The market showcased a robust rebound this week, with AI-related stocks leading the charge as investors digested a fresh batch of corporate earnings and a surprisingly tepid July jobs report. Major indices posted their second consecutive week of gains, with both the Dow Jones Industrial Average and the S&P 500 hitting fresh record highs. The Dow Jones closed at a record on Wednesday and ended the week up 3%, while the S&P 500 and the tech-centric Nasdaq Composite advanced 3.6% and 5.2%, respectively. The S&P 500 reached its all-time closing high on Friday, with the Nasdaq now sitting just 1.5% shy of its June 2 record.
The market’s upward momentum was significantly buoyed by Friday’s weaker-than-expected jobs data. The unexpectedly low figure for July’s nonfarm payrolls, which saw a decline of 23,000, eased concerns that the Federal Reserve would feel compelled to raise interest rates at its upcoming September meeting. This development prompted investors to recalibrate their expectations for future rate hikes, leading to a notable dip in Treasury yields. Market participants are now pricing in a 55% probability that the Fed will maintain its current interest rate stance at the September meeting, a shift from the 45% probability seen just the day prior, according to CME’s FedWatch tool.
**The AI Trade Regains Momentum:**
After facing considerable headwinds throughout July, semiconductor and data center stocks staged a remarkable comeback this week. The recovery gained significant traction following the forced unwinding of Situational Awareness, a highly leveraged hedge fund founded by former OpenAI researcher Leopold Aschenbrenner. Last week’s events saw indiscriminate selling across AI infrastructure names, pushing many fundamentally sound companies to valuations that did not reflect their intrinsic worth. This liquidation event is being viewed by some as a necessary “clearing event” for the AI trade, effectively removing a significant overhang from the market. With the forced selling largely behind us, the focus has now returned to corporate earnings and underlying business fundamentals as key drivers of stock performance. This shift was evident across portfolios, with Corning emerging as a top performer. The strength was pervasive across the semiconductor sector, as exemplified by the iShares Semiconductor ETF (SOXX) jumping 7.6% for the week, significantly outperforming the Dow’s 3% gain. While some of these gains were tempered on Thursday by guidance from Sandisk and Western Digital that failed to impress investors despite solid quarterly results, these reactions are likely company-specific rather than indicative of a broader slowdown in AI infrastructure demand. This conviction in the long-term AI buildout is precisely why companies like Micron have become attractive additions. While the memory-chip maker has already seen a sharp recovery from its late July lows, it still trades at a notable discount to its June record close.
**SpaceX’s Strategic Nvidia Bet:**
SpaceX’s shares experienced a significant decline earlier in the week following the company’s report of better-than-expected revenue and earnings, which were overshadowed by capital expenditures of $18.4 billion for the second quarter, substantially exceeding analyst expectations. However, the stock demonstrated resilience, recovering to finish the week with a 23% gain after successfully navigating its first IPO lockup expiration. Looking ahead, the long-term perspective for SpaceX remains highly optimistic. Near-term volatility may persist as lockup shares enter the market, but the company is viewed as a generational investment. Crucially, during the earnings call, Elon Musk announced that SpaceX will exclusively utilize Nvidia’s Vera Rubin architecture for its AI infrastructure, citing it as “the best AI computer.” This powerful endorsement from a leading innovator like SpaceX further solidifies Nvidia’s position as the preeminent supplier of AI infrastructure, even as major hyperscalers continue to invest in developing their own custom silicon solutions. Nvidia concluded the week with an impressive gain of over 11%, marking its strongest weekly performance in more than a year. Despite this significant endorsement for Nvidia, AMD shares experienced a decline of 7%, even after the company posted strong quarterly results. The market often views Nvidia and AMD in a zero-sum competitive dynamic. However, the underlying demand for AI infrastructure is robust enough to support multiple successful players. As enterprises globally race to secure critical computing capacity, both Nvidia, AMD, and Intel are well-positioned to capitalize on the ongoing AI buildout.
**Portfolio Adjustments:**
Active portfolio management remained a priority this week, with a continued focus on allocating capital towards the highest-conviction opportunities. Additional shares of Corning were acquired following an upgrade to a buy-equivalent rating. The recent forced selling in AI infrastructure names was viewed as an opportune moment to increase exposure to a company poised for accelerated growth through the end of the decade, further supported by restrictions on Chinese optical components. Similarly, the Intel position was bolstered, capitalizing on weakness stemming from the recent unwind. Intel remains a favored investment vehicle for participating in the AI buildout. In the healthcare sector, proceeds from the Dover sale were redeployed into Johnson & Johnson. Recent price weakness was interpreted as an overreaction to an accounting adjustment related to acquisitions, rather than a fundamental shift in the underlying business. The decision to wind down the Dover position was driven by mixed quarterly results and a strategic assessment of capital allocation. The overarching strategy involves pruning underperforming or less promising positions to reallocate capital to areas with superior return potential. The Honeywell Aerospace position was also exited. The initial investment thesis centered on a smooth execution narrative post-spin-off; however, the company’s first standalone earnings report, which included a downward revision of guidance due to ongoing supply chain execution challenges, diminished conviction. While a long-term bullish stance on cybersecurity persists, positions in CrowdStrike and Palo Alto Networks were trimmed. Both stocks had reached record highs and approached target price levels, prompting the realization of significant gains, approximately 146.5% and 172%, respectively.
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