Cramer: AI Megacaps Mask Treasury Yield Pressure as Nasdaq Hits Record

The 10-year Treasury yield rose above 5.34%, and the 30-year yield approached 5.7%. Cramer said that combination broke with a familiar market pattern since the Iran war broke out. Lower oil would typically ease inflation concerns and take some pressure off yields, but on Monday rates still moved higher.

The Nasdaq and S&P 500 rallied anyway, fueled by Meta, Microsoft and Nvidia. Meta rose 1.9%, Microsoft added 1.5%, and Nvidia gained 2.1% to secure its first record close since May.

Cramer said the market has "tremendous distortion caused by some very big winners, namely Nvidia, Microsoft and Meta." Cramer's Charitable Trust, the portfolio run by CNBC's Investing Club, owns shares of Meta, Microsoft and Nvidia.

Cramer said each company has a powerful catalyst that can keep investors buying despite pressure from higher rates. Nvidia's latest chips are generating strong returns for customers, he said, pointing to SpaceX's large Nvidia-powered computing clusters and its efforts to make money by renting that computing capacity to companies developing AI. Microsoft is benefiting from improved sentiment around its Copilot AI assistant, while Meta is gaining from enthusiasm around its Muse personal agent app and its potential to deepen the company's relationship with small businesses.

Because those companies carry enormous weight in market-cap-weighted indexes, their gains can help push the S&P 500 and Nasdaq higher even as rising rates weigh on much of the rest of the market. As of Friday's close, Nvidia alone accounted for about 8.5% of the S&P 500, Microsoft made up roughly 5.8% and Meta about 2.4%. Together, the three stocks represented nearly 17% of the index heading into this week.

Cramer said the continued sell-off in Treasurys, which has sent yields higher as bond prices fall, could reflect the government's massive borrowing needs, strong demand for money to fund data center projects, or hedge funds shorting bonds. He said even a weaker-than-expected jobs report last week, which would typically ease expectations for further Fed rate hikes and push Treasury yields lower, provided relief for less than a day.

Pressure from higher rates is showing up beneath the surface of the S&P 500 and Nasdaq. Cramer pointed to weakness in traditional safety stocks and many utilities as evidence that higher yields continue to weigh on large parts of the market despite index-level strength. Those are the kind of stocks income-seeking investors typically seek out, but bonds now offer more relatively attractive payouts than they did months earlier.

Cramer said he is not treating the S&P 500 and Nasdaq's levels as an all-clear. Until pressure from rising rates begins to ease, he said the bond market may offer a better indication of where Wall Street is headed. "We have so many stocks of so many companies that can't rally until interest rates reach a level where selling bonds is plain stupid," he said. "The only conclusion: the bond sellers so far have been anything but stupid," Cramer said. "My money's on them to tell us where we're going next."