Investors are in denial about stocks, according to renowned analyst Jim Cramer: ‘there is a real sell-off going on’

  • • As the market progresses through the five stages of grief, Jim Cramer urged investors to stockpile cash and wait for the bottom. 
  • • “People don’t want to believe the sell-off is real,” Jim said.
  • • “If you lighten up … you’re going to be ready for the moment of capitulation, the crescendo, the acceptance that marks the trough,” Cramer said.

Faced with a brutal market sell-off that has knocked US stock indexes off their peaks, Jim Cramer said on Thursday that the market must go through the grief period before investors can see the bottom.

“If you want to be able to bottom fish at lower levels, make sure you’ve got a little cash to be able to do it with … because the real rally can’t begin until we work through these five stages of grief,” the “Mad Money” host said. “Once that happens, though, you don’t want to miss it.”

His remarks came after stocks fell for the third day in a row, putting the tech-heavy Nasdaq Composite in negative territory for the year. The Nasdaq closed at 12,723.47, down 2.11 percent from Wednesday’s close and 1.28 percent from the start of 2020.

The Dow Jones Industrial Average fell 346 points, or 1.1 percent, to 30,924.14. The S&P 500 index fell 1.3 percent to 3,768.47 points.

The Nasdaq has dropped nearly 10% from its peak close last month, while the Dow and S&P 500 have both dropped more than 3% from their February highs. Some investors are willing to purchase the dip and continue riding the bull market, but Cramer believes that equities have more space to fall due to the bond market, and that many investors are in denial about the market’s condition.

According to Jim, the investment community must go through the five stages of grief: denial, indignation, negotiation, depression, and acceptance.

“Right now, even after a 6% decline, we’ve still got a ton of denial,” Cramer said. “People don’t want to believe the sell-off is real. The market’s been so good for so long, and many newer investors have never seen this kind of pummelling, so the downdraft does seem pretty surreal.”

Fixed-income investors are selling bonds, fearful of inflation that could accompany the United States’ economic recovery, and the trend is spilling over into the stock market. Institutional investors are replacing tech and growth stocks in their portfolios with cyclical and value names, and institutional investors can’t continue to disregard this, according to Cramer.

When Federal Reserve Chairman Jerome Powell told The Wall Street Journal on Thursday that the central bank was tracking inflation, he stopped short of saying whether a policy adjustment is on the table or not after nearly a year of near-zero interest rates.

“Would it have been better if he had said we have to raise rates? Probably, because the bond market reacted viciously with long-term interest rates spiking, and that’s what took the whole stock market down,” Cramer said of Powell. “In short, stocks are getting hammered because the bond vigilantes, as we call them, are angry.”

A one-day stock market drop of as much as 7%, according to Cramer, could send the market into the acceptance stage of grief, “where there’s a collective sense that the market’s toast.”

Meanwhile, he advises investors to keep cash on the sidelines and wait for the right time to find the market’s bottom after a multi-week downturn.

“We’re going to get bounces, bounces that make people feel like their bargaining has succeeded, but it hasn’t,” Cramer said. “If you lighten up … you’re going to be ready for the moment of capitulation, the crescendo, the acceptance that marks the trough.”

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