Investors who sell bank stocks because the U.S. Treasury yield curve has inverted "will be wrong," Jim Cramer says.
"The behavior towards the financials is stupid," Cramer said during an exclusive video-conference call with members of his Action Alerts PLUS club for investors.
Many major banks' stocks fell around 4% during Wednesday's 800-point Dow selloff after the spread between the two- and 10-year U.S. Treasury yields briefly inverted. An inverted yield curve -- where interest rates on long-term bonds drop below those of shorter-term bonds -- has historically meant the U.S. economy is heading into a recession. It's also often meant tough times ahead for banks, which traditionally turn profits by borrowing money short term at low rates and lending it out longer term at higher rates.
Cramer said that's created a knee-jerk selloff for bank stocks whenever the yield curve inverts or comes close to it. "There are algorithms which just say: "OK, look -- when the yield flattens or gets inverted, you must sell banks.'"
But the expert said that big banks like Goldman Sachs (GS) - Get Goldman Sachs Group Inc. (The) Report , Citigroup (C) - Get Citigroup Inc. Report and JPMorgan Chase (JPM) - Get JP Morgan Chase & Co. Report no longer rely solely on the spread between long- and short-term rates to turn profits.
"Goldman Sachs does not need a yield curve to make a lot of money -- Goldman Sachs is now a recurring revenue stream," he said. "Citigroup is a worldwide company -- it does not need a yield curve [either]. It has tremendous fees and processing and has a gigantic buyback. JPMorgan is the finest bank in the world, and I will take my chances with [its] 3% yield."
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