📑 Research Notes for 2023-05-30
This week, we look at a tentative debt ceiling resolution, and viewpoints from Morgan Stanley, Rosenberg Research, and ARK Invest on the A.I. driven rally.
We conduct extensive investment research and share the most interesting content that we come across every week. Here is a curated list of this week’s top observations.
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Last Week’s Market Performance Heatmap
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Biden-McCarthy Debt Agreement Brings Relief to Markets, Uncertainty Looms.
The Biden-McCarthy debt agreement is expected to provide relief to the markets, with a potential one percent increase in US shares. However, there may be some uncertainty as to whether it will pass through Congress. The relief rally may not be enduring as fundamental issues such as negative investor sentiment, the Fed's hawkish stance, and the risk of recession still remain. Additionally, the deal caps government spending and there will be a liquidity withdrawal as the Fed rebuilds its deposit at the treasury. The markets may still experience a rough ride over the next few months.
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Morgan Stanley's Mike Wilson: Bear Market Continues Despite Recent Tech Rally.
Morgan Stanley's Mike Wilson says that despite the recent tech rally, the bear market is continuing. He notes that the market has been driven by increased liquidity and a weaker dollar, but the fundamental case does not support current stock prices. Wilson predicts that the second half of the year will be choppier and likely downward for the index. He also points out that the rally has been driven by what people want to buy, such as AI and technological revolution, rather than the old economy stocks.
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Economist David Rosenberg Warns of AI Bubble and Recession Risks.
Economist David Rosenberg warns that the current boom in artificial intelligence (AI) could collapse like the dot-com stocks of the late 1990s. He notes that while there is a price bubble in the sector, there is also a real impact on the economy, and that the internet was a game changer for productivity. However, he warns that the current situation is distracting investors from recession risks, and that the Fed may be looking at the AI boom as a major productivity accelerator, which could work towards their anti-inflation objectives. Rosenberg also notes that the three most economically sensitive areas of the market, banks, consumer discretionary, and transports, are down more than 30% from the cycle highs and are behaving in the same pattern as they have going into the past four recessions.
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Cathie Wood Expresses Concerns About Nvidia's Future Due to Cyclical and Competitive Risks.
Cathie Wood, CEO of ARK Invest, has expressed concerns about Nvidia's future due to cyclical and competitive risks. While Wood has been positive on Nvidia in the past, she notes that the company's current valuation of 25 times sales is high compared to other AI-oriented stocks like Tesla and UiPath, which are at six times sales. Wood also highlights the cyclical risks associated with shortages of GPUs and competition from companies like Tesla and Google, who are developing their own chips for specialized models. Despite these concerns, Nvidia still meets ARK Invest's minimum hurdle rate of return and remains in some of their specialized portfolios.
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Curated by Joseph Lu, CFA®
Joseph is the founder and managing director of Conscious Capital Advisors, and a CFA® Charterholder.
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