Jim Cramer argues that most of the market is currently in a bear market or close to one, a claim that stands in contrast to the S&P 500 index's recent four-year bull run. The television host made the assessment on air, noting that while the broader index has surged, sectors such as bonds, housing, and consumer stocks have already rolled over.
The S&P 500 began its current bull market in October 2022, and Cramer marked the anniversary by citing an 117% gain from the bottom. However, the index's performance masks significant divergence among individual stocks. An S&P 500 index fund is up 14.1% this year, yet major bank stocks have underperformed. Wells Fargo shares are down 9.13%, and Capital One shares are down 16.02%, despite both companies posting strong second-quarter results.
This discrepancy stems from the S&P 500's market-capitalization weighting, which allows a small number of large companies to drive index returns while the median stock falls. Among financial institutions, performance varies widely. Citigroup shares are up 14.76% this year, while Bank of America shares have risen only 0.82%. The broad financial sector fund has gained 1.73% over the same period.
Rising interest rates are central to Cramer's bearish thesis for rate-sensitive sectors. The 10-year Treasury yield reached 5.22% on October 8, and the 30-year yield hit 5.60%, up 0.35 percentage points in a month. Cramer referenced an 8% mortgage rate, though the national 30-year average stands at 7.40%, up 0.69 percentage points from a month ago and well above the February low of 5.98%. The Fed funds upper bound is also at 4.00%, up 0.25% from a month ago.
Higher borrowing costs are impacting housing turnover and consumer spending. Existing home sales fell to a 3.98 million annual pace in August, a decline that affects brokers and home-improvement retailers. Wells Fargo's home lending revenue fell by 7%. Meanwhile, households carrying credit card balances face an average annual percentage rate of 21.19%, creating a divide between those with compounded equity wealth and those relying on credit.
Corporate earnings reflect this economic split. Bank of America's wealth unit posted record revenue, up 16%, while retailers dependent on financed purchases face headwinds from borrowers who can no longer afford to buy on credit. Investors watching upcoming bank earnings reports will look for signals in net interest margins, credit provisions, loan growth, and deposit costs. Wells Fargo has guided for modest net interest margin compression in the third quarter.
Credit data currently appear healthy, supporting a counterpoint to the bearish view. Capital One's net charge-off rate fell to 3.23%, and the bank released $662 million in reserves. On the bull side, JPMorgan Chase reported earnings of $7.70 per share, including a one-time gain on an equity stake. Bank of America bought back $6 billion of stock, and Wells Fargo and Citigroup trade near 10 times forward earnings.
JPMorgan Chase chief executive Jamie Dimon warned that conditions are getting close to as good as they get, without specifying how long they will last. A positive yield curve at 0.44% supports lending spreads, and U.S. Bancorp expanded its margin to 2.79%. If the 30-year yield falls and mortgage rates head back toward 6%, the market could expand into rate-sensitive sectors, potentially invalidating Cramer's bear thesis.