Every weekday, Jim Cramer’s CNBC Investment Club releases the Homestretch, a practical afternoon update to coincide with the last hour of trading on Wall Street. Markets: The S&P 500 rallied on Friday, recovering from steep losses in the previous session. The broad index, which has been down nearly 1.5% for the week, started off in somewhat choppy trading as club stock Nvidia fell after closing. Concerns about artificial intelligence trading, which have been plaguing the market, appeared to dominate the session. But markets soared after New York Fed President William Williams suggested central bankers could cut interest rates for the third time this year. Interest rate-sensitive stocks rose sharply on Friday. Home Depot rose more than 3.5% on the day, easing a tough week following Tuesday’s lackluster quarterly results. Eli Lilly hit an all-time high, becoming the first pharmaceutical company to reach a $1 trillion market capitalization. TJX also hit a new all-time high after the off-price retailer, which joins TJ Maxx, Marshalls and HomeGoods, reported strong quarterly results on Wednesday. Carry Trade: We are also monitoring developments in Japan as it grapples with its own inflation issues and the question of whether to resume rate hikes. This brings us to the popular Japanese yen carry trade, which is under pressure as borrowing costs in Japan rise. In yen carry transactions, yen is borrowed at low interest rates, exchanged for dollars, etc., and invested in high-yield overseas assets. That’s fine when the cost of borrowing yen is low. It’s a different story now, with Japan’s borrowing costs at their highest level in 30 years. As interest rates rise, carry trade margins are squeezed or completely eliminated. As a result, investors need to exit, which means forced selling and price action that diverges from fundamentals. It’s unclear whether this is adding pressure to the U.S. market. There was nothing in the recent quarterly earnings reports of US companies to suggest that company fundamentals were deteriorating in any meaningful way. That’s why we’re looking at other potential external factors, along with well-known concerns about spending on artificial intelligence, the depreciation that comes from those capital investments, and general concerns about consumer confidence and inflation here in the United States. Wall Street’s call: HSBC lowered Palo Alto Networks’ rating from affirmative to sell after the company reported its quarterly results on Wednesday. Analysts maintained their $157 price target, but cited slower sales growth as a factor in their reassessment, calling the quarter “adequate rather than transformative.” Still, the club name delivered a beat-and-raise quarter, beating expectations in all key metrics. None of these stopped Palo Alto stock from falling after its release. We chalked up the revenue decline to high expectations heading into the quarter, along with investor concerns about the new acquisition of cloud management and monitoring company Chronosphere. Palo Alto continues to work toward completing its multibillion-dollar acquisition of identity security company CyberArk, announced in July. HSBC claims that the risk-to-reward ratio for its share price has now turned negative, limiting the potential for upward revisions to its fiscal 2026 and 2027 forecasts. Given the momentum we’re seeing across Palo Alto’s businesses, we disagree with HSBC’s claims. Cybersecurity leaders are gaining an advantage through “platforming” strategies that bundle products and services. Additionally, Palo Alto continues to add net new platforming every quarter and convert customers to use its security platform, and is on track to meet its fiscal year 2030 goals. I also like management’s strategy for acquiring companies right before an industry tipping point. Palo Alto believes that with the Chronosphere, the entire observability industry needs to change due to the growing presence of AI. We would like to reiterate that we have given the stock a rating of “1”, equivalent to “buy”, and have set a target price of $225. Next: There will be no club earnings report next week. Outside of the portfolio, Symbotic, Zoom Communications, Semtech and Fluence Energy will be announced after the close of trading on Monday. Wall Street will also see a slew of delayed economic data releases during the abbreviated holiday trading week. U.S. retail sales and September consumer price index data are expected to be released early Tuesday. Durable goods orders and conference board consumer sentiment will be released on Wednesday morning. (See here for a complete list of Jim Cramer Charitable Trust stocks.) As a subscriber to Jim Cramer’s CNBC Investment Club, you will receive trade alerts before Jim makes a trade. After Jim sends a trade alert, he waits 45 minutes before buying or selling stocks in his charitable trust’s portfolio. If Jim talks about a stock on CNBC TV, he will issue a trade alert and then wait 72 hours before executing the trade. The above investment club information is subject to our Terms of Use and Privacy Policy, along with our disclaimer. No fiduciary duties or obligations exist or arise from your receipt of information provided in connection with the Investment Club. No specific results or benefits are guaranteed.
