CNBC’s Jim Cramer said Tuesday’s market decline was necessary.
After the major indexes started the day strong, the Dow Jones Industrial Average ended the day more than 14 points lower, breaking a six-day winning streak. The S&P 500 backtracked 0.04% and the Nasdaq Composite lost 0.01%.
Stocks cannot continuously make big leaps on the same news, the “Mad Money” host said. The market can go down until it gets more fuel.
“We’ve had a colossal rally. After this kind of run, the bull is fatigued,” he said. “The froth is being tamped down. And that’s exactly what this market needs in order to recharge.”
Cramer’s so-called “Cloud Kings” group of high-growth cloud stocks got “dethroned” during the session and “got what they deserved,” he said. The cohort of tech businesses rallied Monday on news of Salesforce’s nearly $16 billion all-stock deal for Tableau.
Those stocks gave up their Monday gains, with ServiceNow shedding nearly $10 per share, Workday falling almost $8 per share, Coupa losing more than $5 per share, and Adobe sliding more than $4 per share. Zendesk, Twilio, Okta and Zscaler each lost between $1 and $5 per share.
“Again, these declines make sense. Yesterday’s cloud rally was all about froth because it was based on the fanciful idea that if Tableau could get a bid, anyone in the industry could be a target,” Cramer said. “I think that’s absurd. In fact, I think the Tableau deal is a one-off. … I said it would get ugly and it did.”
Beyond Meat shareholders saw the stock tank more than $42 per share Tuesday after catching fire on the heels of its better-than-expected earnings in its first public report last Thursday. The plummet came after J.P. Morgan Chase downgraded the equity to “neutral” from “overweight” because analysts could not justify its 600% surge.
“The Beyond Meat stock moved up way too far, too fast. It needs to cool off,” Cramer said. “Again, I’m not saying the company’s bad. I’m saying the stock got too hot.”
Financial technology stocks have rallied “endlessly,” the host said, even as payments companies such as PayPal’s Venmo, are still early in development. Cramer thinks that’s good reason to buy into the sector, but only on a pullback.
PayPal, however, is up more than 7% over the past month. The share price slipped 0.9% to settle at $114.60 by Tuesday’s close. That’s after it traded at a new all-time high of $117.45 during the session.
“Today, PayPal finally got dinged. I think it’s emblematic of the whole financial tech group,” Cramer said. “These stocks are taking a much-needed breather.”
Cramer said Tuesday he approves of the United Technologies and Raytheon all-stock merger, and so hedoesn’t understand why the stocks plummeted 4% and 5%, respectively.
“As I see it, United Technologies is worth a heck of a lot more than what it’s selling for right now” under $123, Cramer said. “If you’re patient, I do believe you’ll be rewarded … I don’t like the action here, but we need to accept that these stocks are in merger limbo.”
Raytheon’s decline dragged down shares of Northrup Grumman, General Dynamics and Lockheed Martin, he added.
“Of course, these stocks all behaved like a deal was in the works. They were all bid up in advance,” Cramer said.
Disclosure: Cramer’s charitable trust owns shares of Salesforce.com and Twilio.
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