Wall Street’s Rough Start in November
November began on a shaky note for Wall Street, with the tech-focused Nasdaq dropping over 3%—its steepest weekly decline since early April. The S&P 500 also saw a dip of 1.6%, breaking a three-week upward trend for both indexes. There seem to be a couple of reasons behind this downturn coming right after a strong October.
First, investors have shown concern regarding the lofty valuations of stocks connected to artificial intelligence. Take Nvidia, for example; it experienced a market cap loss of $5 trillion after a weekly slide of 7%. This downturn was exacerbated by doubts about China’s potential reopening for AI chip firms. While Nvidia hasn’t forecasted sales in China lately, many believed it might be a forthcoming opportunity. Nonetheless, we maintain our stance on Nvidia: “We own it, we don’t trade it.”
The second factor might be related to the ongoing government shutdown, now the longest in U.S. history, which is starting to influence the economy negatively. Layoffs in October reached a two-decade high, highlighted by recent data from Challenger, Gray & Christmas. Just the next day, a consumer sentiment survey by the University of Michigan indicated nearly record-low confidence. These private sector reports have gained weight, particularly since the government shutdown started on October 1, overshadowing many government economic metrics.
During this turbulent week in the market, we implemented three trades. On Monday, we increased our position in Starbucks. Its stock has lagged compared to other restaurant chains, likely due to worries about consumer spending. However, we believe the market reaction is overblown. Under CEO Brian Nicol, Starbucks is working on rejuvenating the coffeehouse experience through an innovative model called Green Apron Service. Though it’s taken some time, we’re finally starting to see improvement.
On Tuesday, we picked up more Boeing shares after the company reported earnings, which triggered a significant stock drop due to unexpected costs from the 777X program. Though this quarter was disappointing, the decline presents a major opportunity for those of us invested for the long term. Boeing’s revival under CEO Kelly Ortberg is still on track, bolstered by improved execution of the 737 program. The production numbers are climbing, and increased capacity should lead to solid cash flow in the next few years.
Thursday’s market slump allowed us to purchase more GE Vernova stock. As AI-related stock valuations face scrutiny and prices cool off, it’s worth noting that GE Vernova is a leading manufacturer of gas-fired turbines crucial for energy generation. The company’s revenues have surged alongside the growing demand for energy linked to AI infrastructure. “We’re using this economic slowdown to accumulate more stocks,” we noted, given the positive long-term outlook for power investments.
Eli Lilly has been in the news lately. President Trump recently announced a pricing agreement on GLP-1 medications with Lilly and Novo Nordisk, aimed at lowering the price of specific weight-loss drugs in return for coverage in Medicare and Medicaid. This is significant for Eli Lilly as it could expand access to their weight-loss drug Zepbound. Interestingly, while Lilly’s other drug, Munjaro, wasn’t included, the company reported promising results from its experimental treatment for obesity, Eloralintide. As a result, Eli Lilly’s stock surged 7% this week.
Quarterly results and corporate spin-offs have also caught some attention. Eaton announced a mixed third-quarter report, with higher adjusted EPS but lower revenue. Still, we found some positives, such as record profits in particular segments. DuPont, after spinning off Qnity Electronics, showcased record sales and profits but saw its stock drop amid mixed quarterly reports regarding its divestitures. Despite the recent noise, the underlying fundamentals for the new DuPont appear solid, leading to a hefty rise in its stock price.
Texas Roadhouse shared a mixed earnings update, offering better-than-expected results but raising concerns about slowing consumer spending. Increasing beef prices have impacted the chain’s profitability, though we’re still optimistic about our shares. Additionally, Qnity provided a business update following its spin-off from DuPont. Management expressed hope for continued growth tied to long-term trends like AI.
The club has assigned Qnity a “buy” rating and set a price target of $110. After some volatility, the stock closed just above $92 on Friday.
As a member of Jim Cramer’s CNBC Investment Club, you’ll receive trade alerts before any transactions occur. Jim typically waits 45 minutes to act after sharing a trade alert, and if he discusses a stock on CNBC, he holds off for 72 hours before making moves.
