Market Turbulence Meets Government Gridlock
Welcome back, fellow investors! We’re navigating some choppy waters this week as the ongoing government shutdown enters its 39th day, creating ripple effects across the economy and markets. The S&P 500 and tech-heavy Nasdaq both declined this week – about 1.6% and 3.0% respectively – as political gridlock combines with concerns about AI valuations.
The shutdown is hitting where it hurts most: travel disruptions are mounting as air traffic controllers work without pay, with American Airlines CEO Robert Isom confirming that holiday travel bookings are being impacted. Over 1,000 flights were canceled on Friday alone, and the FAA plans to incrementally reduce air traffic by up to 10% by next week. This isn’t just an inconvenience – it’s affecting the leisure and hospitality sector that employs over 17 million Americans.
Consumer sentiment has fallen to near-record lows, with the University of Michigan’s index dropping to 50.3 in November. However, there’s a fascinating divergence: investors heavily exposed to stocks saw an 11% increase in sentiment, while non-investors pulled back. This “K-shaped” economy is becoming more pronounced, where asset owners continue spending while others struggle.
Meanwhile, electricity costs are emerging as a major concern for voters and investors alike. Average monthly bills are rising to over $175 in some states, driven by increased demand from data centers, bitcoin miners, and domestic manufacturing revival. This is putting pressure on household budgets and contributing to broader affordability concerns that politicians are scrambling to address.
Stock Spotlight: AI Reality Check and Insider Moves
Let’s dive into specific stocks that caught our attention this week, applying our value investing principles to separate signal from noise.
Nvidia and Palantir: The Michael Burry Effect
Hedge fund manager Michael Burry made headlines with bearish bets on AI darlings Nvidia and Palantir, buying 1 million Nvidia put options and 5 million Palantir puts. This triggered declines of 7.1% and 11.2% respectively this week. But should we follow the “Big Short” legend?
Applying Benjamin Graham’s principles: Nvidia trades at 43x forward earnings after gaining 1,200% over three years. While the company’s leadership in AI chips is undeniable, this valuation requires perfect execution and sustained growth. Graham would caution that when excellent prospects are fully reflected in high P/E ratios (>20x), we’re in speculative territory.
Palantir reported strong Q3 earnings with revenue of $1.18 billion and non-GAAP EPS of $0.21, yet the stock sold off due to valuation concerns. With a 300% gain in the past year and 2,200% over three years, the market may be pricing in perfection. Remember Graham’s warning about “quotational loss risk” – when expectations get too high, even good news can disappoint.
CoreWeave: Debt-Laden AI Infrastructure Play
CoreWeave presents an interesting case study in the AI infrastructure boom. The data-center operator has seen its stock rise 160% since its March IPO, but carries $11 billion in debt against $7.6 billion in current liabilities. Thin operating margins and cash burn raise red flags.
Philip Fisher would ask: Does this company demonstrate functional excellence across production, marketing, research, and financial skills? The debt load suggests financial discipline may be lacking. For conservative investors, this looks more like speculation than investment.
WesBanco: Insider Confidence in Banking
On the value side, WesBanco director Zahid Afzal purchased $100,000 worth of shares after solid Q3 earnings. The bank delivered net income of $81 million, up from $34.7 million, despite acquisition-related headwinds. With a 4.79% dividend yield and shares down 12% year-over-year, this looks like a classic value opportunity.
Peter Lynch would classify this as a potential “stalwart” – a company that might deliver 30-50% gains rather than tenbaggers, but with lower risk. The insider buying suggests confidence that short-term challenges will pass.
Portfolio Strategy: Staying Grounded in Uncertain Times
So what should investors do in this environment of government shutdowns, AI speculation, and market volatility?
Embrace the Margin of Safety
Benjamin Graham’s central principle becomes crucial now: always demand a margin of safety. For AI stocks trading at premium valuations, ask: What would this company be worth if growth slows? If you can’t answer that comfortably, the safety margin may be insufficient.
Consider Graham’s defensive stock criteria: P/E not more than 15x average earnings, price not more than 1.5x book value. Very few AI stocks meet these standards today.
Diversify Beyond the Hype
Peter Lynch’s six stock categories remind us that not all investments need to be high-flying tech plays. Consider:
- Slow Growers: Companies like Coca-Cola (63 consecutive dividend increases) provide stability
- Stalwarts: Verizon (7% yield) and Altria (7.5% yield) offer income and recession defense
- Turnarounds: Companies facing temporary challenges but with strong fundamentals
Practice Dollar-Cost Averaging
With markets volatile, systematic investing through dollar-cost averaging becomes particularly valuable. As Warren Buffett’s Berkshire Hathaway demonstrates with its record $381.6 billion cash position, sometimes the best move is patience.
Consider allocating new funds gradually rather than trying to time the market. For most investors, a simple 50-50 stock-bond allocation with periodic rebalancing provides discipline during emotional markets.
Focus on What You Can Control
Remember that successful investing requires controlling what you can: trading costs, ownership costs, expectations, risk through diversification, and most importantly – your own behavior. Don’t let government shutdowns or AI hype dictate your long-term strategy.
The market will always present opportunities for those with discipline and patience. As Graham reminds us, the investor’s chief problem is usually themselves. Stay focused on value, demand your margin of safety, and let Mr. Market’s mood swings work to your advantage.