Hello, I’m JP Powers, Chief Investment Officer at RWA Wealth Partners. Thanks for joining me for this month’s market update.

At first glance, it looks like another strong month for investors. The S&P 500 has made new highs, economic data remains solid, and earnings season has kicked off with generally supportive results. But if there’s one theme that connects everything we’ll discuss today, it’s that investors across the globe are becoming more selective. They’re still willing to own stocks and remain optimistic about AI, but they’re becoming much more focused on quality, profitability, and balance sheet health.

Let’s start with a look at the broader market. The headline story remains positive. The S&P 500 continues to trade near its highs and has delivered strong returns this year. But if we shorten the timeline, you’ll see we haven’t made much progress since the start of August at this headline index level. What’s more interesting to look at, though, is what’s happening with the underlying sectors. Over the past month, we’ve seen a meaningful shift in leadership. Consumer staples, healthcare, and other defensive sectors have started to outperform, while some of the higher-growth areas of the market have lost their momentum. I don’t view this necessarily as markets becoming overly bearish. I view it as investors becoming selective as they rethink their allocations.

Earlier in this cycle, the market rewarded growth almost regardless of valuation. Today, investors are demanding evidence of durable cash flows, strong balance sheets, and business models that can perform even as financing gets more expensive.

And that brings us to the bond markets. Rates have been on the rise this fall as inflation remains stubbornly high and expectations grow for the Federal Reserve to hike rates again by the end of the year. But more recently, we’ve seen renewed demand for high-quality fixed income as investors look for stability amid rising geopolitical risks and a cooling of the AI trade. That has helped support a rally in bonds as investors take advantage of these attractive yields while also adding stability amid growing uncertainty about markets and the upcoming midterms. More on that in a minute.

While it’s been a short-term move, the rally in bonds and rotation to more defensive stocks has come at the expense of the hottest segment of the market this year: AI. We’ve highlighted recently the amount of debt issuance coming out of many AI-related companies this year, and it appears to have caught up with some of them this month. CoreWeave, the former crypto mining company that has since evolved into one of the largest AI infrastructure providers, found itself in the spotlight this month as concerns surrounding its roughly $50 billion debt load and lack of current cash flows triggered a sharp sell-off, with the stock down nearly 40% this month.

These neocloud companies like CoreWeave have borrowed heavily to acquire chips, land, and power capacity in anticipation of future demand. The model works really well if AI demand continues to accelerate, but investors are becoming more disciplined about how much they’re willing to pay for growth that may still be years away. That was easier to do when interest rates were low, but they’re feeling the heat now that rates have reset to higher levels.

With that said, despite the sell-off in CoreWeave and other providers, overall AI demand remains exceptionally strong and enterprise adoption continues to grow. But some of the more speculative money chasing returns in the space is getting squeezed, and I would view that as a healthy reset after such a strong run earlier this year. As earnings season unfolds, we will hear more about how this space is holding up. And let’s not forget about the looming Anthropic IPO that could come in just the next few weeks as well.

For our final topic, we have to discuss the upcoming midterm elections on November 3. While every election is important and everyone should get out and vote, history shows that investors often overestimate how much midterm elections matter to market performance. Markets generally care much more about earnings, economic growth, inflation, and interest rates than they do about shifts in congressional control.

What matters more, in my view, is what comes after the election, especially this year. One of the biggest risks we’re monitoring remains the potential for further escalation involving Iran and the broader Middle East once the midterms are over. The administration has said there won’t be any actions until after the midterms, and we appear to be building up capabilities in the region for just that. As we’ve seen since it began, any worsening of the situation could have significant implications for energy prices, inflation expectations, and investor sentiment.

The other point worth noting is that post-midterms will effectively launch the race for 2028. The results on November 3 will help determine how candidates and policymakers shape their messaging for those 2028 races. We’ll be paying especially close attention to discussions around energy infrastructure and data centers.

AI requires enormous amounts of power, land, and physical infrastructure. As that build-out continues, data centers are becoming increasingly visible to local communities and policymakers. I don’t view that as an existential threat to the AI space, but it could become a factor influencing permitting, infrastructure expansion, and ultimately investor sentiment around AI over the next several years.

So while control of Congress after the midterms will certainly matter for the country, markets may react more to the potential events that follow.

To summarize this month, investors aren’t becoming pessimistic; they’re becoming more selective. In equities, we’re seeing greater emphasis on quality, cash flow, and balance sheet strength. In fixed income, investors appear comfortable locking in attractive yields while adding stability to portfolios. And within AI, capital continues to flow toward the space, but investors are becoming more disciplined about how much they’re willing to pay for future growth.

That’s a healthy development, and one we’ll continue to monitor closely.

Thank you, as always, for joining me, and we’ll see you again next month.