "stock market." I think you have to look at some of the signs within the stock market to measure how much of this is fear and how much is actuality.
For example, we know the utilities and the real estate investment trusts have been rallying like mad this month. Last week the utes stalled out. But the real estate investment trusts kept running. I believe that you simply can't have the kind of run we are having in the REITs if this country is about to fall off a cliff. The move is too pronounced, particularly among the apartment-complex and office-building REITs, which have the lowest yields. This group, unlike the utilities, has a true commerce component to it, and that component is saying there is growth both to rents and to nonresidential construction -- huge parts of the economy.
You aren't going to have a severe crash in the market while so many stocks are giving you a 3% or better dividend yield in many different industries. Those stocks would only sell off if U.S. Treasury interest rates went higher -- and if rates went higher, the portion of the stock market that is most tenuous, the banks, would put in a rally. As it is right now, the banks are the market's chief cause for concern because rates are low. Let's be clear: If rates go higher now -- something that's a possibility, given all of the strong loan data we are getting -- it would be better for the stock market than if 10-year rates remain on a collision course with 2%.
You aren't going to have a 5%-to-6% market swoon if there isn't a lot of economic data ahead, and we have cleared the bench of big data for certain for the foreseeable future. Yes, a failed election in Ukraine that somehow instigates a war could easily send the market lower, but lately it seems that business interests in Europe have helped tamp down hostilities. Hair-trigger high-frequency traders are always willing to exacerbate any move, but you do need a trigger, and right now there isn't much on the horizon.The endlessly cautious folks will say that that my view proves their point, which is that you don't know where the precipitating surprise is going to come from, which is why the market can fall. I come back and say that we could make that case for every decline, but you can't invest in the idea that, at all times, thermonuclear war is lurking. You simply shouldn't be buying stocks if you have that view at all. You should be buying gold so that, if civilization breaks down, you still have a valuable asset. If Salesforce.com (CRM) reports a terrible number Tuesday, or even if it reports a good one and the stock goes down anyway, logic does not follow that we should then see a wholesale decline in the rest of the market. I think the chatter about the "one market," which says the overvalued portion of the Nasdaq could take down the rest of the market, ignores the lack of size of all of these Internet 2.0, cloud-computing and biotech stocks. They just don't add up to a lot of market capitalization. In 2000, these kinds of stocks dominated the market capitalization of the S&P 500. Now most of them aren't even in it. They don't have much of an impact on even the Nasdaq 100. These stocks do have an impact on the retail investor -- as do Tesla (TSLA), the 3D printing stocks and Netflix (NFLX). But even those latter names aren't that huge. Moreover, among the institutions that could cause a big decline with one of their patented periodic exoduses, there isn't all that much exposure to these stocks. There is among momentum funds. However, the momentum funds aren't nearly as important as they used to be to the overall market, as ETFs and S&P 500 funds have grabbed a huge amount of the retail-investor market share. I point out all of this because the perception is that it's become quite dangerous out there, and that you can win only if you get one of those DirecTV (DTV) kinds of needles in haystack. I think that's nonsense. First, we have a haystack full of takeover and break-up needles. Second, many stocks have pulled back to more acceptable levels already. Third, with the earnings season winding down this week, the danger is subsiding, not increasing. I just can't change the facts to fit the bear story. At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, had no positions in the securities mentioned. Editor's Note: This article was originally published at 7:13 a.m. EST on Real Money on May 19.
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