Podcast Summary
Successful deal making requires more than big names: Economic news from Asia indicates a cooling down economic recovery, while US officials work to strengthen partnerships. Successful deal making necessitates careful planning and open-mindedness, not just bringing big names together.
Sports and business deal making is more complex than it seems. Alex Rodriguez and Jason Kelly, hosts of The Deal podcast, shared their experience that bringing big names together is not enough. Instead, successful deal making requires careful planning and open-mindedness. Meanwhile, in the business world, economic news out of Asia is causing concern. China's consumer inflation rate fell to 0% in June, and producer prices also entered deflation territory. These numbers suggest that the economic recovery is cooling down. Janet Yellen, the US Treasury Secretary, recently returned from a trip to China. She emphasized that the US is not seeking a full decoupling from China but remains optimistic about the US economy. However, she cannot rule out a US recession. President Biden is currently on a trip overseas, visiting the UK and Lithuania. He is expected to discuss Ukraine, NATO, and potential trade deals with the UK. Back in the US, much of the country is bracing for severe heat, with temperatures reaching near record levels in the southern US and northern Mexico. These extreme temperatures could strain electricity networks. In summary, successful deal making requires more than just bringing big names together. Economic news from Asia suggests that the economic recovery is cooling down, and US officials are working to strengthen relationships with key partners. Finally, the US and much of Mexico are facing extreme heat, which could put a strain on electricity networks.
Investor concerns over earnings season and tightening financial conditions: 55% of investors expect the earnings season to negatively impact stocks, with the Fed's expected rate hike being a major concern. Some companies may miss profit projections, causing further uncertainty.
The S&P 500 is coming off its second consecutive losing week, and investors are bracing for potential losses during the upcoming earnings season. According to a Bloomberg markets live poll, 55% of respondents believe the earnings season will negatively impact stocks, with 42% attributing this to the impact of further tightening of financial conditions. The Federal Reserve is expected to raise interest rates later this month, and concerns over inflation and rising rates are causing uncertainty in the market. The earnings season kicks off this week, with reports from JPMorgan Chase, Wells Fargo, Citigroup, Delta Airlines, and PepsiCo. While some analysts expect companies to meet consensus estimates, others are more bearish and anticipate profit projections to be cut. Additionally, Meta's new social media platform, Threads, has gained 100 million users since its launch, making it one of the fastest-growing consumer products ever. However, the weather has caused major flooding in New York's Hudson Valley, resulting in road closures and at least one death.
Notable developments in US, China, and Qatar: Heavy rain expected in Western New England, US-North Korea tensions rise, man kills six at Chinese kindergarten, Senate calls for FDA investigation into energy drink, Qatar Economic Forum, weak economic data from China, potential stimulus, shift towards non-US equities
There are several notable developments happening around the world today. In the United States, heavy rain is expected across Western New England, but the rainfall should not be as heavy as the previous day in the northern parts of the city. Meanwhile, tensions continue to rise between North Korea and the US, as the North Korean defense ministry accused US spy planes of violating its airspace and threatened to shoot them down. In China, a man with a knife killed six people and wounded one more at a kindergarten in Guangdong province, and a 25-year-old man was arrested. In the US, Senate majority leader Chuck Schumer is calling on the FDA to investigate a social media influencer-backed energy drink called Prime due to its excessive levels of caffeine. The beverage is founded by YouTube stars Logan Paul and KSI. The Qatar Economic Forum powered by Bloomberg will take place from May 14th to 16th, where 1000 global leaders will gather to make new connections, gain unique insights, and uncover valuable opportunities. Investors are keeping a close eye on weak economic data coming out of China, which has potential implications for the broader market. While there is talk of potential stimulus to reignite risk assets, the more fundamental concern is the shift towards buying non-US equities due to the economy not performing well in the US and high valuations in US equities.
Global investors' consensus to invest in non-US equities fades: Investor sentiment shifts from non-US equities to US equities due to China's underperforming economy, but earnings expectations remain stable for the back half of the year
There was a strong consensus among global investors at the beginning of the year to invest in non-U.S. equities, particularly in China, due to perceived economic strength. However, this complacency has started to fade as China's economy has not performed as well as anticipated, leading to a rotation back into U.S. equities. This trend has been driven by the growth trade but is also starting to show signs of improvement on the value side. The question now is whether this rotation will continue, even with some trepidation about US earnings. Historically, earnings expectations are often too high at the beginning of the year and come down throughout the year, but the consensus expectation tends to be in the right neighborhood by the middle of the year. Despite some uncertainty about inflation data and the Fed's response, the overall earnings picture is expected to remain stable in the back half of the year. Companies are determined to meet their earnings expectations, and sell-side estimates have shown some stability recently. Inflation data is still moderating, and the CPI heat map is showing improvement, indicating a potential continuation of the current trend. Overall, the consensus call for non-U.S. equities, particularly China, may have been premature, and the rotation back into U.S. equities could continue, despite some concerns about earnings.
Investors shifting focus to future growth in tech sector: Amid economic uncertainty, investors are exploring growth opportunities in tech despite perceived overvaluation. Broadening investment exposure to tech and cyclical sectors recommended.
Investors are looking beyond the current economic uncertainty and focusing on the future, particularly in the tech sector. Despite some perceived overvaluation in certain tech stocks, the broader tech space is not significantly elevated in terms of valuations compared to historical levels. The consensus forecast for a subpar economic recovery in 2023 makes growth in tech an attractive proposition. However, there are also opportunities building in more cyclical sectors like small caps and energy. Overall, it's recommended to broaden out investment exposure beyond defensive sectors and consider expanding into tech and other cyclical areas.
