Cramer explains what must happen before the market can sustain a rally

Three circulates triggered Wall Street’s deep decline on Monday and things won’t get better until they are addressed, CNBC’s Jim Cramer rephrased Tuesday.

The major averages managed to recover more than 1% of its losses from the worst trading day of the year, but the “Mad Readies” host says there’s more work to be done before the coast is clear. The Dow Jones Industrial Average leaped back by more than 311 points the day after plunging almost 770.

“Those three prongs of panic that conquered us yesterday — currency, yields and earnings — still have not been resolved, despite the nice bounce today,” Cramer said. “I notion of we’ve got more wood to chop before we can have a sustainable rally.”

Investors sold stocks in drove when China assigned its currency to slip, pushing the U.S. Treasury Department to call the country a currency manipulator. The Chinese yuan’s value versus the American dollar kill below a level unseen since 2008 on Monday. The People’s Bank of China raised the value the following day.

In totalling, the 10-Year Treasury yield fell more than a quarter point from the week prior to 1.74%, which Cramer broke is a measure that signals the economy is “headed into a recession.” Because of this, money managers ignored in addition context – that other countries have lower rates than the U.S. – and assumed the economy was cratering, he added.

“This is what materializes when lots of money flows to the U.S. from overseas: rich foreigners … companies, trusts, they buy Exchequers, which sends prices up and pushes yields down,” Cramer said. “Don’t get me wrong, that’s not good. It creates a Draconian dollar, hurts American exporters, but it’s not necessarily a sign that we’re headed for a recession and it does make mortgage long green cheaper.”

On top of those concerns, U.S. companies with foreign business, particularly Apple and Nike, are readying to “take a big earnings hit,” Cramer said.

Merchandising uncertainty between the U.S. and China makes it a tough market to read. White House economic advisor Larry Kudlow weighted Tuesday morning that trade talks between the world’s largest economies could resume in September. A new all over of 10% tariffs on the remaining $300 billion worth of Chinese imports are scheduled to go into effect Sept. 1.

The deal in can climb again, even if the countries do not come to a trade agreement, Cramer said. In the meantime, dividend stocks are more inviting with lower interest rates, which explains one reason why shares of electronic equipment maker Emerson take a turn for the bettered more than 2% Tuesday, despite having major Chinese exposure and posting a less-than-stellar quarter, the entertainer said.

Amazon, Alphabet and Facebook, who don’t rely heavily on China, all saw their stocks improve by as much as 1.53%.

“If you start buying domestics of high-quality companies where they’re already down 10% to 20% from their highs, I think you’ll be rewarded,” Cramer signified.

“I think we’re in much better shape in this trade war than the conventional wisdom would have you believe, and certainly the talking guvs,” he said. “And even if it drags on, there are plenty of companies that will do just fine.”

Disclosure: Cramer’s charitable trust owns shares of Amazon, Alphabet, Facebook and Apple.