CNBC’s Jim Cramer said Tuesday that early January trading shows how quickly emotion can take over markets at the start of the year, warning investors not to confuse momentum with durability.
Cramer said the market is being driven by three groups: momentum traders chasing last year’s winners, “hope springs eternal” investors buying beaten-down stocks and companies that never should have lagged in the first place.
“We’ve seen these trends last as long as ten trading days into the new year, before we’ve got even a sharp correction,” Cramer said. “It wouldn’t surprise me if that happens again.”
Cramer pointed to recent losses in oil stocks following Venezuela’s political upheaval as a cautionary example, saying investors rushed in only to see buyers vanish and sellers overwhelm the market.
Right now, he said, momentum traders are crowding into data storage stocks as artificial intelligence drives an explosion in demand. Shares of Western Digital, SanDisk, Seagate and Micron have surged as shortages push prices higher and short sellers scramble to cover.
The rally has also lifted chip equipment makers such as Lam Research, Applied Materials and KLA. But Cramer warned that emotional buying can become irrational and reverse quickly once supply catches up.
Beyond tech, Cramer said bank stocks are extending their 2025 gains as regulation loosens and dealmaking rebounds. He cited strength in Goldman Sachs, Capital One and Citigroup, noting that valuations are expanding after years of pressure.
Cramer also flagged turnaround plays like Nike and Starbucks, pointing to insider buying at Nike as a sign executives believe the worst is over.
His preferred opportunities, however, are what he calls mistaken identity stocks — led by Amazon.
Cramer said Amazon’s recent underperformance created the false impression that something was wrong, despite strong growth across its cloud, retail and advertising businesses.
Of the three categories, Cramer said mistaken-identity stocks offer the best risk-reward as the year begins.
“If you have big gains… please don’t be greedy,” Cramer said.
