CNBC’s Jim Cramer told investors that some sell-offs occur due to decisions made by the Federal Reserve. He gave tips on how to guard against these market declines and how to find opportunities in them.
“Garden-variety pullbacks can be gamed, as long as there’s no systemic risk involved,” Cramer said. “But sell-offs in the wake of the Fed raising rates? Those are trickier.”
Cramer explained that during sudden market drops, in an overall healthy economy, investors should look for “accidental high yielders.” Cramer explained that these are stocks that continue to pay out high dividends when their share price is declining. To find these stocks, Cramer suggested focusing on companies that remain stable against swings in the economy.
Cramer then addressed the Fed’s position, noting that rate hikes aren’t a reason to panic. He also noted that there are rational reasons for market declines when the Fed tightens. For example, the bond market can become more competitive as many investors cash out of the stock market to put their money into Treasurys.
“You’ll notice that as the Fed jacks up rates, high-yielding dividend stocks are going to be among the worst performers because suddenly they got some serious competition from fixed income,” he said. “So please be careful of these dividend stocks as safe havens when you’re dealing with a sell-off caused by the Fed. They’re very different from accidental high yielders that can spring back when the Fed stops tightening.”
