Jim Cramer Weighs In On Tuesday Market Decline, Says It Reflects A Market Top, Not A Bubble

CNBC’s Jim Cramer has suggested that the current market activity may indicate a peak rather than a bubble. He pointed to specific stocks and the Nasdaq Composite’s recent decline as evidence.

What Happened: Cramer, during his show Mad Money on Tuesday, analyzed the market’s recent downturn, dismissing it as a bubble but indicating a possible peak, reported CNBC.

“Toppy” action, Cramer explained, is when stock prices exceed their fundamental value, while a bubble is when stocks soar to new highs and then plummet.

"We start off weak, and then unlike much of the time since the market began to rally in November, we actually then finish even lower. It had been the opposite pattern — some stocks manage to buck the trend, of course, but most can't. That's toppy," Cramer said. "

Bubbly action, on the other hand, is when you go straight up and then straight down, with the only respite being wild short squeezes on the way down."

Nasdaq Composite fell by 1.65%, the Dow Jones Industrial Average by 1.04%, and the S&P 500 by 1.02% on Tuesday.

Several factors, including international issues faced by Apple Inc AAPL and Tesla Inc TSLA, suggest a “toppy” market. Tesla is experiencing weak sales in China, with strong competition from local electric vehicle manufacturers. Apple’s business in China is also showing signs of weakness, with a 24% drop in iPhone sales in the first six weeks of 2024.

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Super Micro Computer Inc‘s SMCI stock behavior is another indicator of a “toppy” market, according to Cramer. The stock has doubled since the end of January and surged by over 18% after being added to the S&P 500. Cramer labeled this behavior as “idiotic” and identified Super Micro Computer as the most overvalued stock in the market.

"Toppy action ends only when they get to everything and everyone — and that does include Nvidia, even as I can't think of a reason for it to come down," he said. "And that's the real oddity— it doesn't matter. When the market gets toppy, nobody needs a reason to knock down high-flying stocks."

Why It Matters: Cramer’s analysis aligns with the views of other market experts. For instance, Ray Dalio, the former co-chief investment officer of Bridgewater Associates, recently argued that the U.S. stock market is not in a bubble, based on a set of indicators he uses to spot market bubbles.

On the other hand, Jeremy Siegel, a finance professor at the University of Pennsylvania's Wharton School, raised concerns about the soaring valuations of technology stocks, including Nvidia. He warned that the current enthusiasm for tech stocks might be a sign of an impending bubble.

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