Podcast Summary
UBS Downgrades Six Tech Giants from Overweight to Neutral: UBS predicts tech earnings will decline from 42% to 16% growth, potentially impacting the 'Magnificent Seven' basket of stocks and causing further declines or a bounce based on earnings.
UBS has downgraded six major tech companies (Apple, Amazon, Alphabet, Meta Platforms, Microsoft, and NVIDIA) from overweight to neutral, citing a reversal in earnings momentum. These stocks, along with others in the tech sector, have seen significant growth over the past year, but UBS now expects big tech earnings to decline from 42% to 16% over the next year. This could lead to further declines in the "Magnificent Seven" basket of stocks, or a potential bounce if earnings exceed expectations. Additionally, the International Monetary Fund has raised concerns about the rapidly growing private credit market, which warrants closer scrutiny despite not currently posing a systemic risk.
Private Credit Market's Illusion of Liquidity: Despite illiquid nature, institutional investors pour money into private credit market for higher returns, but risks like rising interest rates, stale valuations, hidden leverage, and retail presence may challenge its sustainability.
The private credit market, which includes investments in private equity and private credit funds, has grown rapidly to a $2 trillion market due to features like speed, flexibility, and higher returns. Institutional investors like pension funds and insurance companies have been pouring money into these investments despite their illiquid nature. However, Christopher Wood of Jefferies warns that this approach may be unsustainable as it relies on an illusion of liquidity. Risks to the private credit market include rising interest rates, stale valuations, hidden leverage, and exposure from insurers and pension funds. The IMF also raised concerns about the growing retail presence in the market, which could increase liquidity risks. Meanwhile, in the world of public markets, Verizon reported strong first-quarter earnings, driven by growth in its wireless unit. The company expects to earn between $4.50 and $4.70 per share for the full year and forecasts wireless service revenue to grow between 2% and 3.5%. Tesla, on the other hand, hit a new 52-week low after Elon Musk reportedly announced plans to cut 20% of its workforce due to softening demand and lower prices in major markets. Tesla lowered prices in China, Germany, and the US in response to competition and economic uncertainty.
Tesla's focus on robo taxis and obesity trend in US: Tesla is shifting towards building a robo taxi fleet, while obesity rates in the US are projected to increase, leading to a surge in demand for weight loss treatments. Goldman Sachs revised its basket of stocks based on capital expenditures and R&D spending, expecting growth to slow, and mega cap tech firms are investing in AI.
Tesla seems to be focusing more on building a robo taxi fleet instead of developing its mass market model, according to JPMorgan's analysis. Meanwhile, the demand for weight loss treatments is surging in the US due to increasing obesity rates, with around 50% of adults predicted to be obese by 2030. In the world of Wall Street research, Goldman Sachs has revised its basket of stocks leveraged to capital expenditures and research and development spending, expecting spending growth to slow to 7% this year due to higher interest rates. Additionally, mega cap tech firms are investing in artificial intelligence after a period of cost discipline. The sectors represented in Goldman Sachs' neutral basket include Meta, AT&T, United Airlines, Intel, GM, Kroger, Diamondback Energy, AES, Merck, and Eastman Chemical. Cisco Systems, on the other hand, received a neutral rating from JPMorgan with a $53 price target, despite a favorable near-term setup and discounted valuation, due to expectations of muted medium-term growth.
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