A rally involving financial stocks, particularly the banks, typically means the economy is healthy, Cramer said. It means that more money is being lent, employment is healthy, and small businesses are confident.
It also signals that job-creating commercial real estate projects are imminent, the government’s budget could improve and that more financial activity, particularly mergers and initial public offerings, could be on the way.
“I know that’s a lot to put on one group, but I’ve studied rallies for 39 years and I’ve never seen a bad one that’s led by the banks,” Cramer said. “If anything, strength in the financials is a precursor to better things, wider breadth, meaning more stocks go up and a lot more companies that will do better next year over this year.”
And for those who worry about the potential for future interest rate hikes, Cramer argued that with a health economy and such low rates, one thoughtful increase wouldn’t be so damaging.
“Right now, higher rates will encourage the banks to do more lending. That’s good, not bad,” he explained.