Cramer: Wal-Mart took the fluff out of the market

Wal-Mart has been known for its everyday low prices and discounts, but Jim Cramer saw the company put the entire stock market on sale when it lowered its guidance for both sales and profits. This announcement prompted the Wal-Mart’s stock to cascade down 10 percent, taking the market down with it.

“What’s done is done. If you owned any stocks involving consumer spending you got clobbered today, and it continued after the close today with Netflix reporting domestic subscription growth that lagged expectations,” the “Mad Money” host said.

But was the hideous reaction to Wal-Mart’s stock justified?

Wall Street initially fell in love with Wal-Mart CEO Doug McMillon when he took over the reins in 2014. Its stock ran to $90 on Jan. 8, 2015, from $77 when he took office. Unfortunately, it has been downhill since, with the stock down an astounding 30 percent for the year as of Wednesday.

A customer puts a bag of purchases into a shopping cart at a Walmart Store in Los Angeles.

Patrick T. Fallon | Bloomberg | Getty Images
A customer puts a bag of purchases into a shopping cart at a Walmart Store in Los Angeles.

Cramer saw investors derive two conclusions from the Wal-Mart debacle. First, if 100 million shoppers go to Wal-Mart each week and the earnings can drop so substantially then things must be wrong with the economy. As a result, retailers and restaurant chain stocks were crushed.

Second, investors jumped to the conclusion that lower gasoline prices aren’t making a difference if Wal-Mart’s numbers can be so bad.

“I think this was a do-or-die move for Wal-Mart if it wanted to stay relevant as an American icon as well as a growth company,” Cramer said.

Cramer thinks McMillon had to take projections down because he wants to achieve a long-term turn that would require a dramatic amount of investment.

But at the end of the day, Cramer considers the current market environment to be overbought. There is too much fluff out there, and Wal-Mart simply took a lot of it out on Wednesday.

Read more from Mad Money with Jim Cramer

Cramer Remix: Why now is not the time to buy
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Cramer: China’s horrific numbers are a good thing

Despite the decline in retail stocks, there was still evidence of the other side of the trade when the nation’s three largest banks, Bank of America, JPMorgan and Wells Fargo, confirmed there was plenty of consumer spending.

“If you let the market come in, if you let it overreact to Wal-Mart’s personal woes, you are going to get some pretty darned good opportunities to buy stocks at excellent prices. Just show patience,” Cramer said.

Who knows, maybe one day Wal-Mart’s stock will be right at a certain price. Though Cramer said he would wait one or two more quarters before even venturing into its stores, or the stock for that matter.

Questions for Cramer?
Call Cramer: 1-800-743-CNBC

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