Investors last week grappled with the prospect of another U.S. Federal Reserve rate hike cycle and fresh concerns about the safety of AI, increasing volatility across Wall Street. The Dow Jones Industrial Average fell 1.7%, falling for the third consecutive week. Banks were hit the hardest by the 30-stock average when the Fed raised interest rates. Goldman Sachs fell nearly 8.5% for the week. It was the worst performing stock in the Dow and the worst performing stock in our portfolio. Fellow club names Wells Fargo, BNY and Capital One also fell significantly last week. The S&P 500 and Nasdaq fared well for the week, dropping 0.08% and rising 0.7%, respectively, as investors returned to artificial intelligence stocks after losses at the start of the week. While many software groups have been winning weeks, investors have taken advantage of Salesforce, which is up more than 50% quarter-to-date after a disastrous loss earlier this year. Oil also remains a source of major uncertainty and inflation concerns, with U.S. benchmark West Texas Intermediate crude and international Brent crude hitting their highest since mid-May on Tuesday on supply concerns from conflicts in the Middle East. The subsequent three sessions of declines pushed both WTI and Brent close to flat this week, but hurt stocks sensitive to oil spikes. This is why the club names Boeing, FedEx Freight and FedEx are the biggest losers this week. Let’s take a closer look at three trends that moved our portfolio this week. Fed makes stock picking more difficult The Federal Reserve raised interest rates by a quarter of a point on Wednesday, the first rate hike in three years, bringing the base rate from 3.75% to 4%. “Inflation is too high and has been there for too long,” Fed Chairman Kevin Warsh said in a post-meeting news conference, adding that Wednesday’s rate hike would help the central bank return to its 2% inflation target. The move had been widely expected, but markets fell sharply on Wednesday after Warsh reiterated worrying price pressures. Stocks rebounded sharply on Thursday, but were little changed on Friday. Jim said Wednesday’s rate hike is making it harder to make money in stocks because investors are currently “fighting the Fed.” Rising interest rates tend to slow economic activity as borrowing becomes more expensive and bonds become more competitive with stocks for investment funds. The 10-year U.S. Treasury yield ended the week at 5%, after hitting a nearly 20-year high of more than 5.04% on Tuesday’s spike in oil prices. Yields fluctuate in line with oil prices. Not fighting the Fed doesn’t mean investors should abandon the market entirely. In past hiking cycles, leadership changes have been frequent, with defensive sectors holding up well early on and technology typically rebounding late. So stock selection becomes more important, which is why we added a BNY position on Tuesday and again on Thursday. The bank is less exposed to concerns about rising deposit costs or slowing loan growth because about 70% of its revenue comes from fees. BNY fell last week compared to bank stocks, but it is still at its highest level this year. Safety Concerns Challenge AI Trade – Not What We Believe AI trade reeled last week under pressure from a barrage of daily headlines on both sides of the debate over the safety of artificial intelligence. The conversation, which has divided opinion among the world’s most influential technology leaders, began with a Sept. 12 essay by Anthropic CEO Dario Amodei calling for a slowdown in frontier model development. OpenAI’s Sam Altman and SpaceX’s Elon Musk quickly co-signed Amodei’s concerns, while NVIDIA CEO Jensen Huang and industry insiders opposed industry-wide coordination. The Huang camp argued that companies could introduce safeguards themselves. In an interview on “Mad Money” on Tuesday, he told Jim Cramer, “We should build the product and test it properly. And if it’s not ready to release, we should just hold it and keep testing and engineering until it’s ready.” Uncertainty initially hit AI stocks hard. Chipmakers Intel and Micron each fell more than 5% on Monday, while data center giants GE Vernova and Eaton fell about 9% and 8%, respectively, on concerns that delays in model development could curb data center spending. But as the weeks went on, the group recouped much of its losses as investors’ concerns that the discussions would significantly change the pace of AI development faded. We took advantage of Monday’s decline to increase our position in Micron, as AI development and spending is not expected to slow significantly. Competition among AI companies and between the US and China and the huge financial incentives that come with it should keep development moving forward. After speaking with Huang and other AI executives at Salesforce’s Dreamforce conference, Jim said he expects spending to “progress rapidly.” Cybersecurity, on the other hand, stands to benefit from these concerns. We have repeatedly stated that more powerful AI agents create new risks that enterprises need to protect against, strengthening the case for increased security spending. Two of the best-performing stocks this week were CrowdStrike and Palo Alto Networks, up about 15% and 10%, respectively. Salesforce Pushes Back on ‘SaaSpocalypse’ Speaking of Dreamforce, Salesforce argued at its annual conference this week that AI is becoming an opportunity for enterprise software rather than the disruption that investors once feared. The so-called “SaaSpocalypse” hurt software stocks earlier this year, but Dreamforce’s announcement, coupled with last month’s strong earnings, further challenges that narrative. At Wednesday’s Investor Day at Dreamforce, Salesforce projected fiscal 2030 revenue of more than $63 billion, beating analysts’ expectations of $59.2 billion. The software giant also announced AIforce, a live interface that works across the Salesforce ecosystem, and Koa, its first inference model developed with Nvidia. One of the big takeaways from Dreamforce was that it highlighted how Salesforce can help customers get the most out of data and AI’s ability to analyze data on the company’s marketing, customer service, commerce, and sales platforms. Jim said the market still hasn’t fully appreciated Salesforce’s transformation, calling the company’s stock, which trades at about 15 times forward earnings, “too cheap.” The company also wisely took advantage of this year’s downturn, repurchasing stock totaling $60 billion. (See here for a complete list of Jim Cramer Charitable Trust stocks.) As a subscriber to Jim Cramer’s CNBC Investment Club, you will receive trade alerts before Jim makes a trade. After Jim sends a trade alert, he waits 45 minutes before buying or selling stocks in his charitable trust’s portfolio. If Jim talks about a stock on CNBC TV, he will issue a trade alert and then wait 72 hours before executing the trade. The above investment club information is subject to our Terms of Use and Privacy Policy, along with our disclaimer. No fiduciary duties or obligations exist or arise from your receipt of information provided in connection with the Investment Club. No specific results or benefits are guaranteed.
