Jim Cramer says the Fed is likely to make a rate cut next week

• CNBC's Jim Cramer on Monday suggested the Federal Reserve will make a rate cut at its meeting next week, a move that investors have eagerly awaited for some time.
• "Right now, the Fed just switched to favoring easing over the status quo," he said. "We got a reaffirmation of that with Friday's employment numbers. We're almost certain to get a rate cut at next week's meeting."

CNBC's Jim Cramer on Monday suggested the Federal Reserve will make a rate cut at its meeting next week, a move that investors have eagerly awaited for some time.

"Right now, the Fed just switched to favoring easing over the status quo," he said. "We got a reaffirmation of that with Friday's employment numbers. We're almost certain to get a rate cut at next week's meeting."

August's nonfarm payrolls showed less job growth than analysts had expected, and one unemployment metric ticked up to its highest reading since October 2021.

The market seemed to recover on Monday following its worst week of 2024 so far, with investors hopeful a rate cut will aid the economy. The Dow Jones Industrial Average climbed 1.2%, and both the S&P 500 and the Nasdaq Composite jumped 1.16%.

Cramer reviewed the recent market action, saying Wall Street had not been behaving as it should with rate cuts just on the horizon. He pointed out that "recession-proof" goods and food stocks have rallied instead of selling off, as is typical at this point in the business cycle.

He also said when the Fed starts cutting, it is wise to start buying cyclical companies, ones that are "hostage to the underlying economy." However, he said it is too early to make definitive judgements and cautioned against getting rid of all defensive stocks or solely buying cyclicals, saying it is important to keep a diverse portfolio.

Cramer added that there is a lot of "noise" on Wall Street that is leading investors to make mistakes, saying that a lot of major moves are "a product of algorithms" that can create volatility.

"Rather than trying to figure out what's driving these irrational moves, you should focus on buying dips in high-quality stocks," he said. "At the same time, I'd use the strength to sell some of the defensives that have gone parabolic."

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