The real reason stocks are rallying despite Iran war fears
Wall Street’s resilience in the face of rising geopolitical tensions shows investors are focusing less on the Iran war and more on interest rates, a key driver of stock valuations, CNBC’s Jim Cramer said Monday.
“I think I was negligent in touting the power of low rates, because that’s why the bulls keep winning when they should be slaughtered,” the “Mad Money” host said. “This market would be very different if interest rates were rising rapidly.”
Despite the increase in oil prices due to supply disruptions in the Strait of Hormuz, S&P 500 It has rebounded to within 1.5% of January’s record close in recent weeks, which is against historical patterns, Cramer said. Typically, a sharp increase in energy costs will place a heavy burden on equities.
“But the date is not respected and ignored,” he said.
That’s because government bond interest rates have rebounded after initially jumping in response to the U.S. and Israel attacking Iran on Feb. 28, Cramer said. This dynamic allows investors to continue paying higher valuations for stocks even as geopolitical risks remain. Criterion 10-year Treasury yield It reached its peak on March 27. The S&P 500 had its lowest close of the year on March 30.
“As long as rates don’t rise, the new Fed…certainly won’t raise short interest rates and may even bless us.” [rate] “cuts,” he said, referring to Kevin Warsh, whom President Donald Trump nominated to replace Jerome Powell as chairman of the Federal Reserve. Powell’s term ends next month.
Cramer argued that although higher oil prices contribute to inflation, their broader economic effects may be less pronounced than past energy shocks. Today, vehicles are more fuel efficient and the country’s dependence on natural gas, which is much cheaper domestically than abroad, provides a significant advantage in keeping inflation relatively moderate.
“Natural gas, not oil, is our secret weapon,” he said.
This could also shape how the Fed responds. While recent inflation data has risen partly due to tariffs and energy costs, Cramer said central bankers may view those pressures as temporary while considering future interest rate cuts.
“The Fed will likely put an asterisk on these increases because they are one-time price increases,” he said.
Cramer’s takeaway for investors is that the key driver of stock prices continues to be interest rates and their impact on stock valuations, not geopolitics. When rates rise, investors often want to pay less for each dollar of future profits than they did before, leading to something known as a price-earnings multiple compression.
“What does the Strait of Hormuz have to do with the price-earnings ratio?” bristol myers?” he said. “The answer is nothing.”
Cramer said the market’s ability to look at past events in the Middle East and focus on other crosscurrents was evident during Monday’s trading session. Beaten software stocks sales force And Microsoft While energy stocks lagged behind, they were among the market’s best performers.
Ultimately, Cramer said the market’s resilience underscores the importance of focusing on fundamentals, particularly interest rates, rather than reacting to every geopolitical headline.
