The market rally takes a breather. Here are 3 reasons why — and 1 silver lining

Every weekday, the CNBC Investing Club with Jim Cramer releases the Homestretch — an actionable afternoon update, just in time for the last hour of trading on Wall Street. Markets are pulling back on Tuesday from record highs, with stocks tied to artificial intelligence buildout down the most. The tech-heavy Nasdaq was down 1.5% in afternoon trading, while the S & P 500 was off about 0.6%. Several factors were at play. First was the continued strength in the oil market due to uncertainty over the Iran peace deal. At its highs of the day Tuesday, U.S. oil benchmark WTI crude crossed above $102 per barrel; it settled Monday at $98.07. Another factor was the hot April consumer price index (CPI) report , which made the market worried that the Federal Reserve’s next move could be a hike, not a cut. The market now sees a roughly 36% probability of a rate hike by year-end, up from about 24% yesterday, according to the CME FedWatch tool . These probabilities can swing back and forth with every new data point and headline out of the war, so we wouldn’t read too much into this just yet. Still, we also wouldn’t ignore the signals from the bond market, which is sensitive to inflation expectations. The 10-year Treasury yield climbed to 4.45% and the 30-Year yield crossed above 5%. Rising interest rates are typically negative for high price-to-earnings multiple stocks, explaining why growth-oriented names took a hit. Third and finally, a lot of AI-related stocks were overbought after going parabolic in recent weeks. Some giveback had to be expected at some point. The challenge with parabolic moves is that when momentum reverses, the sell-offs are often much faster than investors can react to. That’s why we prefer to trim positions during parabolic rallies, recognizing that we’re unlikely to perfectly time the top. We don’t think the AI trade is over, but we would not be surprised to see some profit-taking persist in the near term, given the extraordinary run the group has had since the end of March. While the rotation is pressuring many of our data center-related winners, including Corning , GE Vernova , Eaton and Broadcom , the silver lining is that some of that money is finding its way into out-of-favor groups that have lagged the broader market rally, including healthcare and consumer staples. Procter & Gamble , Eli Lilly , Costco , and Johnson & Johnson were some of the biggest gainers in the portfolio. It’s a light night for earnings. NextPower is the only major company scheduled to report. That’s the solar tracker maker that used to be called NextTracker. Before Wednesday’s opening bell, we’ll see earnings from neocloud Nebius Group and the Chinese tech giant Alibaba Group . The April producer price index (PPI) is the only major release on the economic calendar. Like Tuesday’s CPI, economists are anticipating a significant jump from March. Economists polled by FactSet expect the PPI to jump 0.7% month over month and 0.3% when excluding food and energy. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.