Jim Cramer explains how bonds shaped Tuesday’s market action

CNBC’s Jim Cramer examined Tuesday’s market action and said rising bond yields drove a number of stock moves as Wall Street waits for lawmakers to pass a federal budget bill.

“The bad news is that rates are threatening to break out to the upside,” he said. “And if they can’t stay calm, if they jump to a new, higher level while Congress works on the budget bill, we’re liable to have more days like today, where you need a plethora of positive themes for any given stock to break free from the gravitational pull of these darn miserable Treasurys.”

The indexes retreated on Tuesday as the the Nasdaq Composite fell 0.38%, the Dow Jones Industrial Average declined 0.27% and the S&P 500 dipped 0.39%, breaking a six-day winning streak.

The stock market tends to react to “the gyrations of its much larger sibling, the bond market,” Cramer suggested. According to him, some stocks are more hostage to the bond market than others. For example, stocks related to “fickle consumers” and banks react to bonds, because when rates go higher there’s usually less economic activity, he said.

Cramer used Home Depot as an example, pointing out that the retailer’s stock initially jumped after it reported earnings Tuesday morning, but it saw losses as the session wore on, closing down 0.61%. The home improvement company’s business does well when there’s strong housing turnover, Cramer said. He indicated that negative sentiment around Home Depot prevailed on Wednesday because higher bond yields can lead to a slowdown in the housing market. Home Depot’s decline also helped bring down other retail stocks, Cramer continued.

Cramer picked out GE Vernova as one company that can withstand changes in the bond market, saying the power outfit stands to benefit from the ever-growing need for energy as data centers continue to proliferate. He also pointed to two new projects that mean more business for GE Vernova. The Tennessee Valley Authority plans to build a nuclear reactor developed by the company, and GE Vernova is set to build the electrical system for a New York offshore wind project that was just greenlit by the Trump Administration. Cramer also suggested that countries looking to decrease their trade surpluses might be inclined to buy turbines from the company.

“It takes a lot to buck the bond voters. But GE Vernova has not one, not two, not three, but four secular trends going for it,” he said. “That’s what you need.”

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Disclaimer The CNBC Investing Club Charitable Trust holds shares of Home Depot and GE Vernova.