Want to know what’s next for the economy if the U.S.-Iran war persists? CNBC’s Jim Cramer said Tuesday’s stock market action gave investors a warning.
Despite eking out a small last-minute gain, the S&P 500 was down for most of the session as President Donald Trump‘s deadline for Iran to strike a deal and reopen the Strait of Hormuz approached with little signs of progress, dimming hopes of a resolution between the two countries. Trump has threatened to destroy Iran’s bridges and power plants if an agreement isn’t reached by 8 p.m. ET Tuesday. The Dow Jones Industrial Average shed 0.2% and the Nasdaq Composite ended the day up only 0.1%
The “Mad Money” host said that the session showed “a heck of a lot of bad news,” citing a “weak consumer, coupled with inflation.” He added, “I hope the situation cools down personally, because if the president goes all medieval on Iran, that will do incredible damage to the world [and] our economy. That’s what the stock market’s been saying.”
Cramer’s reasoning: Just look at how four sectors of the market performed on Tuesday.
First, he pointed to the “real screamers” – retail stocks.
Walmart‘s 3.3% decline shows that even budget-conscious department chains may become too expensive for many to shop at during an economic downturn, ensued by the conflict overseas.
Still, Cramer praised Walmart’s overall business. “Here’s a stock that truly defines the term juggernaut. It is a value-oriented retailer that, out of nowhere, has begun to attract wealthier customers who make over $100,000 a year, but no matter, it’s where the less-than-well-off buy a lot of their food and clothing,” he said. “Walmart’s been a total runaway train but that has left many other retailers behind. Today, though? It’s saying something different.”
Shares of Dollar General and Dollar Tree shed 2.6% and 4.2%, respectively, as well. Typically when the economy points to a slowdown, discount stores are winners. But Cramer said the weakness in the two stocks show that consumer health may get hit even more than expected. “At least one of these should’ve tilted more positive,” he added. “That’s just plain trouble and bodes badly for tens of millions of people in this country.”
Then, there were the cruise line stocks. “Not one is holding up,” Cramer said. Royal Caribbean fell nearly 3% Tuesday while Norwegian tumbled 3.3%. Carnival had a similar loss of 2.96%.
“We know that ever since Covid, many have adopted this mantra ‘long on money, short on time,'” Cramer said. That means they’ve been taking vacations in record numbers. Is that still the case?” He continued, “Look for the cruise lines for answers because they represent bargains and they demonstrated incredible success coming out of the pandemic.”
Capital One‘s 1.6% decline gave investors a glimpse into credit quality if the war continues, according to Cramer. The credit card giant has a lot of subprime and near-prime borrowers who may struggle to pay the its high rates if the economy weakens. Capital One is also a holding in Cramer’s Charitable Trust, the portfolio managed by the CNBC Investing Club.
The underperformance in the three groups – retailers, cruise lines and credit card issuers – Cramer said, shows a picture of “real weakness” for the consumer. He added, “Getting worse, not better.”
Finally, another sector’s losses highlight inflation concerns.
Cramer pointed to the downturn in pharmaceutical names. Merck fell 1.3% Tuesday while Pfizer dropped 2.6% and AbbVie shed 0.2%. “[These] tell you not only are things slowing down, but they’re also inflationary,” Cramer said. “When you know that inflation could rage, the group that acts the worst [is] the drug stocks.”
Overall, it’s a grim vision Tuesday’s session painted for the economy. Cramer, however, said it’s not set in stone because there’s still a lot of uncertainty around the war.
“Here’s the bottom line: much like hips, stocks don’t lie,” he added. “Of course, the … scenario that looks like it might be coming … can easily be reversed.”