A positioning and valuation week with AI/growth leadership tested

The week was defined by profit-taking in AI/growth, better breadth beneath the surface, and a defensive/value tilt. 

Mega-cap weakness weighed on the cap-weighted indices, while equal-weight and value held up far better (MGK -3.1% w/w; Russell 3000 Growth -2.9% vs. Russell 3000 Value -0.1%). Semis were volatile; energy and defensives finished strong. The S&P 500, despite the struggles of the growth stocks, managed yet again to hold key support at its 50-DMA.

Macro & policy
• Manufacturing stayed in contraction: ISM Manufacturing 48.7 (8th straight <50) even as S&P Global Mfg PMI ticked up to 52.5.
• Services re-accelerated: ISM Services 52.4 with the prices-paid index at a 3-yr high—an incremental hurdle for a December rate cut.
• Labor mixed: ADP +42k after a negative prior revision; Challenger job cuts for October were the highest for any October since 2003.
• Consumers wobbled: prelim Univ. of Michigan sentiment slid to 50.3; non-revolving credit drove a $13.1B September credit gain.
• Rates were range-bound: 2-yr ~3.57–3.63%, 10-yr ~4.09–4.16%, with safe-haven bids on weak data and growth jitters.
• Trade/politics: the U.S.–China tariff framework eased the average rate by 10% with a 100% hike postponed a year; shutdown headlines ping-ponged but didn’t derail the late-week rally.

Sector & factor moves
• Leadership rotation: energy, utilities, materials, staples, and real estate outperformed late week as investors sought defensives and yield.
• Growth under pressure: info tech and consumer discretionary lagged; breadth improved mid-week but leadership remained thin among mega-caps.
• Equal-weight beat cap-weight again as narrow leadership continued to unwind.

Story stocks
• Amazon: rallied on a $38B, 7-year AWS compute deal with OpenAI, reinforcing cloud/AI demand optionality and sustaining post-earnings momentum.
• NVIDIA: early strength faded; week -7.1% amid AI rotation and reports of rival chip availability; semis swung with HBM pricing chatter and export headlines.
• Palantir: sold off post-beat/raise on valuation concerns (still >200x forward P/E), catalyzing profit-taking across AI/growth.
• AMD: beat-and-raise helped stabilize semi sentiment; group still choppy.
• Micron/Seagate: bid on reports of SK Hynix aiming for 50% HBM price hikes, spotlighting tight high-bandwidth memory supply.
• Tesla: volatile; weakness weighed on discretionary; later rebound couldn’t restore weekly leadership as shareholders approved a supersized CEO pay package.
• Alphabet: bucked tech softness on reports its Ironwood AI chip will be widely available soon.
• Kimberly-Clark/Kenvue: $48.7B cash-and-stock deal drove a sharp Kimberly-Clark slide on price/leverage; Kenvue jumped on a cleaner exit path.
• Health-weight loss: headlines pointed to “most-favored nation” pricing commitments, aiding sector defensiveness.
• e.l.f., Duolingo, DoorDash, Paycom: examples of how outsized post-print drawdowns amplified valuation discipline outside megacaps.

Bottom line
This was a positioning-and-valuation week: AI/growth leadership was tested, defensives rotated in, and indices held crucial support with better (if still fragile) breadth.

• S&P Midcap 400: -0.1% for the week / +3.9% YTD
• DJIA: -1.2% for the week / +10.4% YTD
• S&P 500: -1.6% for the week / +14.4% YTD
• Russell 2000: -1.9% for the week / +9.1% YTD
• Nasdaq: -3.0% for the week / +19.1% YTD

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