Former hedge fund star says this is what will trigger the next bear market.

Much of Wall Street expects easing inflation, but an overshoot could dash hopes of a May rate cut, curtailing the S&P 500’s
SPX
waltz with 5,000, warn some.

Read: Arm’s frenzied stock rally continues as AI chase trumps valuation.

What might take this market down eventually? Our call of the day from former hedge-fund manager Russell Clark points to Japan, an island nation whose central bank is one of the last holdouts of loose monetary policy.

Note, Clark bailed on his perma bear RC Global Fund back in 2021 after wrongly betting against stocks for much of a decade. But he’s got a whole theory on why Japan matters so much.

In his substack post, Clark argues that the real bear-market trigger will come when the Bank of Japan ends quantitative easing. For starters, he argues we’re in a “pro-labor world” where a few things should be playing out: higher wages and lower jobless levels and interest rates higher than expected. Lining up with his expectations, real assets started to surge in late 2023 when the Fed started to go dovish, and the yield curve began to steepen.

From that point, not everything has been matching up so easily. He thought higher short-term rates would siphon off money from speculative assets, but then money flowed into cryptos like Tether and the Nasdaq recovered completely from a 2022 rout.

“I have been toying with the idea that semiconductors are a the new oil – and hence have become a strategic asset. This explains the surge in the Nasdaq and the Nikkei to a degree, but does not really explain tether or bitcoin very well,” he said.

So back to Japan and his not so popular explanation for why financial/speculative assets continue to trade so well.

“The Fed had high interest rates all through the 1990s, and dot-com bubble developed anyway. But during that time, the Bank of Japan only finally raised interest rates in 1999 and then the bubble burst,” he said.

He notes that when Japan began to tighten rates in late 2006, “everything started to unwind,” adding that the BOJ’s brief attempts [to] raise rates in 1996 could be blamed for the Asian Financial Crisis.

In Clark’s view, markets seem to have moved more with the Japan’s bank balance sheet than the Fed’s. The BOJ “invented” quantitative easing in the early 2000s, and the subprime crisis started not long after it removed that liquidity from the market in 2006, he notes.

“For really old investors, loose Japanese monetary policy also explained the bubble economy of the 1980s. BOJ Balance Sheet and S&P 500 have decent correlation in my book,” he said, offering the below chart:


Capital Flows and Asset Markets, Russell Clark.

Clark says that also helps explains why higher bond yields haven’t really hurt assets. “As JGB 10 yields have risen, the BOJ has committed to unlimited purchases to keep it below 1%,” he notes.

The two big takeaways here? “BOJ is the only central bank that matters…and that we need to get bearish the U.S. when the BOJ raises interest rates. Given the moves in bond markets and food inflation, this is a matter of time,” said Clark who says in light of his plans for a new fund, “a bear market would be extremely useful for me.” He’s watching the BOJ closely.

The markets

Pre-data, stock futures
ES00,
-0.41%

NQ00,
-0.80%

are down, while Treasury yields
BX:TMUBMUSD10Y

BX:TMUBMUSD02Y
hold steady. Oil
CL.1,
+0.79%

and gold
GC00,
+0.46%

are both higher. The Nikkei 225 index
JP:NIK
tapped 38,000 for the first time since 1990.

Key asset performance

Last

5d

1m

YTD

1y

S&P 500

5,021.84

1.60%

4.98%

5.28%

21.38%

Nasdaq Composite

15,942.55

2.21%

6.48%

6.20%

34.06%

10 year Treasury

4.181

7.83

11.45

30.03

42.81

Gold

2,038.10

-0.17%

-0.75%

-1.63%

9.33%

Oil

77.14

5.96%

6.02%

8.15%

-2.55%

Data: MarketWatch. Treasury yields change expressed in basis points

The buzz

Due at 8:30 a.m., January headline consumer prices are expected to dip to 2.9% for January, down from 3.4% in December and the lowest since March 2021. Monthly inflation is seen at 0.3%.

Biogen
BIIB,
+1.56%

stock is down on disappointing results and a slow launch for its Alzheimer’s treatment. A miss is also hitting Krispy Kreme
DNUT,
+1.99%
,
Coca-Cola
KO,
+0.24%

is up on a revenue rise, with Hasbro
HAS,
+1.38%
,
Molson Coors
TAP,
+3.12%

and Marriott
MAR,
+0.74%

still to come, followed by Airbnb
ABNB,
+4.20%
,
Akamai
AKAM,
-0.13%

and MGM Resorts
MGM,
+0.60%

after the close. Hasbro stock is plunging on an earnings miss.

JetBlue
JBLU,
+2.19%

is surging after billionaire activist investor Carl Icahn disclosed a near 10% stake and said his firm is discussing possible board representation.

Tripadvisor stock
TRIP,
+3.04%

is up 10% after the travel-services platform said it was considering a possible sale.

In a first, Russia put Estonia’s prime minister on a “wanted” list. Meanwhile, the U.S. Senate approved aid for Ukraine, Israel and Taiwan.

Best of the web

Why chocolate lovers will pay more this Valentine’s Day than they have in years

A startup wants to harvest lithium from America’s biggest saltwater lake.

Online gambling transactions hit nearly 15,000 per second during the Super Bowl.

The chart

Deutsche Bank has taken a deep dive into the might of the Magnificent Seven, and why they will continue to matter for investors. One reason? Nearly 40% of the world still doesn’t have internet access as the bank’s chart shows:

Top tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.

Ticker

Security name

TSLA,
-2.81%
Tesla

NVDA,
+0.16%
Nvidia

ARM,
+29.30%
Arm Holdings

PLTR,
+2.75%
Palantir Technologies

NIO,
+2.53%
Nio

AMC,
+4.11%
AMC Entertainment

AAPL,
-0.90%
Apple

AMZN,
-1.21%
Amazon.com

MARA,
+14.19%
Marathon Digital

TSM,
-1.99%
NIO

Random reads

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Messi the dog steals Oscars’ limelight.

Love and millions of flowers stop in Miami.

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Check out On Watch by MarketWatch, a weekly podcast about the financial news we’re all watching – and how that’s affecting the economy and your wallet.

Source link

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AI news is driving tech ‘building blocks’ stocks like Nvidia. But another ‘power’ area will also benefit, say these veteran investors

Kneel to your king Wall Street.

After forecasting record revenue backed by a “killer AI app,” Nvidia has teed up the Nasdaq
COMP,
-0.61%

for a powerful Thursday open. Indeed, thanks to that chip maker and a few other generals — Microsoft, Apple, Alphabet, etc.— tech is seemingly unstoppable:

Elsewhere, the Dow
DJIA,
-0.77%

is looking rattled by a Fitch warning over debt wranglings ahead of a long weekend.

But our call of the day is accentuating the positive with some valuable insight on tech investing amid AI mania from a pair of seasoned investors.

Inge Heydorn, partner on the GP Bullhound Global Technology Fund and portfolio manager Jenny Hardy, advise choosing companies carefully given high valuations in some parts of tech that could make earnings vulnerable.

“But looking slightly beyond the volatility, tech has the advantage of being driven by many long-term secular themes which will continue to play out despite a weaker macro,” Hardy told MarketWatch in follow-up comments to an interview with the pair last week. GP Bullhound invests in leading global tech companies, with more than $1 billion in assets under management. 

“We try to make sure we’re exposed to these areas that will be more resilient. AI is the perfect example of that –- none of Microsoft, Amazon or Google will risk falling behind in the AI race -– they will all keep spending, and that will continue to drive earnings for the semiconductor companies that go into these servers higher,” said Hardy, who has worked in the investment industry since 2011.

“The way that we think about investing around [AI] is in the building blocks, the picks and shovels infrastructure, which for us is really the semiconductor companies that go into the training servers and the inference servers,” she said.

Nvidia
NVDA,
-0.49%
,
Advanced Micro Devices
AMD,
+0.14%
,
Taiwan Semiconductor
TSM,
-0.34%

2330,
+3.43%
,
Infineon
IFX,
-0.33%
,
Cisco
CSCO,
-1.02%
,
NXP
NXPI,
-4.88%
,
Microsoft
MSFT,
-0.45%
,
ServiceNow
NOW,
+0.48%

and Palo Alto
PANW,
+7.68%

are all in their portfolio. They also like the semiconductor capital equipment industry — AI beneficiaries and tailwinds from increasingly localized supply chains — with companies including KLA
KLAC,
-1.40%
,
Lam Research
LRCX,
-1.33%
,
ASML
ASML,
-2.15%

and Applied Materials
AMAT,
-1.96%
.

As Hardy points out, “lots of big tech has given us lots of certainty as it relates to AI, lots of certainty as it relates to the amount they are going to spend on AI.”

Enter Nvidia’s results, which Hardy said are proof the “AI spend race has begun…Nvidia’s call featured an impressive roster of companies deploying AI with Nvidia – AT&T, Amgen, ServiceNow – the message was that this technology adoption is widespread and really a new normal.” She said they see benefits spreading across the AI value chain — CPU providers, networking infrastructure players, memory and semicap equipment makers.

Heydorn, who traded technology stocks since 1994 and also runs a hedge fund with Hardy, says there are two big tech trends currently — “AI across the board and power semiconductors driven by EV cars and green energy projects.”

But GP Bullhound steers clear of EV makers like Tesla
TSLA,
-1.54%
,
where they see a lot of competition, notably from China. “Ultimately, they will need semiconductors and the semiconductors crucially are able to keep that pricing power in a way that the vehicle companies are not able to do because of the differences in competition,” she said.

Are the tech duo nervous about anything? “The macro economy is clearly the largest risk and further bank or real-estate problems,” said Heydorn, as Hardy adds that they are watching for second-order impacts on tech.

“One example would be enterprise software businesses with high exposure to financial services, which given those latest problems in that sector, might see a re-prioritization of spend away from new software implementations,” she said.

In the near term, Heydorn says investors should watch out for May sales numbers and any AI mentions from Taiwan via TSMC, mobile chip group MediaTek
2454,
-0.42%

and Apple
AAPL,
+0.16%

supplier Foxxconn
2354,
-0.74%

that may help with guidance for the second half of the year. “The main numbers in Taiwan will tell us where we are in inventories. They’re going to tell us if the 3-nanonmeters, that’s a new processor that’s going into Apple iPhones, are ready for production,” he said.

Read: JPMorgan says this is how much revenue other companies will get from AI this year

The markets

Nasdaq-100 futures
NQ00,
+1.90%

are up 1.8% , S&P 500
ES00,
+0.55%

futures are up 0.6%, but those for the Dow
YM00,
-0.34%

are slipping on debt-ceiling jitters. The yield on the 10-year Treasury note
TMUBMUSD10Y,
3.756%

is up 4 basis points to 3.75%.

For more market updates plus actionable trade ideas for stocks, options and crypto, subscribe to MarketDiem by Investor’s Business Daily. Follow all the stock market action with MarketWatch’s Live Blog.

The buzz

Fitch put U.S. credit ratings on ‘ratings watch negative’ due to DC “brinkmanship” as the debt-ceiling deadline nears. House Speaker Kevin McCarthy told investors not to worry as an agreement will be reached.

Best Buy
BBY,
-0.49%

stock is up 6% after an earnings beat, while Burlington Stores
BURL,
+3.19%

is slipping after a profit and revenue miss. Dollar Tree
DLTR,
-0.50%

and Ralph Lauren
RL,
+0.24%

are still to come, followed by Ulta
ULTA,
+0.17%
,
Costco
COST,
-0.44%

and Autodesk
ADSK,
+0.06%

after the close.

Nvidia is up 25% in premarket and headed toward a rare $1 trillion valuation after saying revenue would bust a previous record by 30% late Wednesday.

Opinion: Nvidia CFO says ‘The inflection point of AI is here’

But AI upstart UiPath
PATH,
-1.74%

is down 8% after soft second-quarter revenue guidance, while software group Snowflake
SNOW,
+1.13%

is off 14% on an outlook cut, while cloud-platform group Nutanix
NTNX,
-0.55%

is rallying on a better outlook.

Elf Beauty
ELF,
+1.69%

is up 12% on upbeat results from the cosmetic group, with Guess
GES,
-0.80%

up 5% as losses slimmed, sales rose. American Eagle
AEO,
+4.50%

slid on a sales decline forecast. Red Robin Gourmet Burgers
RRGB,
+3.51%

is up 5% on the restaurant chain’s upbeat forecast.

Revised first-quarter GDP is due at 8:30 a.m., alongside weekly jobless claims, with pending-home sales at 10 a.m. Richmond Fed President Tom Barkin will speak at 9:50 a.m., followed by Boston Fed President Susan Collins.

A Twitter Spaces discussion between presidential candidate Florida Gov. Ron DeSantis and Elon Musk was plagued by glitches.

The best of the web

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Paralyzed walks naturally again with brain and spine implants

The tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.:

Ticker

Security name

NVDA,
-0.49%
Nvidia

TSLA,
-1.54%
Tesla

GME,
+0.47%
GameStop

BUD,
-1.94%
Anheuser-Busch InBev

AMD,
+0.14%
Advanced Micro Devices

PLTR,
-3.24%
Palantir Technologies

AAPL,
+0.16%
Apple

AMZN,
+1.53%
Amazon.com

NIO,
-9.49%
Nio

AI,
+2.54%
C3.ai

Random reads

“No way.” Abba says it won’t perform at 50th anniversary Eurovision win

The Welsh harbor that looks like a dolphin from high above.

Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.

Listen to the Best New Ideas in Money podcast with MarketWatch reporter Charles Passy and economist Stephanie Kelton.

Source link

#news #driving #tech #building #blocks #stocks #Nvidia #power #area #benefit #veteran #investors

Chips, energy and an Amazon rival: Stock picks from a fund manager with three decades of experience

Markets are again on the backfoot ahead of Thursday’s open. Credit Suisse shares have shot higher on plans to borrow billions, a day after collapsing and upending already fragile markets.

The European Central Bank raised its key interest rate by 50 basis points as some had expected. That’s as stress returns for some U.S> lenders.

Onto our call of the day, which comes from the manager of the Plumb Balanced Fund
PLIBX,
-1.08%
,
Tom Plumb, who has three stock ideas to share. But first, some timely advice from the manager’s three decades of experience.

“The market is really going to be volatile here, but if you look at 1981 to 1982, it was a significant amount of pressure on the stock market, but the fourth quarter of 1982…the S&P 500
SPX,
-0.21%

was up 40%,” Plumb told MarketWatch in a recent interview.

“I think people still have to look at what their comfort with risk is…for the first time in 15 years, they have a reasonable expectation that a balanced portfolio will modify the volatility because they’re earning 4% to 7% on their higher quality fixed income investments,” he said.

“You just have to make sure the companies you own aren’t overleveraged, they’re not dependent on capital and that they’re not standing, as we say, on the railroad tracks for different trends that are really going to be developing,” said Plumb.

That brings us to his first pick, microcontroller maker Microchip Technology
MCHP,
-0.17%
,
which he has owned at different periods over 20 years and sits in a sector he likes — chips.

The first microcontroller was put on a car to regulate the fuel injection system in 1987 and the average car now has about 400 of those, controlling everything from temperature, to safety, he notes. Microchip trades at about 14 times forward earnings, and likes the fact they’re normally conservative on the guidance front.

And: Intel’s stock nabs an upgrade: ‘Things are moving enough in the right direction.’

“They focus on industrial aerospace, defense, auto and auto centers. They have almost no exposure to PCs and cellphone markets,” return free cash to shareholders, with regular dividends over the past 15 years. While not as sexy as AI, Microchip delivers on the basis of a “good, solid company,” he said.

Read: Chip stocks fall as delivery times shrink, Samsung plans to build world’s largest chip complex

His next pick is down to the Ukraine war’s causation of a rethink of energy independence, capacity and companies that can produce commodities such as liquid natural gas. With that Philips 66
PSX,
-0.22%

is “probably the best company in the mid market,” trading at about 7 times earnings, with a 4% dividend yield meaning investors are paid as they wait, he said.

“Earnings obviously are pretty volatile, but their main thing is capacity utilization rates on the refineries. Refineries are only a quarter of their revenues, but it’s 60% of their profits, and then they transport the LNG,” he said. LNG exports will be significant as countries try to diversify energy inputs, and “carbon-based energy is gonna still have a significant place in the world for a long time,” he adds.

His last pick is an old favorite for the manager — Latin America’s answer to Amazon.com
AMZN,
+1.21%

— MercadoLibre
MELIN,
-0.63%

MELI,
-0.58%
,
whose shares have been on the recovery road after coming off COVID-19 pandemic-era highs. The company is now “getting to scale and you’re seeing a tremendous increase in not only their revenues, but their profit margins are expanding,” he said.

“So it looks like you’re going to have 28% revenue growth maybe for the next four years at least, and get 50% plus growth in their reported earnings,” he said, noting increasing benefits of electronic transactions and digital advertising.

“So you’ve got three legs: you’ve got the financial, you’ve got the Amazon type, online retailer and the third is the advertising. All of these things are putting them in a spot that’s unique in Latin America, Mexico and South America,” said Plumb.

Last word from Plumb? Like many others, he’s worried that the Fed has moved too fast with rate hikes and that those delayed effects are playing out. He worries about risk to insurance companies and long-term lenders of commercial real estate, which he thinks will be “an area of significant potential risk over the next couple of years.”

The markets

Stock futures
ES00,
-0.54%

YM00,
-0.78%

NQ00,
-0.27%

extended losses after the ECB rate hike, while bond yields
TMUBMUSD10Y,
3.440%

TMUBMUSD02Y,
3.961%

have also turned lower, and the dollar
DXY,
-0.14%

lower. Asian stocks
HSI,
-1.72%

NIK,
-0.80%

fell, while European equities
SXXP,
+0.06%

turned mixed after the ECB hiked interest rates. German 2-year bund yields
TMBMKDE-02Y,
2.466%

are also rising after a big plunge. Oil prices
CL.1,
-1.39%

are weaker.

For more market updates plus actionable trade ideas for stocks, options and crypto, subscribe to MarketDiem by Investor’s Business Daily.

The buzz

“Inflation is projected to remain too high for too long.” That was the ECB statemetn following a 50 basis point rate hike to 3%, a move that some had been on the fence over, given fresh banking stress. President Christine Lagarde will speak soon.

U.S. data showed weekly jobless claims dropping 29,000 to 1.68 million, while import prices declined 0.1%, housing starts rebounded by a 9.8% jump and building permits surged 13.8%. The Philly Fed manufacturing gauge remained deep in contraction territory in March, hitting a negative 23.2, versus expectations of 15.5

Treasury Sec. Janet Yellen is expected to tell the Senate Finance Committee on Thursday that the U.S. banking system is “sound.”

That’s as First Republic shares
FRC,
-29.97%

have dropped 35% to a fresh record low amid reports the battered lender is considering a sale. The lender was cut to junk by Fitch and S&P on Wednesday. Elsewhere, PacWest Bancorp
PACW,
-18.29%

is down 14%.

Meanwhile, “everything is fine,” with Credit Suisse, said the head of top shareholder Saudi National Bank on Thursday, a day after he effectively blew up markets by saying the Middle Eastern bank wouldn’t boost its stake. Credit Suisse shares
CS,
+3.51%

CSGN,
+15.73%

are surging on a pledge to borrow money from the Swiss National Bank and repay debt.

Adobe shares
ADBE,
+2.99%

are up 5% after topping Wall Street expectations for the quarter and hiking its outlook.

Shares of Snap
SNAP,
+6.77%

are up 6%, following a report that the Biden administration has told its Chinese owners to sell their TikTok stakes or face U.S. ban.

Shares of DSW parent Designer Brands
DBI,
+14.13%

are headed for a 2-year low after a surprise profit, but disappointing revenue.

Goldman Sachs is lifting its odds of a U.S. recession in the next 12 months by 10 percentage points to 35%, over worries about the economic effects of small bank stress.

Best of the web

Chinese companies are still trying to get their money out of SVB.

A rare Patek Philippe watch owned by the last emperor of China’s Qing dynasty could break auction records.

An issue with your tissue? ‘Forever chemicals’ are in toilet paper, too.

The tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.

Ticker

Security name

TSLA,
+0.89%
Tesla

CS,
+3.51%
Credit Suisse

FRC,
-29.97%
First Republic Bank

BBBY,
+8.25%
Bed Bath & Beyond

CSGN,
+15.73%
Credit Suisse

AMC,
-2.45%
AMC Entertainment

GME,
-1.38%
GameStop

AAPL,
+0.08%
Apple

NIO,
+0.91%
NIO

APE,
-8.10%
AMC Entertainment Holdings preferred shares

Random reads

Cookie Monster NFTs? No thanks, say the furry guy’s fans.

The 8-year old daughter of a Russian President Vladimir Putin ally apparently owns a multimillion-dollar London apartment.

This Spanish ice cream screams childhood days.

Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.

Listen to the Best New Ideas in Money podcast with MarketWatch reporter Charles Passy and economist Stephanie Kelton.

Source link

#Chips #energy #Amazon #rival #Stock #picks #fund #manager #decades #experience