Jim Cramer -- Be Careful Buying Energy Stocks
West Texas Intermediate crude prices are down 1% on the day, and TheStreet's Jim Cramer, co-manager of the Action Alerts PLUS portfolio, said oil's decline weighed on U.S. stocks in early Tuesday trading.
Initially, the S&P 500 ETF (SPY) - Get Report dipped into negative territory but has since bounced back, now up 0.5%.
On CNBC's "Stop Trading" segment, Cramer explained that many trading sessions recently have been dictated by oil prices. Oil prices and stock prices have a high correlation because investors believe oil prices are declining from lack of demand, which would suggest the economy is weakening.
United States Oil ETF USO data by YCharts
Although that can be one part of the explanation, oversupply can be another. Cramer doesn't believe weak oil prices are necessarily a bad thing because many companies and consumers benefit from lower energy costs. However, at times, the stock market has been held hostage by oil prices, which recently declined toward $40 per barrel, he said.
At that price merger activity is likely to be muted, Cramer reasoned, noting that for a long time, Hess (HES) - Get Report had been considered an acquisition target. Analysts at Oppenheimer recently downgraded the stock to hold from buy, he added.
"Be careful in these oil stocks" because "they're all over the map," Cramer concluded.
At the time of publication, Cramer's Action Alerts PLUS had no position in companies mentioned.