Mad Money w/ Jim Cramer 10/5/26

Mad Money w/ Jim Cramer

Jim Cramer dissects a highly unusual trading session where historical market correlations temporarily broke down, with oil prices falling while interest rates climbed and stocks hit record highs.

Key takeaways

• Oil prices are declining because Saudi Arabia is discounting crude to defend market share, not because the Iran conflict premium is disappearing or peace is imminent.
• Treasury yields remain elevated near 5.66% as bond sellers dominate; Treasury Secretary Besson's limited $5B intervention failed to halt the broader sell-off.

Main topics

• Market pattern breakdown (oil vs. rates)
• Bond market sell-off & Treasury yields

Notable quotes

Pattern recognition is the name of the game in this business.

Conclusion

Cramer emphasizes that while oil and equities show short-term distortions, the bond market remains the

Transcript preview

Speaker 5 (0:00) CNBC Changemakers, spotlighting women who innovate, lead boldly, and are transforming business. Do you know someone who is rewriting the future? Nominations for the 2027 list are open now at changemakersnominations.cnbc.com. Speaker 1 (0:15) My mission is simple, to make you money. I'm here to level the playing field for all investors. There's always a bone working somewhere, and I promise to help you find it. Mad Money starts now. Speaker 1 (0:32) I'm Kramer. Welcome to Mad Money. Welcome to Kramerica. I'll do it with my friends. I'm just trying to make a little bit of money. My job is not just to entertain, but to teach you how this game works. So call me at 1-800-743-CBC. Pattern recognition is the name of the game in this business. It allows you to make investing decisions that have some grounding in history. But what happens when the patterns go out of whack? Speaker 1 (1:01) We got a deal like today when the Dow advanced 91 points, has to be gained 0.66 percent. And then as I jump 1.05 percent to a record close, all occurring with a backdrop that should not have generated such strong performance. Yes, today was bizarre because we're conditioned to believe that interest rates go down when oil goes down and stocks are supposed to be captive to the bond market, not the oil market. We've seen this pattern since the war broke out at the end of February. You could back on it. I mean, literally back on it as banks were the chief losers when oil went up and interest rates soared along with it. But not today. Like so many other groups, the banking patterns went awry, too, as oil went lower, but rates continued the relentless climb. Climb. With the 30-year yield up a few basis points, putting the all-important rate at 5.66%, and that's way too close to comfort for six, right? I mean, it feels like... The third year is headed to 6%. So there goes the S &P traveling north all day. Now it's like a tremendous session. It was led by Microsoft with better than expected numbers from Copilot and Meta with the revaluation of this one-time pure advertising company, something embraced by small business owners who can't get enough news. And there's NVIDIA, which is finally getting its due from that last amazing quarter. It hit another all-time high today, so much for the people who said trade it. Don't own it. In short. The patterns broke today. Oil and interest rates moved in opposite directions. This time it was oil that controlled the stock market by going lower. What the heck's going on here? Have the old decoupled? Usually, no. But we haven't had usual times since this president was elected. So here's what we have to do. We have to pull things apart, figure the situation out so we can make our next moves. Let's start by tackling the price of oil. Now, this price has been reacting to the amount of oil that can get through the Strait of Hormuz. We know the amount of oil coming through this crucial vein had declined from 18 million barrels a day to around a couple million barrels at its nadir. No hard and fast numbers here available for anything. Now, though, it's about back to 80 percent of its pre-war levels. Now, that is a gigantic comeback. We learned this weekend that the Saudis are discounting their oil by five dollars below the standard Oman-Dubai benchmark. Critical, because oil is in such a short spot. What are they cutting price for? But you know what? I think they're just defending their market share, perhaps making China a happier customer than they might have been with Iran. But that's enough to shave a percent or two off the price of West Texas Brent crude. There's no way oil can stay so high if the Saudis are selling at a discount. But let's be clear about it. This is what's going on. The price of oil is going down because they keep producing lower prices to take market share, not because the Iran war premium is going away. For oil to trade on its fundamentals, which by the way would be a lot lower, the war would have to end. As usual, I'm not optimistic about the possibility of peace in the Middle East. The White House just sent a whole additional carrier group with about 7,000 sailors to the region, along with an amphibious Marine group of 2,000 soldiers. Doesn't exactly scream give peace a chance. Historically, you don't just send the Marines unless you tend to use them. But history hasn't meant all that much in this era. And as long as we're at war, I don't see oil getting too far away from what I call the pinned price of $100, which has somehow become the war price for quite a chunk of time now. All right, so. Then let's examine the bond market. That's also misleading, too. Sure, there are tons of paramount Skydance bonds flying around, 52 billion of what I would call untenable paper, meaning those who really need yield are reaching mightily for it with this company. Some of these bonds are trading at 9%. Now, that doesn't mean bargain. It means red flag to me because you're assuming a lot of risk to chase that yield. I never chase yield, but there are always people who think it's worthwhile to do so. I cannot protect them from themselves. Yeah. We also alert the Treasury Secretary Besson basically copped to not being able to stop a bond market slide with his meager multibillion dollar bond buys. He apparently bought something like five billion dollars in change of bonds. He's plugging the dike with a finger and it's got thirty one trillion dollars in treasuries behind it. I don't know what possessed him to say that he had better information than everyone else. That was kind of sad. Other than maybe that's something like the president might say. What matters is that the bond sell off is only accelerated when Besson admitted defeat. The incredible thing about the bond market is that the last standpoint we have. The soft nonfarm labor report from last Friday was supposed to be usually important. The week this week, W.A.K.E. should have lasted a week, maybe even two. Instead, it didn't even last a day. Now, that could be because we've got more inflationary decisions coming. I'm not so sure. It might be because we know that the U.S. government has gigantic funding needs or maybe big hedge funds are shorting bonds. Yes, you can do that because the trend is your friend. And the relentless decline in bond prices tells you that. Somebody's making Fortress shorten them. So others are probably joining them. If even a soft employment number can't push bond prices up and yields down, then the short side is the path of least resistance, which leaves me with stocks. Now, here I think there's tremendous distortion caused by some very big winners, namely NVIDIA, Microsoft and Meta. The rally in NVIDIA has a lot to do with the fact that if you buy the latest and greatest chips, you make a lot of money doing so. That's something that Jensen Wong always told us would be the case. And that's why Elon Musk's SpaceX, I think, is really going higher. Starting in December, it'll be making more than $3 billion a month, maybe as much as $4 billion. The numbers aren't all public. Simply for lending other companies its computing power. Now, there's a business for you. Elon runs an NVIDIA house for SpaceX, meaning that his giant server farms run on NVIDIA. And they are worth a lot to any company in the AI game. Microsoft. Now, more on this one later. But it's all about the surge in copilot use. Meta, that's all about Muse and how it's beginning to have an impact with small business. A much less fickle customer than the current customer book of business, which is the consumer. These three are big enough to actually send the Nasdaq higher. But when you take them out of the equation, the classic safety stocks, so many of them in there, they got all hit today, which is supposed to happen given the action in the bond market. At least some was consistent. So we put it all together and we have a real one-off day. Oil's down, but only because of a momentary excess of supply. Rates are up because demand for money is high and Treasury Secretary Besson turned out not to have any cards up his sleeve or otherwise. Sometimes I wonder if he was a good bond trader back in the day. And stocks, as usual, a handful of hyperscalers are pushing up the NASDAQ and its acolytes are long for the ride. Can a day be one-off or meaning no pattern worth discerning? Oddly, in this market, I think you'd be dismissed for a day as there are mitigating factors everywhere. That said, I wouldn't be too complacent. The bottom line, we have so many stocks with so many companies that can't rally until interest rates reach a level where selling bonds is just plain stupid. The only conclusion, the bond sellers so far have been anything but stupid. My money's on them to tell us when and where we're going next. Bonds, not oil, are telling the truth at least longer term. Always bank on the bond market longer term, even if we are in the throes of oil gyrations at this very moment. Let's go to Joe in Illinois, please. Joe. Speaker 6 (8:08) Hi, Jim. This is Joe from Chicago, where the Bears will be in the Super Bowl, the Sox in the World Series, and the Wildcats will be in the top 25. You know, I'm not going to disagree with you. Speaker 1 (8:20) I function on the concept of hope, at least in the last six days. Tell me more. Speaker 6 (8:26) Thank you. Anyway, Jim, I'm not a cowboy, but I've been riding the, I've been riding, this isn't my first rodeo, I've been riding the bulls with you for the last 25 years, and you've helped me tremendously, Jim. Thank you. You're Speaker 1 (8:40) a Speaker 6 (8:40) great teacher. Thank you. Thank you. Anyway, my question is, when do you invest in a stock, and when do you trade a stock? For example, I know you've taught us to keep stocks like NVIDIA and Apple. And then my question now is with Hona, with Honeywell Aerospace, it's been in a trading range. I've made some money over the last few days, but now it seems to be stuck at around 153. And I know you sold on the stock a little bit when it first came out. Right. So what Speaker 1 (9:15) do you think? Is it something? Well, the company has no credibility in my eyes. Not whatsoever. You know, if it were a sports team and someone said that, we'd all be nodding our heads and say, yeah, no credibility. Here, you're never supposed to say that about a company. You're supposed to say, who was Kramer to even say that? I've been a businessman all my life, a business person, and a successful one. And I don't like anything I've seen from these guys. They have no credibility, and I have the right to say it because I have credibility. Let's go to Sammy in California. Please, Sammy. Speaker 8 (9:43) Hi, Jim, and you do have credibility. Thank you. And I want to tell you, I think you're a trip. Thank you very much. And I love your staff and your ops crew. Speaker 1 (9:49) Well, I've got Speaker 8 (9:50) to Speaker 1 (9:50) call him as I see him. When I make something wrong, I am out there saying, you know what, I bought this and I made a mistake. I wish CEOs would do that. Then I wouldn't have to say they have no credibility. I would say at least they owned it. And that's all you can ask. I'm sorry, Sam, I didn't interrupt. But sometimes it just makes me so angry to think that people can say whatever they want once they become CEOs. You can't. Not in this room. Speaker 8 (10:13) Oh, they do it. Speaker 1 (10:14) All right. Speaker 8 (10:15) And they run rapid ragged over half the country. So anyway, I think I'm glad you speak up for the rest of us. Thank you, Speaker 1 (10:21) Sammy. You know, of course, they make a ton of money for no reason whatsoever. Speaker 8 (10:25) You have helped me make a ton of money. Thank you. So I want to tell you that. Thank you. So I wanted to talk to you about stock. I bought it when it split. It's a semiconductor stock, and it started at $125 this year. It rose to a fabulous $301, and, of course, I didn't sell it. And during the momentum craze, it dropped to $190. It's bouncing around $206. Apparently, its valuation is