The coronavirus pandemic and corresponding lockdown made way for “one of the greatest wealth transfers in history,” CNBC’s Jim Cramer said Thursday.
The stock market is rising as big business rebounds from state-ordered stoppage of nonessential activity, while small businesses drop like flies, the “Mad Money” host said.
“The bigger the business, the more it moves the major averages, and that matters because this is the first recession where big business … is coming through virtually unscathed, if not going for the gold,” he added.
The comments come after Wall Street took a breather during a mixed day of trading in the midst of hopes of a quick recovery from the pandemic. The Dow Jones Industrial Average ticked up almost 12 points to 26,281.82 during the session. The S&P 500 and Nasdaq Composite both finished the day in the red by less than 1%.
Investors reacted to worse-than-predicted economic data ahead of the May jobs report Friday. The Labor Department reported on Thursday that new jobless claims the past week came in at 1.877 million, while experts expected a read of 1.775 million claims.
Despite the ongoing economic woes, the S&P index of 500 large-cap companies, which is considered a benchmark for the stock market, is within striking distance of its levels from the start of the trading year. Since bottoming near 2,191 in March, the index is up about 42%.
The tech-heavy Nasdaq 100 has recovered all of its losses from the coronavirus meltdown and set a new high on Thursday. Many investors are betting on a V-shaped economic recovery, Cramer said.
“I think we’re looking at a V-shaped recovery in the stock market, and that has almost nothing to do with a V-shaped recovery in the economy,” he said.
In order to help small businesses make it to the other side of the pandemic, the federal government needs to pass another stimulus package, given the social distancing mandates that remain in place, he added. The American Bankruptcy Institute said Thursday that U.S. Chapter 11 bankruptcies in May ballooned by 48% compared to a year ago.
“That’s that pesky real world asserting itself, but the only big bankruptcy we’ve seen int he stock market is Hertz,” Cramer said.
Cramer said it still only scratches the surface of what impact the halt in global economic activity will have on the country.
The Senate on Wednesday sent a bill to be signed by President Donald Trump to relax rules on how businesses can spend relief funds provided by the Paycheck Protection Program.
“The companies that took the money just got a big break: they only need to spend 60% on their employees to get the loans forgiven, down from the original 75%. That’s important, as most small businesses fail because they can’t afford to pay the rent,” Cramer said.
“But, in the end, the stimulus package probably won’t be enough, for one simple reason,” he said. “It’s not going to work because of social distancing.”