You look historically, so much of the total return comes in just a few days over the market cycles. And so the risk of not being in when you're trading at—I think we're now at 18.5 times forward earnings for the S&P with 30% earnings growth—the risk of not being invested, I think, outweighs some of the risk we're seeing on the horizon. So I agree with you. We shouldn't be cavalier about the risks, but I think you're being paid for them, and I think it's a good time to be stepping in.
Welcome to Prof G Markets. I'm Ed Elson. It is October 20th. Let's check in on yesterday's market vitals. The S&P 500 and the Nasdaq rallied as traders bought last week's dip. The Dow was flat. Meanwhile, Brent crude remained above $109 per barrel. The dollar climbed, and the yield on 10-year Treasuries rose. Okay, what else is happening?
Yesterday was the 39th anniversary of Black Monday, the worst single-day stock market crash in history. And this week, investors were bracing for something similar. Tech stocks were coming off their worst week since April 2025, and there was little sign that the selling was over. But then Monday rolled around, and investors decided that it was time to buy. Chip giants rallied 1.6% yesterday, and the Nasdaq gained 1.2% as investors bought the dip. Still, CoreWeave fell another 4% even after Goldman Sachs upgraded the stock to a buy. That was on top of a 20% drop last week. So, were last week's fears overblown? Here to help us answer this question, we're speaking with John Mowrey, Chief Investment Officer at NFJ Investment Group. John, thanks for joining us on the show. So, last week was very bad for tech. It was generally brutal for any stock that was related to the AI trade. There was a lot of speculation that it would continue into this week. When I was scrolling on Twitter, that's all I saw over the weekend is we might see Black Monday once again. That is not what happened. Investors bought. What do you make of what we saw in the markets?
Well, I think there's a couple of different things going on. And I think the concerns around what was happening with the credit markets, with CoreWeave's bonds, is definitely something that investors need to take very seriously. And I think that's had a major impact across the space. These companies that are very exposed to kind of the neocloud buildout, which are the specialized data centers, those have a lot of debt. And if you have a slowdown in the economy or a little bit of a slowdown in capex spending, those are going to be the most exposed, Ed. So I think that the market's rightfully concerned about that, and some of those CoreWeave concerns have kind of woven their way into the market.
When we just look at the price action that we saw on Monday, it seems like CoreWeave might have been ring-fenced a little bit because the Nasdaq rose, tech stocks rose, but CoreWeave continued to slide. Do you think of this as a specifically CoreWeave neocloud problem that isn't a problem for—I mean, one, the rest of the stock market, but two, the rest of tech stocks? Is this sort of contained?
I really think it's about the credit markets. I go back to, you know, where we're seeing interest rates today. When you've got the 10-year, you know, over 5%, that's going to have a direct impact on the cost of capital for the companies that are the most exposed to debt financing. I mean, the hyperscalers, if you remember, those can self-finance a lot of this; they're not as impacted by those higher rates. So I think that you're going to have companies like CoreWeave that are going to be more exposed. But I think that it does provide a real opportunity because you've got a lot of companies that are now trading at some of the lowest multiples in six months. I mean, if you look back at kind of the AI trade and the companies more exposed to that, a lot of these have been dead money now for six months. People are now starting to pay attention to it because of additional volatility. But the reality is a lot of these stocks have not had a very good return now for almost half a year.
What are some of the stocks that you think are undervalued, or some of the places in the market where at least some of these companies, some of these names, have been overpunished when it comes to the AI trade?
Yeah. So, you know, some of the names that I would point to in the semiconductor space, you've got stocks like Texas Instruments. The stock is growing at over 50% year over year, a 2% dividend yield. So you've got some really attractive names on the semiconductor side. You know, Nvidia is obviously kind of the standout stalwart of the group, trading at, you know, under 15 times earnings on a forward basis. So I think you've got some really attractive opportunities on the chip side. But then also on the industrial side, companies like Generac that are involved in kind of the HVAC systems and the cooling systems needed for some of these data centers, and the backup generators, those also have pulled back pretty significantly. And Amazon did a deal with them recently, which I think really extends the pipeline for them. So there are a lot of opportunities, Ed. I just think that folks are going to have to be a little bit comfortable with the volatility you may see in the market. But quite frankly, that's what sets up the opportunity. If we knew exactly what capex was going to be next year, if we knew exactly where the 10-year yield was going to top out, then that would be repriced quickly in the markets. So I think that these dislocations are what provide the opportunity, particularly as we look out in the back half or in the back quarter of the year.
Yeah. Something that I've been thinking about this market, and it sounds like you might agree, is that all of the fears about the AI buildout and about the amount of debt that has been taken on to finance this buildout—all of these fears are warranted, correct, justified. But it does seem that they're being priced in. It does seem like the public markets, at least, are recognizing that the futures of a lot of these names are very uncertain. They're pricing that into the multiples. Yes, the stocks went up, but also the earnings went up way, way more than the stocks did, and so the multiples have kind of contracted. And when I think about the extent to which there is an AI bubble, it seems to me that it only exists in certain areas of the market, most particularly, in my view, the private markets. Like it seems like Anthropic, OpenAI asking for a $2 trillion, $1.5 trillion valuation—it seems like those companies are significantly exposed to the downsides of the AI trade going wrong, more so than a lot of the names that we're talking about, like Nvidia, for example. But they're being treated differently, as if the risks don't exist. So I guess, your reaction to my sort of theory of where the bubble actually is—do you agree with me?
Yeah, I think the private market—I'll answer this in kind of two ways. The first point on kind of the public side: I actually would argue that maybe the tech bubble back in the late '90s, peaking in March of 2000, may have been the biggest gift we could have ever given the AI boom today, because I think what that did, Ed, is it created some guardrails. I mean, everyone is worried about, are we in '99? I mean, the number of times I see this on X, or people, you know, guessing, are we in '98, are we in '99, are we in March of 2000. So I think when you have so many people investigating—is there circular financing, has the bubble formed, or is this just a boom that has much longer legs to go—I think that the tech bubble provided almost a guardrail for the spending that we have today. And really, when you think about how high interest rates are relative to the last several years, the fact that the AI buildup has continued with those restrictive rates plus the scrutiny from the tech bubble, I think that actually is an interesting setup for maybe it being more durable than folks expect. Your question on the private side—private markets always carry additional risk because of the opaque nature of those setups. And I really am curious, and would like to see OpenAI and Anthropic come public, because I think that will provide a lot more clarity to the markets. And so I think that will be another important data point for us, Ed. But ironically, the best thing we could have had for the AI boom that's going on in 2026 is the tech bubble of 2000.
Yeah. I mean, Anthropic is supposed to go public next month. My prediction is that I think they're going to struggle a lot, because it does seem that public markets investors are actually quite discerning right now, and they are concerned. They look back at '99 and they say, 'What are the similarities? Where can we draw the analogies?' I think maybe last year they weren't doing that so much. It seems like they definitely are. And it seems like they're going to look at Anthropic and they're going to look at OpenAI and be like, 'Okay, this is where the risk is. These are the companies that are burning billions of dollars. They're not profitable. They don't seem to be on a path where they're going to be profitable in the very near future.' So we're going to slap on some slightly difficult multiples on them in the same way that we've done it to a lot of these other names, like you mentioned, like we've done with Nvidia. So I guess my question: when those companies go public, when Anthropic goes public, for example, how do you think investors will receive it? Do you think that they will be going crazy for it, or do you think that they'll be a little bit more cautious?
You know, I think if we look at SpaceX, it's kind of an interesting proxy. I mean, that's more or less a blank check from Elon Musk. I mean, if you look at the market cap that he commanded with that IPO relative to the earnings power, I think the market appetite might be a little bit richer than maybe we're all assuming to some degree, because it absorbed a very large IPO recently. I mean, a lot of these tech stocks, when they were IPOing back in the late '90s, early 2000s, had much smaller market caps, much higher valuations. So I think the appetite may be a little stronger, but we'll have to see. Anthropic looks like it's the first company to jump out into the ocean, and we're going to have to see if it can swim.
So it's going to be scrutinized heavily, and I think that's good, and I think we need that. It needs to clear some hurdles, and that will provide a runway for what are the returns on invested capital, because ultimately that's what this is going to come down to as people continue spending. What return are you getting? And I will tell you that as we extend the bull market in AI stocks, that threshold is going to get higher and higher, because it's going to be harder to earn those returns that you could have earned four, five, six years ago if you were investing in the space. So the threshold is going to be high, and the market needs that clarity. But all this, I think, Ed, is really what's setting up a unique opportunity in many pockets of the market—whether it's industrials, whether it's technology, whether it's some of the banking stocks—we're seeing really depressed multiples.
And last time I was on, Ed, one of the things we talked about was kind of is the market narrowing. And I've thought about this a lot since we discussed that. And you had asked me the question, is this healthy? Is this a healthy thing going on? And I think that actually one of the things that is driving the narrowness of the market is the repricing of credit. At the beginning of the year, everyone thought rates were going to go down. They thought Trump was going to put someone in the Fed that would want lower rates. We didn't know about the war in Iran at that point. So I think those elements have allowed credit to reprice, and it's really punished some of the smaller stocks. And I think that's been less about the AI trade driving the market and Nvidia holding up the market, and more about credit being repriced, and those companies that are most exposed are kind of the small and medium companies. So I think there's a lot of upside here if we get clarity from Anthropic on an IPO, if we get some resolution with the conflict in Iran, and if we get a little bit of reprieve on the credit markets.
Yeah, it does seem that there are some things that are suppressing the market right now, which if they just turned on a dime, you'd see stocks explode. Like I think you said this last time, there is kind of a spring-loading mechanism. If for whatever reason—and to be clear, I don't think this is going to happen anytime soon—but if something goes right in Iran, that's a completely different environment for stocks. That suddenly changes the entire narrative in a day, and it's literally up to the decision of one guy, it seems like. So I mean, again, I don't think it's going to happen, to be honest. I think this is going to go on for a long time, but it does seem like that is overwhelmingly what investors are pricing in—that we are in for a long-term situation. But that means potentially more surprise to the upside. I guess just a final question before you go: what do you expect the market to look like in the next few months? Are you expecting more upside going forward? Where do you think we'll be come, say, the end of the year?
Yeah, I would be surprised if markets aren't substantially higher by year end. I mean, there's a couple of caveats to that I would make. The first is that if the conflict in Iran continues to be dragged out, that obviously is going to keep pressure on the inflation numbers. So you were right; that is a definite concern. I think Trump's in a tight spot because Iran knows the political calendar, and we all in the US know the political calendar, and depending on what happens in the House and the Senate. If Democrats take both—and right now Polymarket shows, I think, a 90% chance that Democrats take the House and a 65% chance they take the Senate—if that happens, he may have a harder time getting funding for the war. So he may look at a little different timetable on how he wants to proceed. So near-term that could, depending on what he does—I don't know what he will do—but that could put upward pressure on oil prices depending on if he escalates things there. So that is a wildcard risk to the downside.
The flip side of that is that we do see a little bit easier interest rate environment if oil comes off, if there is some resolution. And I think investors need to be prepared for that, because if you look historically, so much of the total return comes in just a few days over the market cycles. And so the risk of not being in when you're trading at—I think we're now at 18.5 times forward earnings for the S&P with 30% earnings growth—the risk of not being invested, I think, outweighs some of the risk we're seeing on the horizon. So I agree with you. We shouldn't be cavalier about the risks, but I think you're being paid for them, and I think it's a good time to be stepping in, and I think we'll see some upside here if we get any resolution.
All right, John Mowrey is Chief Investment Officer at NFJ Investment Group. John, appreciate your time. Thank you.
Thanks, John. We'll be right back. And if you're enjoying the show, be sure to subscribe to the Prof G Markets YouTube channel at the link below.
Support for the show comes from Alphaspace by Yahoo Finance. Instead of bouncing between countless tools and tabs to manage your portfolio, Alphaspace by Yahoo Finance brings your entire investment workflow into one easy-to-use platform. Alphaspace by Yahoo Finance utilizes a Yahoo Scout-powered assistant to build a personalized view around exactly what you want to analyze, then syncs it with your portfolio for real-time tracking. You can compare multiple tickers, explore everything from candlestick and line charts to fundamental data, and layer in indicators like moving averages, Bollinger Bands, RSI, MACD, and more.
My co-host Scott Galloway is a fan of the platform. What did you think of it, Scott?
I have been using Yahoo Finance as my homepage for finance—or for the web, actually—for 30 years. And as someone who has advised hedge funds, run my own money, prides themselves on being good at investing, and it takes up a big part of my life, I think they do a fantastic job.
You can explore Alphaspace with 50% off your first year of Yahoo Finance Gold at yahoo finance dot com slash profg. That's yahoo finance dot com slash profg. $239.70 for the first year, then $479.40 thereafter. Offer valid for new subscribers in the US. Offer ends October 31st, 2026.
Support for the show comes from Rippling. Imagine you just found out your sales team is at risk of missing quota. No need to panic—just ask Rippling AI. Since it's built on your real-time people and business data, Rippling AI can pull metrics from Rippling and Salesforce into a meeting-ready dashboard showing quota attainment, headcount trajectory, and monthly revenue to quota by region. In seconds, you can see exactly what's behind your quota risk and fix it before it's missed. Question answered, action taken, crisis averted.
So, when you have critical business questions that need answers, don't just file a ticket and wait weeks for an outdated report. Describe what you need and have Rippling AI build it instantly from your live people and business data. Whether it's a dashboard with detailed charts or automated workflows with the right triggers, conditions, and approvals. Ready to rule your business? Head to rippling.ai/markets to get the only AI built to give you full visibility and take complex actions across your entire organization. That's rippling.ai/markets. Sign up for exclusive access today.
We're back with Prof G Markets. US defense stocks are falling and healthcare stocks are rallying as a Democratic sweep in the midterms looks increasingly likely. On Kalshi, the odds that Democrats win both the House and the Senate are now at 63%, up from 40% in July. Over the same period, the iShares US Aerospace and Defense ETF fell 16%. That is a sharp reversal from earlier this year, after President Trump proposed raising defense spending to $1.5 trillion. Meanwhile, the S&P's healthcare sector is up 9% over the past three months, the second-best performance of the index's 11 sectors. In other words, investors are now starting to bet billions of dollars on the prospect that the Democrats are going to win this thing, which has us wondering an obvious question: will they? So, here to discuss the midterms and the likelihood of a Democratic sweep, we are speaking with Aaron Parnas, author of the Parnas Perspective and co-host of Raging Politics. Aaron, thank you for joining us. So, defense stocks are sliding, presumably because they're pricing in a lower likelihood of more defense spending. We're seeing the opposite happening in healthcare—more spending on healthcare is the assumption. But I think what is really striking here is that the markets are basically telling us, investors are telling us, Democrats are going to sweep this. What are you seeing right now? Why is it that right now, suddenly, there is this opinion that seems to be pervasive across the investment world, which is Democrats are going to win?
