Cramer started with the newly revitalized bank stocks, many of which investors avoided for months in favor of financial technology stocks or payment processors.
“Why? Primarily because long-term and short-term interest rates were so low that … [the banks] couldn’t get the margins they needed on their loans or on your deposits,” Cramer said.
As a result, investors flocked to steady growth stocks like Visa and Mastercard, shying away from traditional bank equities altogether.
Other than Visa, Mastercard, Discover, PayPal and ancillary plays like Moody’s and Morningstar, “it was simply too risky to go deep into the actual deposit institutions,” Cramer said.
“As long as the banks’ net interest margins — that’s the difference between what they pay you for deposits and what they charge you for your loans — stayed low, there was no reason to embrace either the big banks or the regionals, for that matter,” he continued.
But since the Federal Reserve came to a consensus on the economy’s well-being and began to raise interest rates, the bank stocks kicked back into high gear on Wall Street.
Coupled with loan growth and deregulation from Washington, rising rates paint a rosier picture for the big banks’ prospects. Many of the banks have also upped their share buyback programs, which tend to boost stock prices.
“The banks are just getting back to where they were before the Bush and Obama administrations forced [them to issue] that ton of equity during the great recession,” Cramer said. “In fact, the banks are now overcapitalized and they’ve got a much larger share of the lending pie than would’ve been permissible 10 years ago, especially the big dogs: J.P. Morgan, Wells Fargo, Bank of America, Citigroup. All but Wells now behave like growth stocks, and Wells is joining that.”