Our 3 best and worst stocks over the past month as Fed rate cut speculation swirled

The Federal Reserve's 25 basis point rate cut, the first in some time, initially boosted markets before the S&P 500 and Nasdaq finished slightly down, as Chair Powell tempered expectations for a full easing cycle; nevertheless, both indices achieved multiple record highs over the past month. Within a reviewed portfolio, top performers included Palo Alto Networks (+17%) on robust earnings, Broadcom (+11.2%) driven by AI chip orders and strong reports, and Eli Lilly (+11.1%) due to GLP-1 drug advancements and expansion plans. Conversely, laggards such as Starbucks (-10.6%) faced rising input costs, Danaher (-8.2%) was pressured by healthcare sector weakness and China policy, and Boeing (-8%) experienced certification delays, highlighting diverse company-specific catalysts amidst the broader bullish market.

Analysis

Despite a quarter-point Federal Reserve rate cut, the first since December 2024, major indices closed slightly down as Chairman Powell's commentary tempered expectations for a sustained easing cycle. This followed a month where the S&P 500 and Nasdaq respectively gained nearly 3% and 2.5%, each setting seven all-time highs. Performance drivers were highly idiosyncratic, with no single sector or factor dominating. Top performers were driven by strong company-specific news: Palo Alto Networks (PANW) surged 17% on an exceptional quarterly report that beat on all key metrics, providing a backdrop of strength for its CyberArk acquisition. Broadcom (AVGO) gained 11.2% following a strong earnings report highlighted by a $10 billion custom AI chip order from a new customer. Eli Lilly (LLY) advanced 11.1% on a series of positive developments for its GLP-1 drug franchise, including successful trial data, a favorable cost-effectiveness report, and plans for a new $5 billion plant. Conversely, laggards faced distinct headwinds. Starbucks (SBUX) fell 10.6% amid concerns over rising coffee futures pressuring margins and a slower-than-expected turnaround. Danaher (DHR) dropped 8.2%, impacted by broad healthcare sector weakness and specific concerns over pricing pressure in China following peer commentary on policy changes. Finally, recent addition Boeing (BA) declined 8% after management indicated delays in its 777X certification, a key execution risk to monitor.

Key Decisions for Investors

• Prioritize exposure to companies with strong, idiosyncratic catalysts, as demonstrated by the outperformance of Palo Alto Networks, Broadcom, and Eli Lilly, which was driven by superior earnings and secular growth narratives in cybersecurity, AI, and pharmaceuticals.
• Investors should monitor specific, non-macro risks for underperformers, including rising input costs for Starbucks, China's diagnostic policy impact on Danaher, and potential order cancellations for Boeing stemming from its 777X certification delays.
• For positions like Broadcom that have experienced rapid appreciation and grown to an overweight allocation, consider trimming to right-size the holding and manage portfolio concentration risk, even if the fundamental outlook remains positive.
• Recognize that while the Fed's actions influence sentiment, corporate execution and positioning within secular growth themes like AI and obesity drugs are currently the primary drivers of significant alpha.