The market rotation picks up steam. It's the latest reminder of a key investing rule

CNBC

6 hours ago

Every weekday, the CNBC Investing Club with Jim Cramer releases the Homestretch — an actionable afternoon update, just in time for the last hour of trading on Wall Street. Markets : Stocks are broadly lower on Tuesday, with the tech-heavy Nasdaq dropping more than 1%. Since the Morning Meeting at 10:20 am ET, there's been a pickup in the rotation out of year-to-date winners and momentum stocks — including the crypto cohort — into value-themed laggards. The Dow Jones Industrial Average , which earlier in the session touched a fresh record high, also traded in the red in the afternoon. Breaking it down: One way to show the divergence in Tuesday's market is by looking at the performance of the Invesco S & P 500 equal-weight ETF , known as the RSP, versus the performance of the S & P 500 . The RSP gives each member of the index the same weighting compared with the traditional S & P 500, which is weighted by market capitalization, so the most valuable companies have a bigger influence. On Tuesday, the equal-weight ETF is having a solid session, up about one-third of one percent, while the S & P 500 is falling by more than 0.5%. What this shows is that the average stock is performing better than the largest companies in the index. Another way is to look at the biggest gainers this year. Eight of the top 10 performing stocks in the S & P 500 in 2025 are trading lower, led by the ultimate high-flier in Palantir . The software company is one of the most expensive stocks in the market based on traditional valuation metrics. It's shedding more than 8% on Tuesday but is still up more than 110% in 2025. The two gainers within the top 10 performers this year are eBay and CVS Health . Both stocks trade at below-market price-to-earnings multiples, offering some buffer in a market scrutinizing stocks with lofty valuations. Within the portfolio, we're seeing the rotation play out through weakness in the "Magnificent Seven," as well as stocks with premium P/E multiples including Broadcom , Crowdstrike and GE Vernova . And some of the better performing stocks are value-based ideas like Bristol Myers Squibb , Danaher , Dover and DuPont . Meanwhile, Home Depot and Palo Alto Networks are top two stocks in the portfolio Tuesday, but that's because of what we heard in their respective earnings reports. Market rotations often catch investors off guard and typically last a few sessions. High-multiple stocks are called high-flyers for a reason, and moves like this highlight why we constantly look to lock in gains after parabolic moves. For example, we trimmed Broadcom earlier this month. Up next: There are no major earning reports after the closing bell on Tuesday. But Wednesday is an important morning for retail with TJX Companies , Target and Estee Lauder reporting. We'll also see reports from the industrial chipmaker Analog Devices . On the data side, we'll see weekly mortgage applications and the release of the minutes from the Federal Reserve's July meeting. (See here for a full list of the stocks in Jim Cramer's Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.