It became quite clear to Jim Cramer on Monday that the stock market was trading on, well, nothing.
“I’ve thought a lot about these periods and I’ve learned that there is such a thing as random movement periodically, and it always gets ascribed to something. The market’s not always logical and the action doesn’t always have to have a concrete cause,” the “Mad Money” host said. “It might as well be ascribed … to the eclipse.”
For example, the Nasdaq extended its losing streak, led by technology stocks. FAANG, Cramer’s acronym for the stocks of Facebook, Apple, Amazon, Netflix and Google, now Alphabet, all opened lower.
In due course, analysts scrambled to find explanations for the tech giants’ declines, compiling obituaries about potential issues that could doom the stocks once and for all.
“But this is what I mean about August,” Cramer said. “The fact is … there’s nothing really going on at Facebook, and nothing at Apple, Amazon, Netflix [or] Alphabet. They remain dominant in their industries, as dominant as they were when they reported their earnings.”
Cramer used to drive himself crazy trying to understand why certain stocks went down in August. One year, he refused to go outside of his Fire Island beach house until he found out what was wrong with the stocks of Data General, Digital Equipment and Apple.
As a result, the “Mad Money” host ended up falling for a lot of false rumors until he realized that the negative action was, in his words, “useless,” “random and meaningless.”
Something similar happened two years ago, when a Federal Reserve official gave an interview about the need to raise interest rates at the same time as the Chinese stock market was rolling over.
Panic ensued and the Dow Jones Industrial average shaved off 2,000 points, all because trading was thin enough that the official’s statements, which were in the minority opinion of the Fed, rocked the Street.
And on a day without any bombshell reports from the White House, the Fed or the retail industry to drag the market down, Cramer chalked up this day’s stock moves to that same August effect.
“So before you sell into each August decline or buy into each August rally, which way too many people end up doing, the bottom line is that sometimes, nothing happens except an eclipse,” Cramer said. “Don’t mistake the ‘action’ for actual action at companies or Treasurys or commodities or Washington. It’s just confused people selling and buying, some putting money to work, others withdrawing it, a giant bank where there’s nothing much going on except figments of imagination.”