Why we’re kicking CVS out of our Bullpen watchlist. Plus, Intel’s CEO makes a stand
Every weekday, the CNBC Investing Club with Jim Cramer releases the Homestretch — an actionable afternoon update, just in time for the last hour of trading on Wall Street. Stocks jumped on Wednesday after the midterm elections, with the S & P 500 up about 1.7%. The elections turned out to be a clearing event for many parts of the market. WTI crude was down over 8%, falling below $90 per barrel, on hopes that the Democrats winning control of Congress means there won’t be an escalation in the Middle East War. That pushed oil and gas stocks lower while lifting companies with exposure to energy commodities and the Middle East. There’s also a view that the Democratic victory could lead to a rollback of tariffs, given how important affordability was to voters. Treasury yields also moved lower, with the benchmark 10-year yield dipping to 4.9%. The decline in oil prices, Treasury yields and tariff expectations provided a much-needed boost to housing-related stocks like Home Depot , which is back in positive territory for the year for the first time since August. Consumer staples and discretionary stocks also rallied on the idea that a drop in energy prices will provide a relief to consumer wallets, allowing for more spending at retailers like TJX Companies and coffee chains like Starbucks . Not everything was bought. Data center infrastructure stocks are getting hit hard on concerns that Democratic victories in the midterm elections could slow the pace of artificial intelligence data center construction, particularly in key markets such as Texas and Ohio. Since the end of the summer, we’ve cautioned around the growing political pressure against new data center construction into the midterms. We think the projects at risk are probably more “fringe” and “speculative” than those being undertaken by the major hyperscalers, but a slowdown in investment activity is negative for electrical equipment and power generation companies like Eaton and GE Vernova as well as the semiconductor stocks. Even AMD and Club name Qnity Electronics struggled despite both companies posting better-than-expected quarters with upbeat guidance. Intel shares continued their recent string of weakness, though the stock pared its losses after a filing showed CEO Lip Bu Tan purchased 150,000 shares on Monday at an average price of $64.73. It’s good to see Tan show some conviction in the long-term Intel story after a disastrous 50% decline since the end of September. However, the purchase does not hold the same significance as it normally would because Tan — and us — incorrectly bought shares in the $90s in August when the company sold about $20 billion of stock . As AI capex beneficiaries faltered, the companies that have been funding the AI buildout — Amazon , Alphabet , Microsoft — were up big. Meta Platforms , another big spender, was slightly higher. The idea is that if new regulations limit data center development and force companies to slow their spending, their aggressive capital expenditure programs could be reined in, accelerating the timeline for free cash flow to inflect higher. Amazon, Alphabet and Meta have all sunk into negative FCF territory. Microsoft has remained positive, though its FCF has fallen over 20% year over year in back-to-back quarters. Slowing spending could also mean the hyperscalers won’t need as many large debt and equity offerings to fund their buildout, which is something shareholders would embrace. Our take on the action Wednesday is that we don’t want to overreact to some of these outsized moves in the AI trade – in both directions. If the data center buildout slows, it’s not going to happen overnight. It’s far too early to know how much of the anti-data center rhetoric will translate into actual policy and, by extension, affect companies’ results. However, we would be ignoring the facts if we said some of the chip names and buildout stocks were as good of stories as they were last week. We’re making one change to the Bullpen. We’re taking out CVS Health , a name we added to our watchlist in early September alongside Kimberly-Clark , as we searched for more defensive ideas with cheap valuations and solid dividend yields. We liked CVS Health because the company was executing well under CEO David Joyner and the stock had recently pulled back on conservative 2027 earnings expectations. But the story changed on Wednesday, when the company announced plans to separate its national retail pharmacy from insurer Aetna and pharmacy benefit manager CVS Caremark. While there are merits to creating two independent companies, the process will take a very long time, with the breakup not expected to be completed until the first half of 2028. We’re removing CVS Health from the Bullpen because the lengthy timeline could leave the stock stuck in “spin purgatory” until the breakup gets closer. Companies reporting after Wednesday’s closing bell are McKesson , Qualcomm , Expedia , DoorDash , and Coherent . Before the opening bell on Thursday, we’ll see earnings from Club names Kimberly-Clark and Cardinal Health . Also reporting are Cigna , Cummins , Parker Hannifin , Targa Resources , and Becton Dickinson . On the data side, we’ll see the Labor Department’s weekly jobless claims report and job cuts from the outplacement firm Challenger, Gray & Christmas. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
