As Dow components 3M and Caterpillar brought the average to a record high on Tuesday, CNBC's Jim Cramer explained why the stock market has been experiencing so many rotations.
"This market's all about rotations and it's been all about rotations for ages," the "Mad Money" host said. "There's just not enough new money coming into the equity markets to drive up everything at once; the cash just migrates from one group to the next, funneled into specific sectors by the increasing dominance of ETFs."
As a result of ETF-ization and an improving global economy, investors shed their shares of drug companies like Johnson & Johnson and Eli Lilly, for industrials like 3M and Caterpillar on Tuesday.
To explain the seemingly rash action, Cramer ticked down the four factors that caused money to flock to the industrial stocks.
Off the Charts: A Calm, Yet Dangeous, Bull
It's old news that the market is hitting record highs almost every day, but Cramer has grown concerned that there could be danger lurking underneath the rally.
"On the surface, this market does look both astonishingly bullish and astoundingly placid. You've never seen a bull this calm before," Cramer said. "And look, it makes sense. We've got nice earnings growth coupled with an accelerating economy [and] low interest rates both here and abroad, [the] perfect prescription for a healthy bull market."
But as volatility dwindles, with October on its way to being the least volatile month for equity markets in modern history, the chances of a pullback are growing more likely.
"Historically, periods of minimal volatility lead inexorably to periods of surging volatility, and when that happens, stocks tend to sell off, as many investors can't handle that turbulence," Cramer said.
"In other words, calmness breeds complacency, historically, and sooner or later complacency gets punished, sometimes with a slap on the wrist, sometimes with a full-on beat-down."
The Return of Humbled Hardware
Cramer has noticed that this market is keen to forgive all kinds of underperformers, so he checked back in with two of the technology sector's biggest dogs: GoPro and Fitbit.
"Yep, in recent months, both GoPro, the maker of wearable, high-definition video cameras, and Fitbit, the king of wearable fitness trackers, have seen their stocks begin to quietly work their way higher. GoPro vaulted 32 percent since it bottomed in March, while FitBit's gained roughly 24 percent since its all-time lows in June," the "Mad Money" host said.
Cramer was curious about what brought the humbled hardware stocks back into Wall Street's favor, so he looked back on their respective trajectories for insight.
Bluestone Lane CEO Talks Coffee Culture
Nick Stone, the founder and CEO of privately-held coffee shop chain Bluestone Lane, told CNBC that he created the company because in his former job as a banker, he found the need for a daily "escape."
"In this world, where we're seeing continued automation and efficiency, I think people like a little dabble of human connection from that seven to 10 minutes a day, a refresh," he told Cramer on Tuesday. "And it was really out of self-necessity that we created the brand and I think that's continuing."
And the coffee craze is nowhere near stemming, Stone told Cramer.
"We've never spent a dollar on marketing," the CEO said. "You don't need to in this market because ultimately, if your customer demographic, like ours, is a millennial customer, they're probably very attuned to using social media. And if you produce a great experience, then they'll more often than not tell their friends and they will broadcast via social media."
Sometimes, E-Commerce Hurts
It may sound contrarian, but Cramer has found that staying away from e-commerce-related investments can actually save money.
In most cases, Cramer has found that companies that boast omni-channel and direct-to-consumer sales strategies are actually unable to predict what would happen if their biggest retailers went under, like what happened to athletic retail when Sports Authority went bankrupt.
Now, with Toys R Us filing for Chapter 11 bankruptcy, toymaker Hasbro also had to scramble to renew its deal with the seller, highlighting how difficult it can be for a manufacturer to redirect its inventory.
"This whole chain leads me to believe that if you're selling into a brick-and-mortar business but also developing an e-commerce strategy on the side, you're really just playing a form of defense that hurts your margins in ways that investors just aren't prepared for," Cramer said. "Put simply, other than Amazon and maybe Wal-Mart, the much-vaunted omni-channel's been a bear of a thing to manage for all involved. The more investors realize that the perils of online commerce far outweigh the benefits, the more they'll be able to save and not lose money going forward."
Lightning Round: Bank on the Better Buys
In Cramer's lightning round, he flew through his take on some callers' favorite stocks:
Ally Financial Inc.: "We're not going to fool around. We've got JPMorgan doing great, over $100 – congratulations to them there. We've got Citi[group], which is my charitable trust's favorite. Let's pull the trigger there on those."
e.l.f. Beauty Inc.: "Look, I like e.l.f., but we're in a market where you really want to buy best of breed, and the best of breed is Estee Lauder. Fabrizio Freda is really delivering."
Disclosure: Cramer's charitable trust owns shares of Citigroup.
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