During Wednesday’s segment on CNBC, Jim Cramer focused his attention on the Dow Jones Utility Average, noting that its recent rally suggests a slowing economy and potential lower interest rates. Cramer pointed out that utilities perform well when the economy is slowing down, and the sustained rally in this sector indicates trouble ahead.
The Dow Jones Utility Average is comprised of 15 major utilities stocks and has been on the rise since April 16, finishing up 0.54% on Wednesday. Cramer explained that utilities are not necessarily ideal market leaders, as they thrive in a slowdown due to the non-discretionary nature of their services. He noted that utilities rely on issuing debt for their operations, especially to support the growth of data centers.
Cramer highlighted that if interest rates were increasing, utility stocks would likely suffer, but that is not the case currently. He reiterated his belief that signs of a slowing economy have been emerging in recent weeks, and the surge in utilities further supports this theory. Cramer also suggested that Federal Reserve Chair Jerome Powell’s comments in April, indicating fewer interest rate cuts than expected, may have contributed to the economic slowdown.
In conclusion, Cramer emphasized the significance of the utilities sector as an indicator of economic trends, stating that their steady rally points to a potential slowdown. He emphasized the importance of paying attention to these signals and adjusting investment strategies accordingly.