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- CNBC’s Jim Cramer said the 30-year Treasury yield is a key force driving stocks as it climbs to roughly 5.3%.
- He said higher long-term rates make bonds more attractive than stocks, raise corporate borrowing costs and threaten to slow the economy.
CNBC’s Jim Cramer said Thursday investors trying to understand the latest pressure on stocks should pay close attention to the 30-year Treasury yield.
“The long bond, the 30-year Treasury, is in charge of everything,” the “Mad Money” host said.
Stocks fell Thursday after U.S. oil prices topped $100 a barrel amid concerns that a prolonged war in the Middle East could keep inflation elevated. Those worries helped push the 30-year Treasury yield to roughly 5.3%, which Cramer said could hurt equities in several ways.
Cramer pointed to Delta Air Lines to illustrate the impact. Early in his career at Goldman Sachs, he recalled being asked what principally determined Delta’s stock price. Cramer pointed to oil prices and airline-specific metrics, only to be told he was missing the bigger force. “It’s hostage to the long bond,” Cramer recalled his instructor saying.
First, he said a 5.3% return backed by the U.S. government makes bonds an increasingly attractive alternative to riskier stocks. “Stocks are terrific, they can make you fortunes, especially younger people who can afford to take chances,” he said. “But you know what beats stocks for anyone who’s 50 or older? The 30-year Treasury, that’s what.”
Higher Treasury yields also push up borrowing costs across the economy. Cramer noted that airlines such as Delta regularly borrow money to buy planes and must generally pay significantly more than the U.S. government to do so. “That means they can’t expand if the 30-year isn’t behaving,” he said.
Higher rates can also slow economic growth, which Cramer said could potentially weaken travel demand and earnings.
“If the economy slows down, then people will be laid off and plans to expand will be scrapped,” Cramer said. “If that were to change, then you know people won’t travel as much. The airlines will cut estimates. The stocks will get hammered. That’s what these stocks are now anticipating, beyond the incredibly high price of oil that cuts deeply into their bottom line.”
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