Consistently growing stocks are out and cyclical stocks are officially back in as big fund investors rotate holdings based on their emotion, CNBC's Jim Cramer said Tuesday.
The market is a reflection of how institutional investors see the future. Cramer recommended that individual investors not try to game the rotation.
"I think you need to view it as an opportunity to get in, not get out," the "Mad Money" host said. "If a high-quality stock is down enough, like Merck was this morning, then that's your chance to pounce."
Shares of Merck, one of the leading pharmaceutical companies in the world, have been on an uptrend since 2018, thanks to the introduction of its Keytruda cancer treatment for lung cancer. The stock gained nearly 20% between April and the end of August as the company explores expanding its use for other tumors, Cramer noted.
Yet, the stock has dropped below $82 from a high of $87.35 in late August on little news, the host said. It doesn't help that Merck won't benefit from a potential interest rate cut that investors are anticipating from the Federal Reserve, which appears more likely in the wake of Friday's weaker-than-expected jobs report.
"I think it's the rotation out of stocks that thrive in a slowing economy and into stocks that thrive in an accelerating economy," Cramer said. "In other words, Merck's gone out of style on that Wall Street fashion show ... Merck's not going to benefit from the expected rate cut, so the stock has lost its appeal, for now."
Visa and MasterCard also took a hit during the session, falling almost 3% and 4%, respectively. Their stocks were benefiting from the secular growth in financial technology technology, along with giving investors exposure to the financial sector without owning bank stocks, Cramer said.
Citigroup, the cheaper of the bank stocks, instead has steadily climbed nearly 12% since late August. Cramer contended the stock would be falling if it weren't for the rotation in the market.
"If this market wants to toss out high-quality merchandise, let their trash be your treasure," the host said.
Disclosure: Cramer's charitable trust owns shares of Citigroup and MasterCard.