October – synonymous for delivering market jolts – passed with barely a whimper. However, it was the market’s first negative month since April. Are stocks losing their mojo? In short, large cap tech earnings from five of the ‘Mag 7’ were less than magnificent. Meta, Apple and Microsoft all dropped post earnings. Google managed a small 5% rise initially – but gave it all back. Amazon managed hold gains of ~3%. This post talk to what the market expects from the nearly $1 Trillion in AI capex… and how their patience could be starting to wane…
Not All Consumers Are Spending
Never underestimate the U.S. consumers want to spend. Well some of them at least. Last month’s retail figures exceeded expectations – up 1.7% YoY in nominal terms (not adjusted for inflation). But here’s the important point – these are nominal sales and only one month of data. One month is not overly helpful. When averaged over one quarter (which helps remove noise) – adjusted for inflation ( real terms) – and assessing the year-over-year change – growth is negative. And they have been negative in real terms for 9 straight quarters… this matters.
Smart Money Sells Big Tech… Invests in NKE & SBUX
Something I do four times a year is pore through something known as “13Fs”. A 13F is a quarterly report that institutional investment managers with over $100 million in assets must file with the US Securities and Exchange Commission. And whilst these filings are submitted around 45 days after the quarter ends (e.g. August 15 deadline for June 30 quarter end) – they offer us insight into how the “smart money” is thinking about certain assets. Some names I follow include (not limited to) Warren Buffett, Bill Ackman, David Tepper, Howard Marks, Stan Druckenmiller and Seth Klarman. Now there was a consistent trend during Q2 – where large cap tech exposure was being reduced.
Divergent Signals
The market is wildly enthusiastic about all things “AI”. If you’re a company – and you don’t have an AI narrative – the market doesn’t want to know you. However, I also think this is potentially a blind spot. AI will undoubtedly be important and will change the way we do things (as we effectively re-wire tech) – but it’s a tool. For example, whilst Wall Street celebrates that an iPhone might be able to better answer our questions – Main Street sees things very differently. Do you think the majority of consumers understand the optimism on Wall Street? And similarly, do you think Wall Street understands why consumers are complaining?
For a full list of posts from 2017…