Weekly Recap

This week, major market indexes were mixed but mostly down. The Nasdaq climbed about 0.25%, while the Dow Jones and Russell 2000 were each down close to 2%. The S&P 500 was down closer to 0.5%. Healthcare was the leading sector for the week, up close to 1.5%. Utilities and financials were the two biggest laggards, down over 2.5% each.



We finally got the rate hike everyone was likely expecting, and it was a unanimous decision from the Fed Chair and Board. The new Fed funds rate range is 3.75% to 4%. This was the first rate hike since July 2023, nearly three years ago.

We did not have any big earnings movers, but there are some things to note. Cybersecurity stocks jumped big to start the week after some fearmongering from Anthropic's CEO over the weekend (more info below). Software stocks also jumped to start the week on the idea that the AI technology that could overtake them may be delayed. On the flip side, hardware and equipment AI-related names sold off hard. Lastly, Generac jumped nearly 20% to end the week on the back of a partnership announced with Amazon.

Hot Topic: "A.I. Will Kill Us All"

I hope my clickbait Hot Topic title grabbed your attention this week. How could it not? This was the hot topic this week. If you are not familiar with the situation, let me fill you in...

This past weekend, Anthropic (Claude) CEO Dario Amodei shared an essay urging the industry to slow down the pace of AI development for safety reasons. The big example he noted was actually what happened between OpenAI and Hugging Face. What happened, in simple terms, was that OpenAI was testing an advanced AI system in a controlled cybersecurity environment. Essentially, the OpenAI agent got out of the controlled environment and gained internet access. It then identified Hugging Face as a target on its own and, as part of an AI swarm, attacked Hugging Face without a human explicitly telling it to do so.

That level of autonomy is what seemed to have scared people. Dario wrote this letter this weekend, almost six weeks after the incident. Both Elon Musk and Sam Altman, OpenAI's CEO, came out and agreed with Dario, although it was in just a few words. For example: "Dario is right."

This sparked major concerns about whether we are moving too fast without enough safety regulations and whether the rapid advancement of AI could eventually lead to what you see in movies: mass killing of humans by robots. Think The Terminator, Avengers: Age of Ultron, or even Frankenstein.

The chart below shows the impact this had on the markets. On Monday, semiconductor and equipment players sold off hard, while cybersecurity and software names that we thought would be replaced by AI rallied hard. The chart shows the biggest spread between the software sector and semiconductors in history. Semis were down 5–10%, while software was up 10–15%.

We have since heard more from people in the industry. I listened to a podcast this week after all of this came out that included interviews with Jensen Huang, NVIDIA's CEO, and Elon Musk. Both think this was overblown. That said, safety can be a real issue, and I like the idea Musk suggested: we need peer grading.

Many have now come together and said it should not be OpenAI testing the safety of its own product, just like Anthropic should not be solely responsible for testing its own models. Ideally, they should test one another and grade the results. It is like back in school when you would trade your test with your neighbor and grade each other's work. Hell, we could even do this with China if we really wanted to test the safety of these systems and see how they actually score.

Either way, AI technology is still coming. I believe we just need to find a way to follow safety guidelines without hampering growth. Personally, I would take this sell-off as a buying opportunity. One way or another, we're going to get there. It may just take a little longer. They may have to go through an FAA or FDA type approval process, where the technology has to meet certain safety standards before being deployed at scale.

No major economic reports I want to highlight next week. However, I think we need to keep an eye on bond yields following this week’s interest rate hike. I believe we will also need to keep an eye on oil prices, which typically has a direct correlation to updates coming from the war in Iran. Oil prices are high, and so are bond yields, both of which are arguably negative indicators for the economy.

Earnings to Watch:

• Wednesday: Paychex & General Mills

• Thursday: Costco, Accenture, & Darden Retsaurants

Another pretty quiet week ahead, if you ask me. Three names on Thursday that may catch my eye. Costco and all the consumer staples stocks have been struggling. Maybe it’s valuation, maybe it’s a tiring consumer, who knows. I’m not going to make any guesses about this quarter, but I will say that if this name drops closer to $800, man, would I think that’s a strong buy. Accenture is not usually on my radar, but its last earnings report sent the stock down 20%, so I will be curious to see if we get another disappointing report. Lastly, Darden is always interesting to me, especially because restaurant stocks have not been great. DRI may have a good report, though. I think bringing back the endless pasta deal at Olive Garden may drive a strong quarter, believe it or not.

CoreWeave Inc. (CRWV) - Yes, yes, yes, this name again. The fourth time this year... I checked, lol. It’s because it’s one of the most interesting names in the market, at least to me. It is extremely volatile. Over the last year, it has gone from nearly $150 to $70, back to $110, down to $70, up again to $130, back to $65, then to $115, and now back around $80. It can’t seem to pick a direction. To me, it seems like the market can’t make up its mind if this is a $40 billion company or double that. Revenue growth has been explosive, and the backlog is strong as seen in the picture above. The negatives, to me, are still a lack of profitability and concerns around debt. However, the hyperscalers and semiconductor partners have had nothing but positive things to say about this name. For me, I would like to buy this under $70. I think the risk-to-reward under there is too good. I mean, we would be looking at something like a 10x risk-to-reward, with potentially 100% upside and roughly 10% downside from there, in my opinion. At $80, it’s still a solid name, but it may remain flat until we get some big news. The chart looks like it is at a crucial support zone, and if it breaks lower, $70 could come fast. If it holds around $78-$79, a rebound could come quickly. The most recent price target came in at $110, but the average Wall Street price target is closer to $144, implying roughly 80% upside. This name continues to be at the top of my watchlist.

Generac Holdings (GNRC) - This week, GNRC made a monster move higher, about 20%, after news came out that they agreed to a partnership with Amazon. Generac agreed to supply $8 billion worth of backup power generators to Amazon’s data centers. In return, Amazon received warrants to buy up to $340 million in Generac stock. This shows alignment on the partnership and mission. Amazon is now a major customer of GNRC, and in return Amazon shows they believes in GNRC and their products enough to invest in the company. I bet GNRC sees other hyperscalers and data center managers follow suit. I have covered this name before and thought it was cheap and interesting, with their generators being used to power data centers. Canaccord came out with a whopping $375 price target early Thursday morning following the news. They were close to breaking $300 this summer before a big pullback. This could be a name to keep an eye on down here around $200. At 20x P/E, it really isn’t that expensive, in my opinion.

Regal Rexnord Corporation (RRX) - This mid-cap company has been around for ages, but it came up on my radar this week. They are an industrial company that does a little bit of everything, providing sustainable solutions for power transmission and control, as well as motion products. That said, the reason they came up on my radar this week is that I read they may currently be a leader in actuators and integrated motion control components for the robotics industry. Actuators are predicted to be a huge part of the robotics industry over the next 5, 10, 20+ years, as they will be what allows humanoid robots to have a full range of motion. I like to think of them as the ligaments, muscles, and joints of a robot that give it a range of motion and allow it to complete tasks. The stock is about $100 off its highs and down 35% over the past month. At under 13x P/E, this may be a speculative name to keep an eye on. I know I will be, as I am very curious and optimistic about the actuator opportunity. It is just hard to tell who will ultimately be the winner in the sector and capture the lion’s share of the market.

* Disclaimer - It's important to highlight that, on occasion, I may have existing positions in the stocks I highlight in my newsletter. This disclosure aims to be transparent about potential conflicts of interest. Additionally, any stocks identified in this section are for informational purposes only and nothing in newsletter should be construed as a recommendation to buy or sell any security. Although I strive for unbiased analysis, my ownership of certain stocks may influence those that I highlight. Rest assured, my commitment to providing well-researched insights remains unchanged. 

This chart was an easy choice for me this week because this is honestly a crazy statistic, in my opinion, that I think all investors should know...

Since 1950, the S&P 500 has been higher 12 months after EVERY midterm.

19 midterms. 19 times higher. Average gain: ~16%.

21 FOR 21... Since 1942, EVERY November-through-June period following a midterm has been positive.

21 straight. Average gain: +16.6%.

The year after midterms, year 3, has historically been the strongest year of the 4-year presidential cycle and I think there is a chance that continues next year.

How can you see these stats and not be optimistic about the markets heading into the post-midterm period? If you pair the finished uncertainty around the midterms and who will win with this massive AI boom and buildout, I think there is a lot to be excited about. If we can avoid escalation of wars and major conflicts, I think we could see a 20%+ move higher in 2027.

Now, all this said, history has also shown that when the US 10 year is at 5% we have seen some of the weakest S&P 500 follow throughs... So maybe we see a year like 86-87 or 14-15. I can't wait to see how this plays out, two historical data points battling things out.

In Weekend Favorites, I share my thoughts on events I'm attending, the new series I'm planning to marathon, the movie I'm dying to see, restaurant craving to taste, trend that ticks me off, or the big game I won't miss. 

First, Phoenix last weekend. A live UFC event was awesome! It wasn’t the best card, as at one point we had seven decisions in a row, but two of those were some of the best fights I have ever seen. The Tommy McMillian fight may have been the fight of the year. It was insane. When the UFC comes back to AZ, I will be there again. I didn’t get to any of the new restaurants I wanted to try in Phoenix, but I went to two staples. Cornish, with their Polish pasties, which are amazing. Everyone I went with loved them. Bangers and mash is my favorite. And, of course, I had to hit First & Last for their famous Little Jerry sandwich.

Football is back, baby. I did nothing but watch football last Sunday. Maybe a little work, but it was while watching football. Has to be some fans out there, but how about them Cardinals? Biggest underdog of the week, and they won?!? The Chiefs are so back, the 49ers look so back, and the Bears were incredible, which is why I drafted Caleb Williams and Swift in fantasy. I am so excited to do the same thing this upcoming Sunday.

Lastly, this weekend I will be at The Gala for Big Brothers Big Sisters, and I can’t wait to celebrate them and spend the night in the jungle. Hopefully, I can win a raffle or two, lol.

To read more of Jake's Analysis on Seeking Alpha where he shares his thoughts, opinions, stock ratings, and price targets on different stocks and ETFs, use the link below!