👣The SaaS in AI’s step

A soft start to September after a poor end to August has left the most important part of the stock market — everything related to AI — in a shakier state. The market has been jittery about semiconductors and data centers, but may have just found a new interest. 

First, what’s eating the AI trade?

• Semiconductors are in a precarious position, with the VanEck Semiconductor ETF not too far away from completing a bearish head-and-shoulders top pattern.

• Zooming in on the most important semiconductor stock, Nvidia, the heart, soul, and many other body parts of the AI trade, closed below its 50-day moving average on Tuesday for the first time since May, when it was repairing damage done in the wake of the momentum meltdown and tariff angst that roiled markets.

So that’s the shakiness. But… there is hope. 

Software has been something of a laggard in the world of tech over the last year, as investor dollars flocked to the sexiest — and most high-performing — hyperscalers, power providers, and electrical equipment makers poised to profit from the AI data center boom, but a change may be afoot.

Several, let’s just say it, incredibly boring business-to-business data management software companies like Datadog, Snowflake, Autodesk, and Pure Storage have had a bit of a run lately, partly driven by surprisingly strong earnings results.

The Takeaway

Until recently, the rap on software was, essentially, that AI stood to potentially disrupt and undercut the immensely profitable “software as a service” (SaaS) industry. As a Goldman Sachs analyst wrote in a recent note titled, “Updated thoughts on the ‘Death of Software,’” the reality seems to be that large software companies are rapidly embracing AI technology themselves, adopting a hybrid strategy. Given recent fireworks following software companies’ earnings reports, it could be a profitable area for investors to watch.

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On the first trading day of September, the market gave to me… a dip in my portfolio tree. It’s a curious phenomenon: over the past 45 years, September has been the only month when the S&P 500 Index has averaged a loss, as you can see in this chart. While it’s one thing to know September is weak on average, it’s another to see how often the month really goes south.

Why September trends this way is puzzling. Intuitively, it shouldn’t matter what month it is — but the phenomenon has held going back to the 1930s. Some theories why include:

• Seasonal moves that add to selling pressure. Fund managers, for instance, sometimes clean up their portfolios before fiscal year-end in September and October, while some investors start early on selling losers to shrink their tax bill. 

• “Post-holiday blues”: as trading slows during summer breaks, bad news isn’t fully priced in, and markets adjust lower once investors get back to business. 

Other ideas include diminishing daylight making markets droop, IPO seasonality, and pop psychology making investors turn fears into reality. Basically, if traders are expecting a bad month, they’re more likely to flee their positions at the first sign of bad news. Markets see a similar pressure in May as some traders take to heart the adage, “Sell in May and go away.”

The Takeaway

The second trading day of September saw the S&P 500 close a bit up, so it’s far too early to say whether this is another case of the curse, but the reality is that seasonal influences are only ever going to be very marginal. If the economy roars, inflation cools, AI makes a breakthrough, and geopolitical tensions abate, expect stocks to soar no matter what the calendar says. 

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Google’s antitrust ruling: What that brave new world looks like

For those hoping Google’s monopoly case would bring big change to Big Tech, Tuesday’s ruling was a severe disappointment. As Wedbush Securities analyst Dan Ives titled his note following the decision: “Government Folds Like Cheap Suit.” But that doesn’t mean the landscape hasn’t changed for Google and especially for competitors like Apple and OpenAI.

Go deeper.

What is the only Oscars moment of this decade to make the top 15 most viewed clips on the Oscars’ YouTube channel?

Hint: It’s *not* The Slap, which the Oscars does not feature on its YouTube channel.

Check your answer.

Yesterday’s Big Daily Movers 

• Hims & Hers shot up after a judge dismissed a lawsuit from Eli Lilly challenging a different telehealth company that sells knockoff versions of its GLP-1 drugs

• Dollar Tree slumped after fresh guidance suggested weakening sales momentum in the second half of the year

• American Bitcoin, a treasury company backed by the elder Trump brothers, skyrocketed on its first day of trading 

• Macy’s surged after crushing Q2 expectations and lifting its full-year outlook

• American Eagle soared after posting blowout earnings and reinstating guidance

• The next Google is still most likely Google, according to Morgan Stanley

• EVs powered Ford to its sixth straight month of sales growth 

• Make love but also war? Weapons maker Rheinmetall AG has an interesting gimmick to attract young talent

• Move over Costco hot dog: there’s a new delicious loss leader in town

• August ADP Employment

• August ISM Services PMI

• Earnings expected from Broadcom and Lululemon