Jim Cramer's must-watch market themes that could become 'seven deadly sins'

Investors are finding a plethora of ways to get returns in the current market environment, but too many good things at one time can lead stocks into a vulnerable moment, CNBC’s Jim Cramer said Monday.

“When lots and lots of things are working, you end up in a situation where investors take down tons of debt because everything seems [to] can’t miss and every move feels like a super-cycle,” the “Mad Money” host said. “That’s when you get overextended and things go bad.”

The comments come after the major averages, coming off the best week for stocks since November, extended their gains to start the new week of trading.

The Dow Jones Industrial Average, surging about 237 points, or 0.76%, closed at 31,385.76 to join the S&P 500 and Nasdaq Composite indexes in record territory. The S&P 500 moved 0.74% higher to a record 3,915.59 and the Nasdaq accelerated nearly 1% to a new closing high of 13,987.64.

Cramer pointed out seven themes driving the market higher that eventually, he said, could become “seven deadly sins.” To prepare for that moment, the wise thing for investors to do over the coming months is to look for signs that suggest the latest uptrend can run out of steam, he said.

“For now we’re in the clear, but you need to watch these seven themes like a hawk because eventually, they’ll turn ugly,” he said. “Might take months, might take years. Either way, you don’t want to stick around” when it happens.

Below are Cramer’s takeaways:

Reopening trade

The reopening trade is “hostage to the pandemic — we could get a load of new cases, especially this new South African strain [that’s] more resistant to the vaccines,” Cramer said.

Housing

“As the economy improves and rates go higher, still a long way away, the housing bull market will get hurt. That’s inevitable. It could take years to become a problem, could take a year,” he said.

Industrials

“These stocks only work if employment picks up and business quickly snaps back,” the host said. “If the recovery falters, they are insanely expensive on a price-to-earnings multiple basis.”

Energy

“It sure looks good now, but that’s because OPEC’s being disciplined,” he said. “Eventually, prices will get high enough that the Saudis will stop limiting production and when that happens, oil producers will get hammered.”

Banks

“They’re great as long as rates kind of go higher, but not too high because that puts real pressure downward on loan demand,” Cramer said, adding that it’s an “inevitable part of the business cycle.”

Individual stock picking

“There are only so many [stocks like] GameStops to go around that are primed for a short squeeze,” he said. “Without better clearing systems, a lot of Merry Men could get hurt.”

SPAC attack

“Many of these stocks are exciting and they all seem to have a mission, but in recent months we’ve seen more and more what I call celebrity SPACs and the whole thing feels excessive,” the host said. “There will come a tipping point where we start getting glutted with low-quality SPACs and the whole group collapses under its own weight … [but] we’re not there yet.”

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