Wall Street just posted its fifth straight monthly gain, so the bull market is intact. September is statistically a weak month, and it is opening badly. Bond yields are rising and the Middle East is flaring up with the Iran war. Many headwinds are coming. As traders return from summer, the question for the rest of the year is whether to lock in gains now or push through what will be heavy volatility.
The Fed and rate odds
Rate hike expectations swung hard. Heading into Jackson Hole they were falling, then jumped to a coin toss, then rose further to favor a hike. The Fed chair did well showing independence from the administration - checking that box helped both sides. He also left himself an out tied to the data. Inflation runs a bit hot, but much of it comes from the Middle East and should prove temporary. There is room for the Fed to hold rates where they are. A hike this month looks overblown; a later-this-year move is more likely.
Why do views keep flipping from one side to the other? Sticky inflation still hurts consumers, and it shows in weak sentiment. People feel the pain of credit card and auto loan interest rates. Prices rose 40% to 50% over the past 5 years while incomes did not keep pace. So fear of fresh inflation is baked in, even though outside energy it barely shows in the data.
An AI bubble, and value elsewhere
The top worry among high net worth and ultra high net worth clients is whether AI is a bubble headed for a dot-com-style pop. On the AI side, there is a real, large bubble - some companies trade at values that make no sense long-term. Away from AI, there is plenty of cheap value because the market is ignoring anything not tied to the theme.
One example: GMR Solutions, a small cap that IPO'd earlier this year to no attention, trading at just two times free cash flow. That valuation is extreme because it has no AI link and is still finding its footing. It is a spin-out from KKR (KKR) and the country's biggest emergency medical services provider, comparable to Life Flight.
SpaceX (SPCX): patience
SpaceX (SPCX) draws heavy interest from both wealthy and retail investors. It closed just above 143, off some ground but above its post-IPO lows. The call here is patience. It can be a great company, but many lockup expirations remain - another lands in about 8 days, likely bringing an initial drop, with the full lockup period ending in December. The stock looks more compelling below today's roughly 141 level, closer to 100. Some clients have a limit order to buy at 100 or lower. Expect a better entry price into December.
Marvell (MRVL): more room to run
Marvell (MRVL) is up about 150% year to date yet still trades around 20% below its high, leaving good opportunity. Its interconnect business, which links the parts inside a data center, is growing 70% to 80% a year. Marvell (MRVL) is a cheaper alternative to Broadcom (AVGO); Broadcom (AVGO) is the better company, but Marvell (MRVL) still carries a lot of innovation at a lower price.
