Be conservative with FAANG stocks as anticipated Fed rate hikes spurn a market pivot, Jim Cramer says

CNBC’s Jim Cramer said Thursday that he expects the market to pivot to a bull market for recession-proof stocks rather than expensive growth names.

When the Federal Reserve decides to combat an “inflationary spiral with higher [interest] rates, you’re not supposed to buy expensive growth stocks. The hedge fund playbook says that you should sell stocks like Amazon until the tightening cycle is nearly over,” the “Mad Money” host said.

“We’ve got a new bull market in recession-proof names that can keep putting up good numbers even in the face of a slowdown,” he added.

The Dow Jones Industrial Average gained 0.25% on Thursday while the S&P 500 rose 0.43%. The tech-heavy Nasdaq Composite increased 0.06%.

Cramer also said that he believes investors should generally avoid buying stock of the biggest names in tech in the current market.

“I am adamant that you need to be very conservative with the FAANG names and their ilk,” Cramer said. “Of all of these growth names, the only two that I would put fresh money into” are Google-parent Alphabet and Facebook-parent Meta because they aren’t expensive on next year’s earnings, he added.

FAANG is an acronym for Facebook, Amazon, Apple, Netflix and Google.

Cramer warned that a pivot to a bull market won’t happen right away.

“Pivots don’t happen on a dime, even if it feels that way. This one’s very hard because for a long time, the whole stock market has bowed to FAANG and friends,” Cramer said. “It was a bull market in a handful of stocks, a bear market in hundreds, if not thousands of others. Now, the bear is changing to a bull, and most of that will happen over the course of the next month.” 

Disclosure: Cramer’s Charitable Trust owns shares of Meta, Amazon, Apple and Alphabet.