Here's why we decided to put money to work in Tuesday's market pullback

What was looking to be a brutal Tuesday for Wall Street is turning out to be not as terrible as feared. No doubt, some individual stocks are getting crushed, particularly within the semiconductor industry and the broader artificial intelligence cohort.

However, Tuesday's overall action is looking far more constructive than we thought it would, just a few hours ago. Why the concern earlier this morning?

There are two main reasons. First, there was a brutal sell-off in South Korea's benchmark Kospi index overnight — and that's a market dominated by two giant memory chipmakers, Samsung and SK Hynix, which have been red hot.

It made some sense to see the destruction in South Korea spilling over to our AI trade names here at home. What didn't make sense — and what was more concerning — was that U.S. equity futures were falling despite a decline in oil prices and market interest rates.

Since the start of the Iran war, that one-two punch has usually been good news for the stock market . U.S. benchmark WTI crude, in particular, touched a multi-month low back to early March.

That's what made us a little worried Tuesday morning. Sometimes, caution is warranted when things don't add up.

We started wondering: Could we be looking at a day of indiscriminate selling, one that stretches out far beyond the AI momentum names? Perhaps the move in rates was due to a safety trade, and not because the bond market was getting less worried about oil-led inflation?

Keep in mind: U.S. government bonds are considered the ultimate safe-haven asset, and bond yields move inversely to prices. So, if there's a ton of buying in bonds, yields will go down.

The question is, why are people buying bonds? If the buyers on Tuesday wanted safety because they fretted something going wrong in the economy, that's not great for stocks.

If they're seeing the decline in oil and feeling more sanguine about the inflation outlook, then that's good for stocks because lower interest rates bode well for equity valuations. Given the more economically sensitive Dow has flipped solidly positive as of about noon ET, we're more inclined to pin the rate move on oil than a safety trade resulting from macroeconomic concerns.

Yes, we do see more safety-oriented sectors leading Tuesday, specifically consumer staples, which investors buy when they're concerned about the economy (people need toilet paper and toothpaste no matter what). However, we also see economically sensitive areas working, such as real estate and financials, which you wouldn't be looking to buy if you're worried an economic downturn looms.

Remember, while inflation has spiked in recent months, the data we get is always stale. To get a more real-time sense of the inflationary trend, we need to think about the inputs that cause inflation.

The primary one, by far, is energy prices because they are used in just about everything — from manufacturing plastic bottles, to powering data centers and transporting apparel to retail locations, it all ties back to energy prices. That the buyers came in at the open — the S & P 500 and Nasdaq are still down over 1%, but well off early morning lows — indicates that investors understood the disconnect and didn't see a fundamental reason to bail on equities.

Put another way, the only reason to sell everything into lower oil and rates is that you think that despite those positives for stocks, there is still reason to be concerned about corporate earnings power. As we scan the portfolio Tuesday, we don't see any new issues with the earnings potential of our companies.

Some unfortunately have issues, but nothing new since yesterday. Moreover, Federal Reserve Chairman Kevin Warsh did a good job at his first post-meeting press conference last week, and the potential for a definitive agreement to end the war with Iran bodes well for the global economy.

We must be mindful that while the market is pricing in a higher likelihood of one, or perhaps even two, rate hikes this year, Warsh is going to follow the data, and he's launching a task force to better understand the root causes of inflation. As a result, we wouldn't be so fast to buy into the idea of rate hikes in 2026 if oil stays well off its Iran war-era highs — with the potential to go even lower on the back of a firm deal that ensures the Strait of Hormuz remains open.

Keep in mind: oil isn't just down; WTI cracked below the $73 level several times Tuesday and is trading back to levels not seen since the early days of March, a week after the war started. It's already fallen roughly 15% this month, well below worrying triple-digit levels.

In fact, we're now only about 10% above the $67 level we saw prior to the initiation of the Iran War. Given the change in price action dynamics across key asset classes (bonds, energy, equities) since the premarket sessions, we think Tuesday's sell-off looks far more orderly than what we feared at around 6 a.m.

ET this morning. As a result, we believe the move in rates is indeed more about the move in energy prices, not broader concerns about the economic setup into the back half of the year.

Taken together, we see this as an opportunity to get some money to work, which we did earlier Tuesday with our buy of Honeywell. That's a stock that should certainly benefit from lower interest rates and oil prices and peace in the Middle East.

At the same time, we don't see a need for a large statement buy — meaning, we aren't "backing up the truck." We're just nibbling in a name we think benefits from the aforementioned dynamics. As you look over your own holdings, consider these dynamics and whether anything in your own portfolio is trading in a way that perhaps doesn't make sense given the positive developments with energy, rates, and hopefully Iran.

If so, that's the kind of opportunity worth seizing. (Jim Cramer's Charitable Trust is long HON. See here for a full list of the stocks.) 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.

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