Here’s how we played the massive rebound in AI stocks this week

An important development from the financial markets: AI stocks came roaring back this week as investors worked through another wave of corporate earnings and a surprisingly weak July jobs report . The major averages notched a second straight week of gains, with the Dow Jones Industrial Average and S & P 500 both touching record highs. The blue-chip index closed at a record Wednesday and finished the week up 3%, while the S & P 500 and the tech-heavy Nasdaq Composite gained 3.

The S & P closed at a record Friday. 5% below its June 2 all-time closing high. Friday's weaker-than-expected jobs report helped fuel the week's gains by easing concerns that the Federal Reserve will need to raise interest rates at its September meeting.

Economic Details

Nonfarm payrolls unexpectedly fell by 23,000 in July, prompting investors to dial back expectations for another rate hike and sending Treasury yields lower. Now, traders are pricing in a 55% probability that the Fed holds rates unchanged at its September meeting, up from 45% on Thursday, according to the CME FedWatch tool . Here's a closer look at what drove the market this week.

The AI trade finds its footing After spending much of July under heavy pressure, semiconductor and data center stocks staged an impressive rebound this week. The recovery gained momentum after last week's collapse of Situational Awareness, the highly leveraged hedge fund founded by former OpenAI researcher Leopold Aschenbrenner. As we discussed throughout last week, the fund's forced unwinding triggered indiscriminate selling across AI infrastructure names, pushing many fundamentally strong companies well below where they should have been trading.

Jim called the liquidation a " clearing event " for the AI trade because it removed one of the market's biggest overhangs . With much of that forced selling now behind us, earnings and business fundamentals have once again become the primary drivers of stock performance. The rebound was evident across our portfolio, with Corning finishing as our best-performing stock of the week.

Analyst Views

The strength extended across the chip sector, with the iShares Semiconductor ETF (SOXX) jumping 7. 6% for the week, more than double the 30-stock Dow's 3% gain. The group gave back some gains on Thursday after Sandisk and Western Digital delivered guidance that failed to excite investors despite otherwise solid quarterly results.

We view those reactions as company-specific rather than a sign that demand across the AI infrastructure buildout is weakening. That conviction is why we added Micron to the Bullpen. Memory-chip maker Micron has already bounced sharply from its July 30 lows, but remains roughly 28% below its June 25 record close of $1,213.

SpaceX bets big on Nvidia Shares of SpaceX fell 13% Wednesday after the company reported better-than-expected revenue and earnings, but announced second-quarter capital expenditures of $18. 4 billion, well above expectations.

Economists are analysing what the news means for the markets.