A toxic stew drags stocks lower as we look at what can get the AI trade back on track
Every weekday, the CNBC Investing Club with Jim Cramer releases the Homestretch — an actionable afternoon update, just in time for the last hour of trading on Wall Street. Stocks moved sharply lower on Monday , with weakness across most sectors. Technology and AI-related stocks were the hardest-hit groups as selling in the Korean stock market spilled into U.S. markets. The real damage was in the Nasdaq , which sank nearly 1.5%. Another headwind to the broader market was the jump in oil prices after the U.S. and Iran exchanged strikes over the weekend, prompting President Donald Trump to reinstate a blockade on Iran in the Strait of Hormuz. The president also proposed a 20% toll on cargo passing through the vital waterway. Bond yields followed oil higher, with the 10-year Treasury yield climbing above 4.6%. Hawkish remarks from a Fed official also contributed to the move higher in bond yields and the pressure on stocks. Federal Reserve Governor Christopher Waller warned Monday that the Fed may need to hike interest rates if inflation continues to rise. “If we get another hot reading on core inflation this week, then the FOMC will need to consider tightening monetary policy in the near term,” Waller said in a speech before the New York Association for Business Economics. The Federal Open Market Committee is the central bank’s policymaking group. It’s almost a coin flip now that the Fed will raise rates at its July 29 meeting, according to the CME FedWatch tool. That’s a significant change from one week ago when the probability of a hike was at about 25%. One month ago, the odds stood at just 8%. While we have long been in the camp that the Fed won’t raise rates this year, we acknowledge the argument to hold gets tougher as crude flows through the Strait of Hormuz slow. Corning’s price target was raised by analysts at Citi to $240 per share from $225. The analysts said they remain “constructive” on shares due to ongoing strength in optical connectivity tied to the AI data center infrastructure buildout. Citi also called out opportunities in advanced glass packaging substrates for next-generation semiconductor applications, as well as its solar component business ramping and becoming a tailwind to earnings. Like many others in the AI infrastructure trade, shares of Corning have fallen hard from their June high. After briefly peaking above $260, the stock pulled back by about 30% in July. The recent performance is a good example of why it’s disciplined to trim into parabolic moves. We trimmed the position three times in June at progressively higher prices — roughly $200 and $222 and $260 — and the stock now trades well below those levels. In fact, it is now all the way back to the level first hit after the company announced its significant, multi-year partnership with Nvidia . The heightened volatility in the group is keeping us from buying back the shares we sold. In the absence of new, positive developments, a move closer toward $162 that erases all of those Nvidia deal gains would tempt us to buy more shares. What could get the AI theme back on track? Earnings season. More specifically, capital expenditure guidance from Alphabet , Amazon , Microsoft , and Meta Platforms . If all four of our hyperscalers raise capital spending guidance for this year and continue signaling investment growth into 2027, it would reinforce confidence in the durability of the AI investment cycle. However, a renewed focus on capital discipline would complicate the trade. There are no major earnings reports after Monday’s closing bell. Tuesday is the big bank day with Club names Goldman Sachs and Wells Fargo , as well as JPMorgan , Citigroup , and Bank of America all scheduled to report before the open. Wells Fargo’s earnings are a test of whether the stock’s standing in our portfolio remains in jeopardy. Tuesday morning’s economic calendar features the first of two inflation reports this week — the June consumer price index. Economists polled by FactSet expect a 3.8% annual increase and a 0.1% month-over-month decline. A stronger-than-expected inflation report could increase the likelihood of additional Fed tightening, consistent with Waller’s comments. (See here for a full list of the stocks in 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 a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
