Jim Cramer breaks down Monday's rotation: 'Value has lagged'

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CNBC’s Jim Cramer explained how institutional investors shifted investments on Wall Street Monday as the market saw money go through a sector rotation.

A sector rotation is when investors take returns from one asset and purchase stock in companies of another sector, a strategy used to reinvest gains and diversify portfolio holdings.

“The high-flying tech stocks have had a huge run. Value has lagged,” the “Mad Money” host said. “As we pick through the rubble from last week, investors are dumping growth stocks and swapping into value names.”

The comments came after the major averages rallied on the first trading day of November, which followed two straight months of declines. The 30-stock Dow finished up 423 points at 26,925.05 for a 1.6% gain. The S&P 500 moved up 1.23% to 32,310.24, and the tech-heavy Nasdaq Composite, which is up double digits this year, rose 0.42% to 10,957.61.

Some of the most valuable components on the S&P 500 — Apple, Microsoft, Amazon and Facebook — all dipped during the session with Amazon falling more than 1%.

Zoom Video extended its losses for a fourth day, losing 1.72% of value on Monday and almost 16% since Wednesday.

“These red-hot tech stocks were all ripe for the trimming; they were practically begging for some profit-taking,” Cramer said. “But in a rotation, that money doesn’t just disappear from the market … it just goes right into another group.”

Oil was one of the beneficiaries of the rotation, Cramer pointed out. West Texas Intermediate, one of the main global oil benchmarks, rebounded 3.6% on Monday. Chevron, one of the few oil stocks that Cramer likes for its dividend, rallied almost 4% to $72.15 per share.

Industrial plays also gained from Monday’s rotation, he said. Shares of 3M rose 1.86% to $162.94, Caterpillar surged 4% to $163.27, and Honeywell popped 5% to close at $173.61.

Even the banks, one of the most lagging areas of the market, received some attention from investors, Cramer noted. The SPDR S&P Bank ETF, or KBE, rose for the third-straight session growing 2.56% in value. JPMorgan Chase, which is down 25% year to date, also rose for the third-straight trading day, advancing 2.25% to finish at $100.25.

“Only a handful of the red-hots were able to hang in there, like Snowflake, the most expensive stock in the market, and, of course, the sainted Tesla,” Cramer said.

The host, however, advised retail investors to approach the market with caution. He cast doubt on the idea that growth stocks, particularly the tech names, have stalled out, suggesting that election uncertainty could potentially boost tech.

“Whenever you see someone preaching about growth versus value, you’ve got to remember that there’s growth, there’s value, and there’s a little-known third category, it’s called no value: the beaten-down stocks that deserve to go even lower,” Cramer said.

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

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