From the desks of Stanley Katz & Lauren Madera
HAPPY NATIONAL CHOCOLATE CUPCAKE DAY! BLESS THE COOKBOOK FROM 1796 THAT SUPPOSEDLY INTRODUCED THE RECIPE.
The three major U.S. stock market indices finished the week mixed (DJIA: +0.67%, S&P 500: -1.95%, Nasdaq: -4.48%). A sharp sell-off in AI-related stocks, hotter-than-expected inflation, and the start of third-quarter earnings season pushed investors out of large, fast-growing companies and into steadier, more defensive corners of the market. On Wednesday, the Bureau of Labor Statistics reported that the consumer price index (aka CPI, the government’s primary measure of what households pay for goods and services) rose 3.7% over the prior 12 months, with gasoline accounting for more than half of the latest monthly increase. Thursday’s report showed wholesale prices rising at their fastest annual pace since December 2022. Treasury yields fell anyway, as the tech sell-off appeared to send investors toward the safety of government bonds. As for AI, investors took a harder look at how the enormous build-out gets financed, what the companies are worth, and whether the spending will pay off.
Argus Research’s second installment of their 10 questions about AI arrives in a week when markets were asking one of those questions out loud. Earlier this month, we covered Part 1. Part 2 opens with whether the breakneck growth at the chipmakers behind AI can last. Argus expects that growth to hold up and, in many cases, accelerate, pointing to demand that has spread beyond the largest cloud companies to businesses, governments, and newer cloud providers. They also follow the money downstream to memory, storage, and networking companies, and even to industrial firms supplying the power and cooling that data centers need. Their third question, about who stands to lose, is the most relatable. Soaring memory costs are squeezing the companies that build personal computers and phones. Apple, for one, raised iPhone prices by roughly $100 a device in September. The AI boom, it turns out, can also show up at the checkout.
Where Argus sorts out who wins and who loses, Capital Group takes on the question in their title: boom or doom? Five of their investment professionals each answer one question, and their answers lean toward boom. One equity portfolio manager argues that valuations for several AI stocks sit far below dot-com levels, and that the economy AI is selling into is bigger and more digital than it was in 1999. The most timely answer comes from their fixed income portfolio manager. Between still-elevated Treasury yields and the flood of AI-related borrowing, bond investors can afford to be choosy, asking for better terms before they lend. Even their economist, asked about doomsday scenarios, recommends concern rather than panic. The boom may hold, but the money behind it is no longer cheap.
Below are links to a number of third-party research reports that we have read and analyzed over the past week. We hope you will find the information interesting, useful, and worthwhile.
Argus:
Capital Group:
Hartford Funds:
J.P. Morgan Asset Management:
First Trust:
Stanley Katz & Lauren Madera, Financial Advisors
ClientFirst Financial Strategies, Inc.
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Source for weekly stock market returns: Barron’s.
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