CNBC’s Jim Cramer said on Friday that this week was the latest example of the market going crazy after the Federal Reserve meeting.
But based on past market reactions to previous central bank rate hikes, this week’s activity may not make sense in the long run, he said.
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The initial reaction to the Fed’s move was “almost a head shake,” Cramer said.
Markets had a big reaction this week after the Fed’s latest move, Cramer noted — with a sharp sell-off on Wednesday, followed by a small pullback on Thursday and a chaotic session on Friday. While fresh turmoil in Europe’s financial sector dragged stocks down early Friday, they recovered after the market closed.
After the central bank’s interest rate hike on Wednesday, there have been nine hikes in just one year.
The market has been tracking a pattern that — after the first three days after the Fed’s decision — will typically move in the opposite direction next month, Cramer said.
While looking at the previous eight rate hikes this cycle, the market reversed direction over the next month seven out of eight times. (There is not enough data to analyze the February rate hike.)
The only exception is the second one that happened in early May. That led to a hard sell that lasted for days, and the market was usually flat the following month.
In general, when you zoom out three months, the initial market moves — whether positive or negative — tend to reverse each time, Cramer said.
The pattern can’t be ignored, Cramer said.
To be sure, it remains to be seen whether the same pattern will hold this time, or whether the initial negative reaction to the Fed’s move this week will reverse itself.
This time, with new emergencies occurring almost daily, especially in the banking sector, it “feels dangerous” to predict a rally in the next three months, Cramer said.
But the bottom line is, we’ve been here before, he said.
“So, take a deep breath, drink some tea and remember that the initial reaction to a Fed rate hike has been wrong every year,” Cramer said.
