Investors are realizing nothing is stopping the "avalanche in selling" of high-flying stocks in exchange for cheaper, slow-moving stocks, which has been going on for the past week, CNBC's Jim Cramer said Monday.
The rotation from high-growth names to slower tech, financial and oil stocks was triggered by buzz around trade and interest rate prospects, he explained. It led to a 38-point move in the Dow Jones Industrial Average and slight drops in both the S&P 500 and Nasdaq Composite.
"People seem to believe we could see some progress in the trade negotiations with China," the "Mad Money" host said. "Personally, I'm skeptical ... but hope springs eternal. And, on top of that, there's a belief that the Federal Reserve has no choice but to cut interest rates after Friday's not-so-hot employment number."
Cramer pointed out that equities in software firms fell, while banks and oil stocks were beneficiaries of the sector rotation. Rotation is when money in the market shifts from one group of assets to another group.
E-commerce company Shopify, despite a Baird analyst raising its sales estimates, dropped nearly 6%, and cybersecurity company Crowdstrike, despite reporting strong revenue in its recent quarter and raising its earnings forecast last week, plummeted almost 12%.
Shopify is down more than 12% from its August high.
"There's only one problem [in Shopify]: It doesn't have much in the way of earnings. This [is a] $358 stock ... that's expected to earn roughly 70 cents a share for 2019," Cramer said. In the way of Crowdstrike, "the company still expects to lose money. Suddenly, this market doesn't want to see some losses ... Instead, it just wants cheap stocks and ones that are turning a bountiful profit."
Citigroup, yielding almost 3% and selling at 9 times earnings, is what the market wants, Cramer said. Goldman Sachs and J.P. Morgan are two others, he added. Their respective stocks all gained between 2.3% and 4.27% in the session.
In the lagging oil sector, names such as Schlumberger and Apache, both paying more than 4% dividends, advanced less than 6%. Cramer also highlighted BP because it pays almost 6.6% in dividends and has growth.
Growth stocks "are getting annihilated ... because there's a market-wide rotation out of these names," he said. "That is exactly why we play 'Am I Diversified?' so that on days like today you won't have all of your eggs in one high-flying ... basket."
Last week, both the United States and China announced that trade officials would hold talks in Washington, D.C., next month. The news follows new tariffs, which both countries placed on one another, going into effect this month. President Donald Trump has plans to levy another 15% tax on remaining Chinese imports in December.
Many investors are banking on the Federal Reserve to issue a second interest rate cut this year at the agency's meeting later this month. The central bank last reduced its benchmark lending rate to a range between 2% and 2.25% in July.
Past Dallas Fed president Richard Fisher, however, told CNBC on Friday that he doesn't think a rate cut in September is a sure bet.
Disclosure: Cramer's charitable trust owns shares of J.P. Morgan, Citigroup, BP, Schlumberger, Goldman Sachs and Salesforce.com.