Falling oil prices helped drive Friday's stock market rebound, CNBC's Jim Cramer said, but he warned renewed conflict in the Middle East could quickly reverse that relief. He added that next week's Federal Reserve meeting will be the next test, with investors watching how long-term Treasury yields react to a potential rate hike.
Oil prices retreated on Friday, and stocks rebounded as a result, snapping four straight down sessions. According to CNBC, Cramer said "Thank heavens oil went down today", adding that the move changed everything.
Iran conflict remains the key swing factor
Cramer pointed to the war in Iran as the first major variable for oil next week. Progress toward peace could send oil prices sharply lower, he said, which would help ease inflation and pressure on interest rates. But renewed fighting could undo Friday's gains just as fast.
He said the risk cuts both ways: a drone-swarm attack on a carrier group would send oil spiking and interest rates climbing, dragging the stock market down with them.
Fed meeting looms as the next catalyst
With few major earnings reports scheduled, Cramer said next week's market action will largely hinge on oil prices and interest rates. The Federal Reserve's Open Market Committee meets Wednesday. Cramer said the consensus expects policymakers to raise rates to rein in persistent inflation.
Cramer said he will be watching how longer-term Treasury yields respond. The 30-year Treasury yield could actually fall following a rate hike, he said, if bond investors view Fed Chairman Kevin Warsh's decision as evidence of greater discipline on inflation.
Still, he warned that another rate hike would make an already difficult investing environment tougher. If the Fed tightens, he said, the bulls will be fighting the Fed — urging investors to stay selective with new positions and avoid using margin.
Source: CNBC
Trading involves risk.
Risk Disclaimer
