CNBC’s Jim Cramer suggested investors take advantage of the recent market rally on Tuesday to sell stocks and build up cash for the next decline.
“Without a V-shaped recovery, you have to be skeptical of these big moves higher,” said the host of “Mad Money”. “Because in a U-shaped recovery that I expect, the stock market will fall again and that’s when you can put the money to work.”
A V-shaped recovery occurs when a rapid decline in economic activity is accompanied by an abrupt rebound in activity, while a U-shaped recovery is a situation where the economy gradually exits d ” a recession environment, which can take up to two years
The main indices all rose up to 4% to reach their peak in Tuesday’s session, but they all gave up their losses in the afternoon as investors were digesting the latest developments in the coronavirus pandemic. The Dow Jones finally fell 26 points, or 0.12%, to 22,653.86, the S&P 500 slipped 0.16% to 2,659.41 and the Nasdaq Composite lost 0.33% to 7,887 , 26 at the close.
Based on the 7% market recovery on Monday, investors hope the economy will experience a V-shaped recovery, said Cramer, where economic activity will recede if the ongoing epidemic is soon canceled.
“The” V “is what justifies yesterday’s rally” but “I don’t believe in the” V “when it comes to this rally,” he said.
He gave three reasons:
- There is no effective way to treat or prevent COVID-19.
- Asymptomatic individuals are still able to spread the virus.
- While the new infection curve seems to be flattening, it only removes the worst case scenario.
Despite federal government programs to inject more money into the economy with bailouts, small business funding and stimulus checks to citizens, “We cannot have a real recovery until we have not defeated the virus, “said Cramer.
“[T]there is no economic solution to a biological pandemic. You can’t just snap your fingers and keep these customers coming back, “he said.” That’s why I don’t think we can have this V-shaped recovery. There is too much fear. “
“If we gradually control the pandemic, the economy will gradually rebound,” he added.
Discussions of the type of economic recovery that the United States might experience have resumed in Wall Street circles. Those predicting a “ V ” recovery are banking on the strength of the U.S. economy before the return of government-ordered closings.
Former Federal Reserve President Janet Yellen told CNBC on Monday that she believes a “V” is possible “, but it depends on” how much damage is caused “during the house arrest warrants.
About 10 million Americans have filed for unemployment in the past two weeks, and the March labor report showed that the payroll had dropped by 701,000 this month.
“The more damage like this, the more likely we are to see a” U “, and there are worse letters, like” L “, and I hope we don’t see something like this” said Yellen.
Former Federal Reserve Governor Daniel Tarullo also said in an interview with CNBC last week that the job market could weigh on a rapid recovery.
“When you see numbers that are of this order of magnitude, it becomes clear how much decline we are experiencing right now and there is really no precedent to think about it,” said Tarullo. “The prospect of the” V “movement here – with a quick descent and a rapid climb – may unfortunately not turn out to be what we see and instead, we will have to face a much more difficult road.”