Avago, SanDisk among market cap stock movers on Friday

By Matt Wirz

Bond traders are showing signs of indigestion over the tens of billions of dollars they lent this fall to large tech companies, or hyperscalers, to pay for new artificial intelligence infrastructure. Mounting concerns of a potential AI bubble kicked into overdrive after Oracle disclosed earlier this week much higher-than-expected spending on costly chips, networking equipment and other capital expenditures.

Bonds issued by Oracle, Meta and Amazon dominated the corporate debt market this morning with about $1.4 billion of the securities changing hands, according to MarketAxess. The activity accounted for roughly 7% of the corporate bond market's trading volume.

Credit markets have served as a barometer of rising risk in past technology buildout cycles, most notably in the late 1990s and early 2000s when telecommunications companies built out fiber optic and satellite networks, according to research by Bank of America. Selloffs in telecom bonds preceded sharp corrections in stock prices by months, according to the research.

"Today's Hyperscalers, viewed in the same framework, look eerily similar to early-stage Telcos of '98," analysts at the bank wrote in a report Thursday.

Selling pressure is pushing up the yield premium over safer Treasury bonds, or spread, that investors demand to hold the newly issued hyperscaler bonds. The spread on Oracle's 5.95% bond due 2055 jumped 0.20 percentage point to 2.11 percentage points over Treasurys, according to MarketAxess. That is close to double the roughly 1.20 percentage points above Treasurys the bond traded at when Oracle first issued it in September.

Selling hit the debt of "neo-cloud" companies even harder. Neo-clouds, which purchase advanced microchips for installation in data centers and rent them out to AI companies, are especially exposed to market sentiment because they depend heavily on stock and bond investors for cash.

The spread on CoreWeave 9.25% bonds due 2030 that the neo-cloud issued in May jumped half a percentage point today to about 8 percentage points, according to MarketAxess. Its credit default swaps also soared to about 7.90 percentage points.

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By Connor Hart

Warehouse clubs such as Costco and BJ's Wholesale Club have long lured fee-paying members with supersized packages of food sold at lower per-unit prices.

Now, amid rising input costs and intensifying competition for shopper loyalty, they are leaning more heavily on private-label brands to undercut competitors and reinforce their value proposition for inflation-weary consumers.

Costco launched its Kirkland Signature brand three decades ago, and the private-label line has since become a linchpin of the retailer's success, accounting for about a third of its $254.5 billion in annual revenue.

Finance chief Gary Millerchip said Thursday that Kirkland continued to grow at a faster pace than overall sales during the company's latest quarter. The products typically offer up to 20% better value than comparable name brands, while providing equal or better quality, he added.

Ahead of the holiday season, Costco launched about 45 new Kirkland products, while also cutting prices on items such as chicken pot pies, slabs of bacon, packs of whipped cream and walnuts. The company is banking on lower prices and new offerings to appeal to consumers increasingly frustrated by higher grocery bills.

Jefferies analysts said in a research note that higher Kirkland penetration, along with supply-chain improvements, helped improve Costco's margins in the quarter.

"As always, our goal is to be the first to lower prices where we see opportunities to do so," Millerchip said on a call with analysts.

Other warehouse clubs and major retailers are responding to similar trends. As consumers cut spending on groceries and increasingly trade down to lower-priced goods, store brands have gained market share, putting pressure on large packaged-food companies that have raised prices in recent years.

BJ's Wholesale Club said last month that it plans to ramp up its private-brand strategy as members gravitate toward promotions and cheaper store-brand alternatives. The retailer introduced private-label products such as tortilla chips, protein shakes and coffee makers during its latest quarter, which it said cost about 30% less than comparable name brands.

"Owned-brand products also deliver higher penny profit for us, which we can use to invest back into the member experience, further propelling the flywheel that drives our business," Chief Executive Bob Eddy said.

Walmart is boosting investment in its in-house brands, including last year's launch of Bettergoods, a food line with trendy flavors and more natural ingredients. Its warehouse banner, Sam's Club, also markets its own private-label brand, Member's Mark.

And Amazon.com earlier this year debuted a new private label food brand called Amazon Grocery, combining products currently sold under the e-commerce company's Amazon Fresh and Happy Belly brands.

Write to Connor Hart at connor.hart@wsj.com

By Paul R. La Monica

Santa Claus has arrived just in time — at least for the Dow Jones Industrial Average. It's a sign of what's to come as we head into the end of the year.

On the surface, it was a mediocre week for the stock market. The S&P 500 index was down 0.7% heading into the end of the week, while the Nasdaq Composite had fallen 1.7% on renewed concerns about artificial-intelligence spending. But the Dow, the stodgy blue-chip benchmark, had muscled its way to a 1% rise, though a Friday decline kept it from finishing the week at a record high.

The small-cap Russell 2000 and the equal-weighted S&P 500 also had strong weeks — and that tells you everything you need to know about what's happening in the market right now. With the Federal Reserve having cut interest rates by a quarter-point on Wednesday, bank deregulation looking like a done deal, and economic data holding up, there was every reason to switch out of AI beneficiaries to economically sensitive stocks.

Whether or not that rotation continues — and the stock market can keep rising with it — may depend on an unusually large mid-December economic data dump from the government. The November jobs report comes out on Tuesday, Dec. 16, as opposed to its typical first Friday of the month release. And the November consumer price index, a key measure of inflation, is due on Thursday, Dec. 18, a week later than normal. Both reports were delayed as a result of the government shutdown this fall. They will also include some October jobs and inflation data since both of those reports were canceled.

A modest slowdown in job gains and/or an uptick in the unemployment rate, coupled with more benign data about inflation, could be the dream scenario for cyclical stocks. "If there is this continued Goldilocks environment of a slower labor market but a not precipitous drop, then that should mean a strong start to 2026," says Nicholas Brooks, head of economic and investment research at Intermediate Capital Group, who expects at least two more interest rate cuts next year. "But if inflation remains sticky, we could see more of a wobble in the markets."

The Russell 2000, which has finally broken out to new highs, could be the biggest beneficiary of that scenario. "Small-caps are still cheap, and sometimes price can be its own catalyst," says Marta Norton, chief investment strategist at Empower Investments, a retirement plan provider. "But it depends on how much the Fed cuts."

Much will hinge on where tech stocks go, and that depends, as always, on the AI trade. This past week was ugly, with big losses for Oracle and Broadcom following earnings reports. In the view of Mike Treacy, vice president of risk at clearing and custody firm Apex Fintech Solutions, investors are suffering from a "Fear of Bubble," or FOB. "Anytime there is a headline that shifts the AI narrative, we see this erratic activity because tech is such a concentrated bet," he says. "That should result in more volatility."

Still, that volatility might be confined mostly to tech. After all, the Cboe Volatility Index, or VIX, is trading at the relatively low level of 16 — hardly a sign of heightened investor fear. Mark Hackett, chief market strategist at Nationwide Investment Management Group, said he doesn't see "a bubble or impending doom" in the AI trade, but he added that "growth rates may be slowing and valuations are elevated."

So keep the rotation going and diversify away from the Magnificent Seven. With a little bit of luck, the stock market could deliver once again in 2026.

Write to Paul R. La Monica at paul.lamonica@barrons.com

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