What a week!
Meta (META) became an AI superstar, bond yields hit new highs, and I found yet another reason to love Apple (AAPL). Let's dig in!
September = Slop
September is historically the worst month of the year for the S&P 500, but we've squeezed into the green:
However, just 137 of S&P 500/SPY stocks are up for the month, and the average individual name is down 3.1%.
And only 2 of 11 S&P sectors are positive: Technology and Communication Services
Interestingly, the Communication Sectors sector has a 22% weighting in Meta (META), which is up over 31% this month on the back of its Muse AI launch. It would be in the red if not for Meta.
Related: Why META Is Going to $1,000
So while we could theoretically write a headline "SPY Is Up for September," the underlying data stinks outside of tech.
Meanwhile, small caps have been getting destroyed with IWM down over 3% because of higher interest rates.
JR Romero explains here:
We Have Yet Another AI Monster
Every week, I learn about another company reporting blockbuster demand because of AI buildouts.
Last week, it was power infrastructure name Forgent Power Solutions (FPS).
This week, it was data storage play Everpure (P), which used to be called Pure Storage.
The stock exploded Thursday after the company announced monster guidance for FY2028, thanks to AI-driven demand.
On Friday, Goldman Sachs said it expects the 5 biggest US hyperscalers (Amazon, Alphabet/Google, Microsoft, Oracle, Meta) to spend $1.2 trillion on AI infrastructure next year. That's up 54% from this year.
Apple Is My Favorite AI Stock
There is another AI infrastructure boom happening... at home.
More and more people and companies are opting for open-source AI models that run on local computers.
That's because if you run locally, you avoid monthly or per-token charges, and you have greater control of your data.
This market appears to be dominated by Apple's (AAPL) Mac Mini and Mac Studio, which get rave reviews because of their warp-speed processing and low power consumption.
Apple just released new Mini and Studio models on Tuesday. I spent some time on Apple.com researching different configurations to see how fast they ship.
The earliest shipping date I could find for a Mac Mini was October 15-22.
And some Mac Studio configurations don't ship for another 15-17 weeks.
The Mac accounted for just 9% of Apple sales last quarter.
I suspect that number will go way up.
The Information reported in August that Apple itself was surprised by how many enterprises are using Mac hardware for AI. And they also said Apple was considering a return to the server market.
If that happens, let's pray for the shorts.
Apple is my largest stock position, so take what I saw with a grain of salt.
Sentiment Is Not Bullish
The latest AAII Sentiment Survey shows that just 32.7% of investors are bullish.
This is up from 28.8% last week, but it's still below the long-term average of 37.5%.
Meanwhile, 48.8% of investors are bearish, which is well above the average of 31.5%.
Plus, CNN's Fear & Greed Index is at just 38/100, indicating modest fear.
So there remains little enthusiasm for the market.
And it looks like rates are an issue.
Traders Fear Higher Rates
On Thursday evening, I asked members of the Alpha Team VTF® if they were worried about higher rates.
65% of members said yes.
Plus, many more members manually typed out a "Yes" instead of taking the poll
This wasn't the most scientific survey in the world (sampling one room of active traders after a tricky day in the market), but rates are clearly a worry.
Fed Expectations Point to Hikes
Last week, the FOMC raised rates by 25 bps, with Chair Kevin Warsh saying "The plain fact is that inflation is too high and has been for too long."
The CME's FedWatch Tool now shows the market is pricing in a 64% chance of a 25 bps rate hike at the October meeting.
That's up from just 10% one month ago.
And the market is pricing in a 51% chance of 50 bp in total hikes by year-end.
Next Week Is About Two Things
Obviously, the market wants to see US Treasury yields and crude oil down. Plus some kind of deal between the US and Iran to get the Strait of Hormuz fully open.
But as far as the official trading calendar goes, two things matter.
The first is the Nonfarm Payrolls Report on Friday.
And the second is Micron's (MU) earnings report on Wednesday. I think this is bigger.
As noted, demand for AI infrastructure just keeps going up, so in all likelihood, Micron will sing the same old song about being supply-constrained.
But on the off chance Micron says anything negative, expect havoc in the market. Because AI is clearly holding the economy and market up.
Anyway, if you care, this is what else is coming:
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