As the stock market resumed its march higher on Monday, CNBC’s Jim Cramer pinpointed the main drivers fueling the monstrous rally.
“First, let’s understand: this market is largely driven not by stock-pickers, but by index funds,” the “Mad Money” host said. “That index fund money comes in automatically, every day, over the transom. Billions of dollars placed in equities will move equities higher.”
Cramer described this particular driver as “one-directional.” In other words, index funds typically add money into the market rather than taking it out.
Another essential factor? Market-wide re-valuations are causing stocks like Tesla to enjoy unexpected boosts, Cramer said.
Case in point: shares of Tesla have surged since the company said it would not be able to meet its production goals for the highly anticipated Model 3 sedan.
“This market is starting to value Tesla like a tech stock. I understand it: when a tech company has a hot new product … but can’t produce it in volume this year, investors will give it a pass because they figure it’ll make up that volume next year,” Cramer said.
“So when Tesla can’t produce enough Model 3s this year, these tech-seeking investors give it a pass — they’ll sell the cars next year,” he continued. “Look, I am not saying that you should give Tesla a free pass. But that’s obviously what the people who trade the stock are doing given how much it’s up after those miserable numbers.”