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Why higher rates are squeezing stocks

The mechanical problem for stocks is fairly straightforward once you break it down.

Higher rates make borrowing more expensive across the economy and push bond yields up, making fixed income more competitive with equities for investment dollars. The 10-year Treasury yield sitting above 5%, its highest level since 2007, now looks like a genuinely attractive risk-free alternative to a growing number of investors, CNBC reported.

Cramer sees this as just the beginning of a longer squeeze. “Every hike from here on will be something that will knock down stocks,” he said, arguing the Sept. 16 move likely opens a series of increases that will continue until oil prices and inflation genuinely cool off.

Wall Street strategists are not entirely aligned on how bad the eventual damage will be. Barclays raised its year-end S&P 500 target to 7,950 from 7,800 after a standout second-quarter earnings season led by technology, while flagging higher rates and inflation as ongoing risks.

Goldman Sachs, Citigroup, and JPMorgan each project the S&P 500 will end the year at or above 8,000 despite anticipating further increases before year-end, according to TheStreet.

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Ed Yardeni had been calling for 8,400 on the S&P 500 this year. He just moved that to mid-2027. Higher rates and higher bond yields changed the math.

Related: Jim Cramer’s net worth: How much does ‘Mad Money’s’ stock-picking superhost make?

Cramer’s take on what investors should do now

Cramer was careful to stop short of telling viewers to abandon the market altogether. He said the universe of stocks capable of performing well in a tightening cycle is shrinking, but pointed to defensive sectors like pharmaceuticals as examples of groups that can still work even as the Fed continues to tighten.

Not everyone on Wall Street is selling the fear. Some analysts say the market is overreading the headline and the investors who get hurt are the ones who sell good businesses because a central banker raised rates by 25 basis points.

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Cramer’s own bottom line ultimately split the difference between caution and outright panic.

“I think the buyers will come back,” he said, “but a lot of groups simply don’t work as long as Kevin Warsh is on the warpath.”

His parting message for viewers was simple and easy to remember: fewer stocks to buy, fewer to hold, and considerably more to sell until the inflation picture genuinely and convincingly improves.

Related: Jim Cramer has a blunt message for Amazon stock investors

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This story was originally published by TheStreet on Sep 18, 2026, where it first appeared in the Investing section. Add TheStreet as a Preferred Source by clicking here.

Jim Cramer put Intel Corporation (NASDAQ:INTC) and Micron Technology, Inc. (NASDAQ:MU) at the top of his technology stock list during the September 17 episode of Mad Money, as he said:

Yesterday, I said that people would buy tech. We got that in spades today. I continue to recommend the cybersecurity stocks, and I’d add Okta to the list because rogue agents cannot be stopped unless we can identify them first. That’s Okta’s job. I still think that Intel, as I tell club members, is the best stock in show, and Micron, number two… Both their products are in short supply. I just bought some Micron, candidly.

Intel’s Product Recovery Meets a Costly Foundry Buildout

Intel Corporation’s (NASDAQ:INTC) second-quarter revenue rose 25% year over year to $16.1 billion, while Data Center and AI revenue increased 59% to $6.3 billion. Intel Products generated $4.8 billion of operating income in the second quarter, up from $2.7 billion a year earlier, while Data Center and AI operating income increased $1.8 billion to $2.5 billion.

The company said client supply constraints are expected to ease in the second half of 2026, while industry-wide constraints affecting Data Center and AI products are expected to persist into 2027.

Micron’s Margins Show the Value of Tight Supply

Micron Technology, Inc.’s (NASDAQ:MU) fiscal third-quarter GAAP operating margin reached 80.4%, up from 67.6% in the prior quarter and 23.3% a year earlier. Its non-GAAP operating margin was 81.2%. Operating cash flow reached $25.4 billion. The company also said DRAM inventories were “very tight and below 120 days.”

Intel CEO Lip-Bu Tan offered a broader view of the memory shortage on September 15. He said capacity was “very limited,” that “many projects are being delayed because they cannot secure enough memory,” and that memory prices had risen five to seven times. He noted, “It actually happened, and the situation will get worse.”

Bear Case is About Execution and Normalization

Intel Corporation’s (NASDAQ:INTC) financial risk is the gap between improving product economics and the cost of its manufacturing strategy. Intel Foundry generated $5.8 billion of revenue in Q2 although roughly $5.5 billion came from intersegment transactions and just $293 million was external revenue. The segment posted a $2.1 billion operating loss, compared with a $3.2 billion loss a year earlier.

Micron Technology, Inc. (NASDAQ:MU) faces the opposite side of the memory cycle. Its 80.4% GAAP operating margin is more than three times the year-earlier level, leaving earnings exposed to a deterioration in memory pricing or supply conditions. At the same time, it spent $7.1 billion on net capital expenditures in the fiscal third quarter, adding capacity while the market remains tight.

Hedge Funds Increased Exposure to Both Stocks

According to Insider Monkey’s tracking of more than 1,000 hedge funds, 138 hedge funds held Intel in Q2, up from 112 in Q1. Micron was held by 184 hedge funds, compared with 154 in the first quarter. As for the short interest, Intel’s was roughly 3.0% to 3.3% of float, while Micron’s was approximately 2.6% of float.

The companies offer different exposure to the semiconductor cycle. Intel Corporation (NASDAQ:INTC) is seeing stronger demand for its products while rebuilding its manufacturing business, while Micron Technology, Inc. (NASDAQ:MU) is benefiting from tight memory supply and pricing. Intel needs better yields, higher factory utilization and eventually more external foundry revenue to continue narrowing its large Foundry loss, while Micron needs tight memory conditions to persist as it invests heavily in additional supply.

While we acknowledge the potential of INTC and MU as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you’re looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

READ NEXT: Jim Cramer Favors BWX Technologies (BWXT) Over Cameco (CCJ) and Jim Cramer Believes Apple (AAPL) Could See “Off The Charts” Demand For Its New Foldable.

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