Cramer's Morning Take: ADP Jobs Data 7/6/23

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Jim Cramer (0:28)

I'm Jim Cramer, and you're about to hear a sample taken directly from today's CNBC Investing Club morning meeting.

The market is very sloppy, as we predicted. We've been saying it's going to go lower. It's one of the reasons why we stole some product from GAN. We'll try to get up to 10% cash.

What's happening is that the numbers are not good. They're unbelievably good, starting with ADP employment. Jeff, 497,000 hired. People are expecting 225,000.

Jeff Marks (1:02)

Yeah, more than double expectations. Sets the stage for the jobs report tomorrow, so we'll see what happens there. But in reaction to that jobs report, you have yield spiking. You have the 10 year above 4%. The two year above 5%. You got odds of a 25 basis point rate hike at the next July meeting, all but a certainty.

So we're seeing some pressure in the markets. We're also coming off a seasonally strong period right into that July 4th.

Jim Cramer (1:28)

Right, we had a lot of money come in, which was ill-fated.

And what people have to realize is people do get things wrong. And one of the things that they've gotten wrong is the idea that the loan bond is worth something at a 4% yield. I don't think it is.

Jeff Marks (1:43)

Right, and higher rates.

Well, how about a 5%, right? Because a 5% yield, that creates a lot of competition for investment dollars.

Jim Cramer (1:51)

For excess cash.

Jeff Marks (1:52)

Right, higher rates creates more competition against the bond proxies, like utility, state-

Jim Cramer (1:58)

Yeah, I mean, do you want to own American Electric Power? No, you want this.

Jeff Marks (2:01)

Right, an American Electric Power, utility. People like it for the dividend, but if you can get a higher yield on a risk-free rate, why not take it? Also spells trouble for real estate, right? Because they have to take on debt to finance a lot of their growth.

Higher rates also compress PE multiples, which is really what's happening in the market today.

Jim Cramer (2:19)

Well, you just described the ideal scenario of why you don't want to own any of the regional banks.

They fit a lot of that, and the regional banks are deadly here. A lot of number cuts in the regional banks, only First Horizon survived. A lot of these banks are going to report very disappointing earnings versus the consensus, and that's because they have to make loans. They're not making that much money on loans. They're taking on some risk, and you basically have a situation where they're not making as much money on the deposits as you think, and the deposits are in flux. People are taking money if they have $150,000 in one bank. They're putting $50,000 in another bank to cut it down in order to be protected by the FDIC. That's causing turmoil in the regional bank situation.

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