CNBC’s Jim Cramer warned investors against believing that the bull market was back after Tuesday’s massive rally, saying that automated trading and short-covering were major reasons for the move.
“Just be cautious. This was a one-day bull market. You had stocks that moved so much they basically moved as if the second half of the year is going to be good. I struggle to find out why the second half of the year should be good,” Cramer said.
Stocks roared back on Tuesday, with the Dow Jones Industrial Average gaining more than 2,000 points, or 11.37%, for its biggest percentage gain since 1933. The S&P 500 surged 9.4%.
The rally came as political leaders in Washington, D.C., signaled that they were close to an economic relief package for the coronavirus pandemic. Senate Minority Leader Chuck Schumer said on Tuesday morning that the deal was on the “two-yard line” but no deal had been announced by market close.
“There were two times that were like this, 1933 and then the other time we were looking at 2008 when TARP was passed, and we know both times there was no demand. And that was the real problem. The market went up and there was demand for stocks, but there wasn’t demand for goods,” Cramer said.
“And I think that until we see demand for goods or see we actually some secular growth stories … you realize that this was a gigantic short squeeze. That doesn’t mean we can’t continue, but there was a short squeeze today.”
The coronavirus pandemic has fueled the fastest 30% decline on record in the U.S. stock market. Cities and states across the country have been ordered to close in an attempt to slow the spread of the virus, which has led to worries about the country suffering a potentially severe recession.
The Federal Reserve has been increasingly active in recent weeks, pulling out many of the tools it used during the financial crisis to calm credit markets. On Tuesday, however, the equity market “didn’t really function today,” Cramer said.
“I hate this kind of rally. This was a machine driven rally, just like the sell-offs … I want to wait to see,” Cramer said.
Junior Trader Radi Djuma