James Brodie
Head of Learning & Development, Flux
Nvidia Falls, S&P 500 Torn, Hedge Funds Shorting Software, LEI Down
AI boosts margins, lifts select stocks, pressures software/jobs; funds short tech, defaults rise, LEI weakens, global ex-US leads.
While Nvidia falls 5.5% on blowout earnings Jack Dorsey’s Block Inc jumped 22% on news they are cutting 4,000 employees (40% of headcount).
He was blunt “Intelligence tools have changed what it means to build and run a company.” Fewer salaries, higher margins, faster execution, and the market rewards it. We’ll continue to see productivity gains, while unemployment rises (payrolls next Friday).
The bond market sees AI developments as clearly disinflationary, but FED rate cuts at the front of the curve won’t resolve the new structural imbalance AI is creating. Overnight the 10-year yield broke below 4% (Chart 1, Bloomberg) and mortgage rates have moved below 6% for the first time since 2022. The 2’s 10’s curve has broken support and will continue to trend lower, with 2+ rate cuts already priced at the front of the curve, long end yields will move further.
The S&P 500 has closed within 2.5% of its 50-day moving average for 63 consecutive sessions, the longest streak since 2018. Is torn between who will win and who will lose. On the winning side the companies physically enabling AI: Nvidia, TSMC, and Micron in compute and memory; hyperscalers like Microsoft, Amazon, Alphabet, and Oracle; infrastructure and power plays including Arista Networks, Vertiv, Eaton, and NextEra Energy; cybersecurity leaders such as Cloudflare, CrowdStrike, and Palo Alto Networks; and AI-leveraged platforms like Palantir and Zoom. The theme is clear: hardware, cloud scale, energy, and security capture the first wave of value.
On the losing side, enterprise software names including Salesforce, SAP, Workday, Atlassian, Docusign, Monday.com, and UiPath, alongside consulting and advisory firms such as Accenture, Cognizant, and Gartner, plus consumer-facing platforms like Duolingo and Unity Software.
Hedge funds are shorting Software stocks at a record pace. Short exposure to US Software is now at its HIGHEST level on record. US small and micro-cap equities posted -$837 million in outflows last week. This follows a record -$1.2 billion outflow in the week prior .….. while JPMorgan reports near "record" retail stock buying.
Job openings in finance and insurance are imploding. (Chart 2, St Louis Fed)
Another private credit collapse. Market Financial Solutions collapsed into a UK form of insolvency yesterday, with the judge overseeing the case citing accusations of fraud and double pledging of assets. Barclays and Atlas each lent it hundreds of millions of dollars. Jefferies Financial Group and Wells Fargo are also among those with exposure.
Price discovery now unfolding in the US loan market (Chart 3, Bloomberg)
Total world stocks excluding U.S. equities continue to surge, up 11% ytd. (Chart 4, Bloomberg). Trending.
The Conference Board Leading Economic Index (LEI) dropped again in January, to the lowest level in 12 years.
Big bankruptcies have hit the highest rate since Covid, per Bloomberg.
Americans are defaulting at a crisis-level pace," per Yahoo Finance
US now has 44% more home sellers than buyers, one of the largest gaps in history.
UK consumer confidence falls to three-month low and car production drops 8%
Data today - US PPI & Canadian GDP
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