The stock market has pushed back near record highs, even as tensions around Iran have raised concerns about energy supply and global risk. CNBC’s Mad Money host Jim Cramer says the reason is simple: Investors are focused on interest rates, not headlines.
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New trading tool for SPY bullsThe S&P 500 (SPY) is now within about 1.5% of its prior peak. At the same time, oil prices (CM:CL) have moved higher due to supply risks tied to the Strait of Hormuz. In past cycles, that mix would have pressured stocks. However, this time the reaction has been different.
“I think I’ve been negligent in bringing up the power of low rates,” Cramer said. “If interest rates were spiking, this market would be very different.”
Interest Rates Remain the Key Driver
First, investors are watching bond yields more than oil prices. The 10-year U.S. Treasury yield rose after the initial strike on Iran in late February. However, it later peaked and began to move lower. That shift has helped support stock valuations.
Lower rates tend to make future earnings more valuable. As a result, investors are willing to pay higher price-to-earnings multiples. According to Cramer, that dynamic is still in place.
“As long as the rates don’t move higher, the new Fed certainly isn’t going to raise short rates,” he said. He also added that the central bank could even move toward cuts if inflation pressures ease.
In addition, Cramer believes the Federal Reserve may treat recent inflation as temporary. Tariffs and energy costs have pushed prices higher, but policymakers may view them as one-time factors. “The Fed will most likely asterisk these increases as all one-off price increases,” he said.
Energy Shock Looks Different This Time
At the same time, Cramer noted that higher oil prices may not have the same impact as in past decades. The U.S. economy is less dependent on oil due to better fuel use and a larger role for natural gas.
“Natural gas, not oil, is our secret weapon,” he said.
Because of that shift, the broader effect on inflation may stay limited. That view supports the idea that the Fed can stay patient, which in turn supports stocks.
Meanwhile, market action also reflects this trend. Technology names such as Microsoft (MSFT) and Salesforce (CRM) led gains in recent sessions. In contrast, energy stocks lagged even as oil prices rose.
Market Focus Stays on Fundamentals
Finally, Cramer said investors are looking past geopolitical events and focusing on core factors like rates and earnings. While tensions in the Middle East remain a risk, they have not changed the outlook for valuations.
“What’s the Strait of Hormuz have to do with the price-to-earnings ratio of Bristol Myers?” he said. “The answer is nothing.”
In short, the current rally suggests that as long as interest rates stay in check, stocks may remain supported. Investors appear willing to look through near-term risks and stay focused on the bigger drivers of market value.
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