Jim Cramer unpacks Tuesday’s ‘countertrend’ market rally

CNBC’s Jim Cramer reviewed Tuesday’s Wall Street action, suggesting the market is experiencing a “countertrend” rally as investors rotate out of Big Tech and into sectors that have been lagging.

“If this countertrend rally continues, so many stocks that sat out the first half will keep running, while this year’s big winners go through a temporary cooling off period,” he said.

While the S&P 500 dipped 0.11% and the tech-heavy Nasdaq Composite lost 0.82%, the Dow Jones Industrial Average gained 0.91%.

According to Cramer, some of this action came as a result of President Donald Trump’s tax and spending bill, which could bode well for the housing market. The Senate passed the megabill on Tuesday. However, it is now headed back to the House, where it is certain to face scrutiny. A number of GOP lawmakers are wary of the bill because of its potential to increase the U.S.’s deficit, which is already substantial.

Cramer said the bill’s victory in the Senate helped propel housing stocks, certain retailers and banks. But some of the rally was “nothing more than the left behind stocks playing catch-up,” saying drug stocks, for example, “had a rare day in the sun.”

He picked out a few stocks in these reinvigorated sectors that he feels are “best of breed” in their industries. For housing, he pinpointed Toll Brothers, saying the high-end homebuilder put up a solid quarter, and it might be poised to do well if wealthier consumers receive tax breaks. He said he liked retailers Home Depot and Kontoor Brands, which owns Wrangler and Lee jeans. According to Cramer, Home Depot usually works in the long term, praising the retailer’s ability to reinvent itself. He said he’s positive on Kontoor Brands in part because of its recent acquisition of Helly Hansen, an outdoor gear brand.

Cramer also said there are a number of winners from the first half of the year that are likely to finish out the year much higher, such as GE Vernova, Palantir and Howmet. He told investors to let these stocks cool off and return to them “when the rotation has run its course.” However, he said Palantir has taken a “rare dip” and can be bought as soon as Monday.

“You are witnessing, or, I hope, participating in, one of the most equal opportunity bull markets I have ever seen,” Cramer said.

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Disclaimer The CNBC Investing Club holds shares of Home Depot and GE Vernova.