CNBC’s Jim Cramer explained how institutional investors on Wall Street shifted their investments on Monday when the market saw money go through a sector rotation.
Sector rotation, when investors take returns on one asset and buy stocks in companies in another sector, is a strategy that reinvests profits and diversifies portfolio holdings.
“Soaring tech stocks have had a huge run. The value has lagged.”Bad money“said the host.” As we sift through the wreckage of last week, investors dump growth stocks and swap them for names of value. “
The comments came after major averages rallied on the first day of trading in November, followed by two straight months of declines. The 30 shares Dow finished 423 points at 26,925.05 for a gain of 1.6%. The S&P 500 rose 1.23% to 32,310.24 and the Tech Heavy Nasdaq Composite, which rose double digits this year, rose 0.42% to 10,957.61.
Zoom video extended its losses by a fourth day, dropping 1.72% on Monday and nearly 16% since Wednesday.
“These glowing tech stocks were all ripe for the trim; they were practically begging for profit-taking,” said Cramer. “But in a rotation, this money doesn’t just disappear from the market … it just goes straight to another group.”
Cramer pointed out that oil was one of the beneficiaries of the rotation. West Texas Intermediate, one of the key global oil benchmarks, rebounded 3.6% on Monday. Chevron, one of the few oil stocks that Cramer likes for its dividend, rose nearly 4% to $ 72.15 per share.
Even the banks, one of the furthest-behind sections of the market, got some attention from investors, according to Cramer. The SPDR S&P Bank ETF, or CFU, increased 2.56% for the third consecutive session. JPMorgan Chase, which is down 25% year-to-date, rose for the third straight trading day, rising 2.25% to $ 100.25.
However, the host advised private investors to approach the market with caution. He doubted growth stocks, especially tech names, have stalled, suggesting election uncertainties could potentially fuel tech.
“When you see someone preaching about growth versus value, you need to remember that there is growth, there is value, and there is a little-known third category called no value: the rundown stocks that deserve it to get even lower. “said Cramer.
Disclosure: Cramer’s charitable foundation owns shares in Apple, JPMorgan Chase, Amazon, Facebook, and Honeywell.