CNBC's Jim Cramer warned on Wednesday that Wall Street might be a bit too ahead of itself after the mid-term elections.
After the Democratic Party achieved a decisive victory in the midterms, the stock market rebounded, but the upward trend masked the divisions within the tech sector. Stocks of large cloud service providers soared as investors anticipated that greater resistance to data center construction might slow down the pace of AI construction and alleviate spending pressures. Meanwhile, semiconductor stocks and data center developers faced pressure. Cramer warned that investors may have drawn conclusions about the economic impact of these elections too prematurely.
"The results of the mid-term elections dominated today's trading, but by Friday, we will be looking at the non-farm payroll report from the Department of Labor. I suspect that much of this upward trend will be reversed, so I don't dare to guess where things will go from here," said the host of "Mad Money".
"However, I do really like the word 'guess'," he added, "because it precisely summarizes everything I observed throughout today's trading session. And I don't want to base my investment decisions on something like that, even though it might seem excellent for day trading."
On Wednesday, Apple's stock price hit a record high. Investors bet that a slowdown in data center construction could ease the pressure on memory chip prices, which has been squeezing Apple's profit margins. Microsoft and Amazon also saw gains due to market expectations that a slowdown in AI construction could reduce data center costs and curb their massive capital expenditures.
On the contrary, investors sold off stocks of companies whose growth relied on continuous investment in AI infrastructure, including chip manufacturer NVIDIA and AMD, as well as data center developers CoreWeave, Nebius, and Iren.
But Cramer questions whether an election can truly fundamentally change the forces that drive the market. “I want you to understand that although mid-term elections are important, and indeed this one is very important, elections do not overturn business cycles,” said Cramer.
Cramer mentioned that his views are in line with those of JPMorgan strategist Michael Cembalest, who wrote the widely noted commentary " Eye on the Market ".
In his latest article on Wednesday, Cembalest wrote: "The business cycle drives the market, and among its important components are factors that mid-term elections will not affect: 10-year interest rates, commodity prices, Federal Reserve policy, corporate profits, budget deficits, defense spending, the pace of AI investment in the next 12 months, the huge demand from AI companies for loans and their impact on credit spreads, and so on."
Cramer indicates that it is important for investors to understand that short-term market fluctuations do not always align with the real fundamentals. "Never confuse what happens in the stock market with what happens in reality," he said.
The Charitable Trust of Cramer, which is also the portfolio managed by CNBC Investing Club, holds stocks of AAPL, AMZN, MSFT, and NVDA.
