Here are 3 forces that drove a whirlwind week for the stock market
A heavy selloff on Friday hurt the stock market, a dramatic reversal from a record high earlier in the week. Chip stocks nosedived in last week’s final trading session. There have been pockets of technical weakness since the Broadcom Club name disappointed with the benefits. However, the sell-off on Friday was next level after a strong jobs report ended hopes of a Federal Reserve interest rate cut and sent the 10-year bond yield rising above 4.5%. The IS&P 500 and Nasdaq fell 2.6% and 4.2%, respectively, on Friday, making Tuesday’s record highs seem like a distant memory. The massive technological revolution that has swept into lagging sectors such as health care and finance has produced winners. For the week, Eli Lilly rose 2.4%, while Wells Fargo gained 5.7%. When all was said and done, weekly losses in the S&P 500 and Nasdaq reflected Friday’s decline. The IS&P 500 hit a nine-week streak. Here’s a closer look at what drove the market’s performance last week, starting with Broadcom’s high earnings expectations and two other Club tech names that missed. Hot Stocks Turn Earnings It started Wednesday, when shares of Palo Alto Networks fell despite delivering a strong quarterly beat and raising the previous night. The stock came in hot after setting a new record high on Monday. When management reiterated its long-term financial outlook, instead of raising it, traders lowered the stock by 5.6%. It didn’t change our opinion of Palo Alto. We want executives to finally show Wall Street that AI can accelerate their business. That’s huge considering how badly Internet stocks had sold off earlier this year on what Jim Cramer has always said were unfounded fears of disruption. For the week, Palo Alto fell 3.4%. A similar story played out when CrowdStrike reported better-than-expected earnings and forward guidance on Wednesday evening. The stock fell more than 10% during Thursday’s session but closed down less than 4%. Like Palo Alto, CrowdStrike’s weakness can be chalked up to a failure of high expectations among stocks nearing record highs. We did not give up. CrowdStrike also showed us that AI is a boon for business. CEO George Kurtz said so himself in a conference call. Unfortunately, CrowdStrike continued to sell off on Friday, losing more than 8% for the week. But the biggest loser was Broadcom, whose stock fell 12.6% after Thursday’s earnings. Price’s action here may be somewhat understandable because it wasn’t just a failure to issue a stronger directive; and it was a lower-than-expected revenue number for the reported quarter. The AI-related parts of its business have been strong. We are also encouraged by management’s forecast of continued growth in AI semiconductor revenue through 2028. That probably wasn’t enough to save the stock. The sell-off continued on Friday, with Broadcom being our worst performing stock of the week, down 13.7%. Weekly losses on Intel, our new chip stock, were neck and neck with Broadcom. Intel lost 13.5% for the week. We started the position on Wednesday and bought a lot of shares that went down on Friday. We got into Intel because of its strong central processing unit (CPU) business, which is well positioned for the agent AI era. In data center server markets, the ratio of CPUs and GPUs is decreasing. GPUs are graphics processing units, and Nvidia dominates the market. Kingmaker Nvidia is down a very modest 2.9% for the week. At the influential Computex conference in Taiwan on Monday, CEO Jensen Huang announced that Nvidia is entering the personal computer market, with chips based on Arm Holdings’ design. Shares of Arm, the Club’s name, rose 15.7% on the news. However, it was not immune to the sale of chip shares. Weapons stocks lost 3% for the week. The arm has been a wonderful place for us; shares are still up 213% year to date. There was one big chip-stock winner amid all the carnage. Shares of Marvell Technology have gained more than 28% in the past week. On Tuesday, Jensen predicted that Marvell would be “the next trillion dollar company.” Before those comments, which sent the stock soaring, Marvell had a market cap of nearly $200 billion. Jim said the sharp rally in Marvell shares is concerning. “These are big steps, and they are not based on anything other than one person.” Even so, Jim remains cheap in Marvell, which is not a Club stock. IPOs and stock sales Another big story of the week, which will continue next week and beyond, is the flood of stock expected to hit the market from the big three IPOs. The first is SpaceX, which is scheduled to begin trading this coming Friday. Elon Musk’s satellite, rocket, and AI company disclosed plans last Wednesday to sell 555.6 million shares at a fixed price of $135 each, raising about $75 billion at a market value of $1.8 trillion. SpaceX is just one of the high-profile IPOs. Anthropic, known for its family of large-scale Claude varieties, privately filed its IPO prospectus on Monday. This deal could create a historic share sale for investors ready to jump into AI, as Anthropic recently closed a funding round that valued the startup at $965 billion. The news puts Anthropic ahead of rival OpenAI, which studies systems for public market listings. The latest startup is valued at $852 billion post-money. Companies don’t just raise money through IPOs. Last week, Alphabet announced plans to sell $85 billion in stock to raise more funding for AI development. Shares of parent Google fell nearly 4% Tuesday on the news and are down 3% for the week. Investors generally don’t like it when companies sell stock to finance investments because it can dilute their existing stakes. The move has raised questions about whether other megacaps will follow suit. Club stock Meta Platforms plunged on Friday after the Financial Times reported that the company could raise tens of billions of dollars in a stock offering to help fund its AI. Meta lost more than 6% for the week. Jim issued a warning about all these deals, saying that a large increase in the stock could cause a near-term storm in the market. A series of large technology IPOs and stock sales can prompt investors to sell existing assets for cash and buy shares elsewhere. “Bull markets can be killed by business conditions or interest rates or global turmoil, but what easily leads them to the slaughterhouse is an excess of innovation,” he said during “Mad Money” on Wednesday. “Like any market, when supply exceeds demand, prices go down.” Jim continued, “I worry that the supply of stock will outstrip investor demand. Right now, looking at the calendar, I don’t know how we’re going to pay for all these deals without bringing the market down. It’s too much money at one time.” (See here for a full list of stocks from Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling stock in his charity portfolio. 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