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🐻 Bear necessities
Good morning. Your next raise might be a shorter drive. With gas up 41% from last year, nearly half (opens in a new tab) of workers in a Monster survey say they’ve turned down a job over the commute. It’s gotten so bad that Congress is now looking at a tax break of up to $4.08K a year for commuters. Bipartisan agreement is rare, but nothing unites the nation like a traffic jam.
Top Idea
Cybersecurity Stocks Have Soared on AI Fears. The Price Tag Is Catching Up
Fear sells, and right now it's the hottest product in software. Cybersecurity stocks have ripped higher as AI-powered threats fuel a new wave of corporate security spending. The rally has been so fierce that even some of the market's loudest bulls are flinching at the price tag.
Fear premium: Goldman Sachs’ basket of cybersecurity stocks has more than doubled (opens in a new tab) since its April 10 low, with fears of AI-powered cyberattacks fueling investor appetite. Those concerns are mounting. Australia's prime minister said an OpenAI model hacked a government website, while Google disclosed that Gemini breached three company systems during testing. Private capital is following suit, with Cyera securing another $400M (opens in a new tab) from Goldman's venture arm.
- CrowdStrike, Palo Alto Networks, and Fortinet have each surged more than 130% from their April lows.
- Okta leads year-to-date returns with a 120.2% gain, followed by Fortinet at 116% and CrowdStrike at 107.3%, as investors pile into the sector.
The Valuation Bill Comes Due
The rally has turned cybersecurity into some of the most expensive real estate in the S&P 500. CrowdStrike trades at more than 170x estimated earnings, second only to Tesla. So far, the business is giving investors plenty to work with. Second-quarter revenue climbed 26% to $1.47B, while record net new ARR (opens in a new tab) reached $333M. CEO George Kurtz called securing AI "the largest market opportunity in our history," though expectations are climbing just as quickly as the numbers.
- Bernstein's Peter Weed downgraded Palo Alto, Okta, and SentinelOne, warning that cybersecurity stocks "may have gotten over their skis" after the rally.
- Société Générale's cybersecurity basket trades at ~25 times forward earnings, still below its 30.2 average since 2018 despite the sector's sharp gains.
The other side: SocGen's Manish Kabra points to annual EPS growth of ~16% (opens in a new tab) since 2020, up from 10% the prior decade. The sector's low correlation with semiconductors also gives investors a way to diversify beyond the crowded AI trade. Wealthspire CIO Brad Long is more cautious, warning that slower AI spending or fewer sophisticated attacks could see revenue weaken and stocks "sell off materially." For investors chasing the rally, even a slight slowdown could make those lofty valuations hard to defend.
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Large-Cap Recap
Industrial Stocks Slip Under Pressure
Industrial stocks have lost their footing following a sharp pullback, with surging oil prices and higher bond yields weighing heavily on major sector names. General Electric and Caterpillar have both retreated as investors reconsider growth prospects tied to the AI buildout. Meanwhile, manufacturing activity continues to hold up with strong PMI readings. That has created a disconnect between factory data and share prices, leaving managers hunting for resilient backlog businesses. [Read (opens in a new tab)]
Streaming Giants Take Diverging Paths on Pricing
Walt Disney raised streaming subscription prices for the second time in a year to fund new technology and content features. That decision arrives as streamflation drives US consumers to cancel services. Meanwhile, Paramount Skydance moved in the opposite direction by rolling out a major marketing campaign and platform upgrade for its free streaming service Pluto TV. That platform faces intensifying competition from Tubi and Roku. [Read (opens in a new tab)]
Bond Selloff and Rising Oil Pressures Threaten Equities
The global bond market is flashing a warning Wall Street can’t ignore. Treasury yields have surged to two-decade highs as soaring oil prices fuel inflation fears and revive bets on Fed rate hikes. Borrowing costs are climbing from Washington to Tokyo, hammering utilities, real estate, and bonds while pushing mortgage rates higher. Even Treasury Secretary Scott Bessent’s bond buybacks have failed to calm the selloff, leaving investors with fewer places to hide. [Read (opens in a new tab)]
Market Pulse
Everpure, Inc.
The data storage company’s shares surged after its fiscal 2028 revenue outlook topped Wall Street expectations on strong AI demand.
MGM Resorts International
The casino operator’s shares sank after Barry Diller’s People Inc. withdrew its takeover proposal, ending hopes for a buyout.
Oracle Corporation
The software giant’s shares fell after invoking force majeure on a Stargate data center project amid permitting delays and local opposition.
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Markets & Economy
US new home sales hit an eight-month high: Sales jumped 6.4% in August as builders used price cuts and incentives to attract buyers. Rising mortgage rates and a large inventory of unsold homes continue to weigh on the housing market. [Read (opens in a new tab)]
Apple and Nvidia dominate the S&P 500: Apple and Nvidia now account for over 15% of the index, a record concentration for two stocks. Their growing weight leaves the broader market increasingly exposed to just two companies. [Read (opens in a new tab)]
PepsiCo plans fresh price hikes: PepsiCo reportedly plans to raise prices on some chips and sodas by early 2027 after earlier discounts failed to revive demand. Its North American food business continues to face weaker sales and shifting snacking habits. [Read (opens in a new tab)]
Business & Tech
Hyundai poised to outsell Ford in US: The South Korean automaker is on track to beat Ford Motor in quarterly US sales for the first time. Cox Automotive data shows surging hybrid adoption and a Detroit inventory gap drove the shift. [Read (opens in a new tab)]
Starbucks to close 250 North American stores: Starbucks announced plans to shutter ~250 underperforming stores and incur $300M in restructuring charges. The closures come as CEO Brian Niccol slashes the fiscal 2026 store opening outlook to about 440 locations. [Read (opens in a new tab)]
Cat food sales surge as dog demand slows: General Mills and Chewy report strong momentum in feline products even as dog adoption normalizes. Meanwhile, veterinary costs push overall pet inflation to 3.2% annually. [Read (opens in a new tab)]
Chart
Digit of the Day
Barclays Says Hold On Despite Warnings of a 20% Market Drop
Nobody likes a party pooper, but one strategist is volunteering for the job. Clocktower’s Eric Wallerstein sees the broad market sliding nearly 20% next year (opens in a new tab) as rate hikes, an energy shock, and lofty valuations collide. Meanwhile, another camp says stay invested, so investors now hold two loud opinions and only one portfolio to protect.
- Wallerstein pegs the odds of that bear case at 50/50 — and told clients he expects forward price-to-earnings multiples to compress further, down to 15x.
- Even so, Barclays refuses (opens in a new tab) to derisk, pointing to 30% US earnings growth in Q2 — with margins climbing in every sector but healthcare.
The AI hinge: Both camps are really arguing about whether the AI build-out pays for itself. Wallerstein fears the $3T of off-balance-sheet financing behind it, and Thursday showed the friction, with Oracle and developer Blue Owl sliding on a report of data-center project challenges. The bulls got their counterpunch when JPMorgan raised its Meta target, betting its Muse AI agent delivers the payoff. President Trump also said he doesn’t plan to restrict AI before his meeting with Xi Jinping. For now, the party pooper is waiting outside.
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Industrial Stocks Are Under Pressure. Where's the Hidden Value?
Industrial stocks have come under pressure, but the selloff hasn't erased this year's gains across the sector. Deere, Caterpillar, and Eaton have posted strong returns, while GE Aerospace and Honeywell have lagged.
Our screener puts their valuations and profit margins side by side to help investors spot potential opportunities.
- Find potential bargains: Compare valuations, earnings growth, and profitability to see which industrial stocks may be undervalued (opens in a new tab).
- Look ahead: Explore what could drive each stock's next move and the risks (opens in a new tab) that could stand in the way.