Investors are banking on impending recession, says Jim Cramer

Investors are betting that the economy is slowing down and that a recession is under way, CNBC's Jim Cramer said Wednesday.

That explains the rebounds of the defensive shares at PepsiCo (1.80%), Kimberly-Clark (1.57%) and Hershey (2.16%) during the session, he said, as well as the rise about 5% of cloudforce Cloud stocks ,.

Equities outperformed major indices, all of which posted gains of less than 1%.

"[Defensive stocks] can very well cope with a slowdown, "said the host" Mad Money ".

"Meanwhile, secular growth stocks continue to climb, climbing, climbing for the same reason: they do not need either a strong economy," Cramer said. "If we operate in a deflationary environment, the future growth of their profits looks much more attractive, provided that they can continue to quantify, and I think they can."

Wall Street's focus changed after Federal Reserve Chairman Jerome Powell announced on Tuesday that the agency would monitor the economy for signs of weakness, Cramer said. In December, the central bank tightened its monetary policy too much and bulls are now hoping that economic activity will justify a reduction in interest rates, he said.

The economy being reversed compared to the rate cycle, the market was able to progress for a second day in a row, he said. Investors had the sign that the economy was slowing down after the payroll processing company ADP revealed that companies had created 27,000 additional jobs in May. Cramer said the low reading suggests that the ratio of non-farm payroll on Friday could be low.

"Thanks to the magic of the US Federal Reserve, we have entered a market where bad news for the economy is actually good news for the stock," he said.

Bulls are planning three events to put pressure on the Fed to reduce interest rates and stimulate activity: falling oil prices, tariffs and the bond market.

Oil prices fell 3.4% to levels not seen since January. Markets are still waiting for a breakthrough in trade relations with China and Mexico. The yield on 10-year US Treasury bonds dropped to 2.12%, which is below the benchmark interest rate of between 2.25% and 2.5%.

Cramer said the inversion of the yield curve is "a sign that the Fed was too aggressive with its rate hikes last year."

However, the host does not think that Powell will reverse the trend in December's rate hike to prevent inflation.

"Listen, I hope I'm wrong, I'd like a rate cut next month, but hope should not be part of the equation," he said. declared.

"Given that [President Donald Trump] Jay Powell put pressure on him to cut, he needs a blanket before he can act – otherwise, he will look like a puppet. And the only thing that gives the Fed a hedge is a slower economy. Good thing, because that's what we get. "

Disclosure: Cramer Charitable Trust owns shares of Salesforce.com.