While attending our daughter's wedding reception gatherings in England, the subject of the US stock market came up in conversation quite often. Although the views of the market by the blokes residing on the other side of the pond were interesting and varied widely, I was asked for my takeaway a time or two.

I tried to keep my responses short as I wasn't exactly sure whether the lads I was chatting with, who were mostly millennial gentlemen, were really that keen on my views or just being polite to the father of the bride.

However, I did opine that the current stock market environment is quite different than "usual." I argued that the US market is oftentimes driven by macro fundamental factors such as the economy, inflation, valuations, or the Fed, but that this cycle is a horse of a different color. Sure, investors are interested in how the economy is doing, the state of inflation, and what Jay Powell's merry band of central bankers is going to do next.

I also mentioned that, of course, earnings are always of paramount importance. But my point was that this was not a market where the macro factors dictated where the major indices were heading. No, I explained that from my seat, this is a "what you own" market. A market where stock pickers are really shining for a change.

I suggested that this market is all about themes, and in turn, the companies you own within those concepts. Although I risked rambling on, I finished with the idea that the themes which are working in this market are limited in number and by now, lots and lots of folks are focused on the same stuff. You know, the revolution in computing (commonly and often incorrectly referred to as "AI"), the energy deficiency, etc.

I summarized that if you owned the right stuff, you were having an absolutely stellar year. Conversely, if you were a typical diversified and passive investor with a portfolio split between cap sizes, styles, etc., you were likely wondering what all the fuss was about.

While I didn't have the following table available with me in the UK, the data makes my point rather nicely. Below is a summary of what the author believes are the "AI Infrastructure" stocks. And while I can certainly argue the inclusion/exclusions of some names on the list, the takeaway is pretty clear.

View Larger Chart
Source: Lin @Speculator_io

Through the end of August, the SPY ETF, which replicates the S&P 500, sports a gain of 10.06% year-to-date. The Q's (QQQ), which is the ETF for the NASDAQ 100, is up 11.57%. While small- and mid-caps show returns of 6.4% and 4.5% respectively.

However, the average return for all 61 stocks in the AI Infrastructure space is more than 3X the SPY at 37.2%. Not bad.

If you had been industrious and decided to start your own AI Infrastructure portfolio using the top 50 names, your year-to-date return would be a cool 48.8%. If you were a little more aggressive and only owned the top 20 names, the portfolio would have nearly doubled YTD (+92.5%). And employing a heavy dose of hindsight, the top 10 names on this list are up 122.9% on the year.

From my perch, it is clear that there have been superb opportunities in what I like to call the revolution in computing. And while some of the names in the AI Infrastructure list have run a VERY long way already, I'm of the mind that there will continue to be opportunities in this space, as well as others.

Off the top of my head, other themes worth investing in going forward include robotics, disease diagnosis, quantum computing, and, of course, electricity generation.

The Real Key

Will any of these provide the type of eye-popping returns seen in the "AI" space? Maybe, maybe not... only time will tell. However, my key point on this fine September morning is that there WILL be opportunities going forward. Perhaps even very meaningful investing opportunities. You just need to identify the ideas and be willing to sit through some roller-coaster type ups and downs associated with being onboard a theme train - especially if you are in your seat early!

But it IS September!

Speaking of ups and downs, the calendar has now flipped to September. And every investor on the planet knows what that means - it's usually a bad month to own stocks. According to Goldman Sachs, September is by far the worst month of the year with an average return on the S&P 500 of -1.17% going back to 1928. If my calculator is correct, 4 of the last 5 Septembers have indeed been down. Oh, and it is worth noting that most of the damage tends to occur in the second half of the month.

With this morning's headlines touting "Tariff Uncertainty" due to an Appeals Court decision saying the Administration's tariffs aren't legal (the Supreme Court will likely have the final say on the subject), the fast money trader types have moved to "risk off" and are likely shorting stocks. As such, we must understand that the ride could certainly be more than a little bumpy for the next month or so.

Looking on the bright side, such "bumpiness" also provides opportunities to either initiate or add to your favorite names in your best ideas/themes. So, my thinking is to try and turn that frown upside down by doing some buying whenever things get nasty here.

Thought for the Day:

Time is your friend; impulse is your enemy. -Jack Bogle

Wishing you green screens and all the best for a great day,

David D. Moenning
Founder, Chief Investment Officer
Heritage Capital Research, a Registered Investment Advisor

Disclosures

At the time of publication, Mr. Moenning held long positions in the following securities mentioned: OKLO, NVTS, PLTR, CEG, ORCL, AMD, NVDA, META, MSFT, AVGO, PWR, RDDT, IBM, GOOGL, AMZN - Note that positions may change at any time.

NOT INDIVIDUAL INVESTMENT ADVICE. IMPORTANT FURTHER DISCLOSURES