The S&P 500 has climbed back to within 1.5% of its January record close, even as tensions linked to Iran have pushed oil prices higher. CNBC's Jim Cramer argues the reason stocks are holding up is straightforward: interest rates remain low. "If interest rates were spiking, this market would be very different," Cramer said on Mad Money.
Cramer highlighted the timeline of events: The U.S. and Israel struck Iran on February 28, causing bond yields to rise initially. However, the 10-year Treasury yield peaked on March 27 and has since declined. The S&P 500 hit its lowest close of the year on March 30, then recovered. Cramer says that timeline is not a coincidence. When rates fall, future company earnings are worth more in today's dollars, pushing investors to pay higher price-to-earnings multiples for stocks.
This dynamic has persisted despite oil price increases due to supply risks near the Strait of Hormuz. Cramer acknowledged that history, where rising oil prices alongside geopolitical tension would weigh heavily on equities, is "being disobeyed and ignored" this time. One key reason is the U.S. economy's reduced reliance on oil, with more fuel-efficient vehicles and a larger role for natural gas. "Natural gas, not oil, is our secret weapon," Cramer stated, noting it keeps inflation cooler during an oil price surge.
Cramer also suggested the Federal Reserve may treat current inflation—driven by tariffs and energy costs—as temporary "one-off" price increases rather than a reason to raise rates. He pointed to the upcoming leadership change, with Kevin Warsh, President Trump's nominee, set to replace Jerome Powell as Fed chair next month. Cramer suggested the new leadership is unlikely to raise short-term rates and may even move toward cuts if inflation cools.
Market action reflected this thesis, with technology stocks like Microsoft and Salesforce leading gains while energy stocks lagged, even with elevated oil prices. Cramer emphasized that Middle East events have no direct connection to the earnings outlook for most U.S. companies.
In a related development, Wall Street's major indexes moved higher on Tuesday, with the S&P 500 rising 1.18% to close at 6,967.38, just shy of its record high. The gains were fueled by optimism around a potential resumption of US-Iran negotiations, as hinted by President Trump, and data showing US producer prices rose less than expected in March. The Nasdaq Composite gained 1.96%, led by technology stocks, reinforcing the risk-on environment.
