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Stock indexes are mixed as the rotation out of some of the more high-flying tech stocks continues. The pullback in chipmaker stocks is a big drag on the Nasdaq and S&P while the less tech-heavy Dow is enjoying a positive start to the week.
Most Wall Street insiders think a pullback is needed following the steep climb many of the big tech behemoths have already made this year. That includes AI chipmaker Nvidia, which just last week soared past a $3 trillion valuation, a club that includes only two other public US companies - Apple and Microsoft. The gargantuan size of Nvidia and other big tech mega-caps means that moves in their stock prices can have an outsized impact on the broader stock market and indexes.
Nvidia’s stock alone has erased more than -$400 billion in market valuation following a decline of some -13% since its peak last Wednesday. Still, even with the recent losses, Nvidia’s stock is up nearly +140% this year. While Nvidia’s pullback may be weighing on other semiconductor makers, it’s not really spread to the broader tech sector - Google-parent Alphabet, Amazon, Apple, Facebook-parent Meta, and Microsoft are roughly where they were at this same time last week.
But contagion in the tech sector is obviously a worry as that would likely lead to an even deeper pullback in the major indexes. Right now it looks like bulls are fishing around for undervalued stocks that have been overlooked amid all the AI hype, which is reflected in the Dow’s more than +200 point pop yesterday while the Nasdaq sank by about -200. You can also see it in the equal-weighted S&P 500, which was in positive territory yesterday versus a loss for the regular market weighted S&P 500 index.
It’s also worth keeping in mind that Nvidia’s stock witnessed a selloff earlier this year that saw it lose around -20% between the end of March and late-April. That was part of a broader correction in the tech sector in which the so-called “Magnificent Seven” - Google-parent Alphabet, Amazon, Apple, Facebook-parent Meta, Microsoft, Nvidia, and Tesla - shed around -$950 billion in market cap in a single week (April 15 - 19). They have all more than recovered since then.
Today, investors will be digesting earnings from Carnival and FedEx. On the data front, the highlights include the FHFA Housing Price Index, the S&P Case-Shiller Home Price Index, and Consumer Confidence. As an investor,
What Happens When the Hibernating Bears Wake Up: Short sellers are supposed to keep the market’s sunny optimism in check. Lately, these bears have all but disappeared. When they finally return, it could give complacent investors a case of whiplash. So far, it is shaping up to be a great year for stocks and in the face of giant gains, short sellers, or investors who bet against the market, are throwing up their hands. Short interest in two of the biggest exchange-traded funds, the SPDR S&P 500 ETF Trust and the tech-focused Invesco QQQ Trust, both commonly used as market proxies are at six-year lows, according to a recent note from J.P. Morgan. As recently as 2023, the value of short bets amounted to as much as 15% of the funds’ total values, according to JPMorgan. Today, both are below 9%. Amid a sustained bull market some bears may be simply giving up. More onerous regulatory rules and the recent meme stock craze that burned some short sellers also play roles, according to J.P. Morgan. Either way, the retreat of short sellers has probably helped inflate stock prices and dampen recent market volatility. Bears have become steady stock market buyers as they move to close out their positions. Think of it as a kind of marketwide, slow-motion short squeeze. The dynamic, notes J.P. Morgan, poses a potential problem for investors. Once market sentiment starts to sour, those short sellers could rush to re-establish bearish bets, giving an already vulnerable market a gut punch. Source Barrons
Social-Media Influencers Aren’t Getting Rich—Most Barely Getting By: Many people dream of becoming social-media stars like YouTube’s MrBeast or TikTok’s Charli D’Amelio. But for most who pursue careers as content creators, just making ends meet is a lofty goal. Hundreds of millions of people around the globe regularly post videos and photos to entertain or educate social-media users. About 50 million earn money from it, according to a 2023 report from Goldman Sachs. The investment bank expects the number of creator-earners to grow at an annual rate of 10% to 20% through 2028, crowding the field even further. Last year, 48% of creator-earners made $15,000 or less, according to NeoReach, an influencer marketing agency. Only 13% made more than $100,000. Earning a decent, reliable income as a social-media creator is a slog—and it’s getting harder. Platforms are doling out less money for popular posts and brands are being pickier about what they want out of sponsorship deals. Source WSJ
The Covid Retirement Wave Could Be With Us for Good: Federal Reserve Chairman Jerome Powell has repeatedly pointed to the strong recovery in labor-force participation as a big reason why wage growth is slowing, easing pressure on inflation. But the labor force today looks different in one crucial point than it did before the pandemic: Workers have no interest in working into their 60s or 70s. In a March New York Fed survey, just 45.8% of respondents under age 62 said they would be likely to work past 62, down from 55.4% in March 2020, on the eve of the Covid-19 pandemic. Among respondents 45 or younger, the results were similar. Roughly 48.8% saw themselves working past 62, down from 56.5% in March 2020. Many older workers retired early in the pandemic to protect themselves from Covid-19. But economists and Fed officials thought this wave of excess retirements would be temporary. The New York Fed survey suggests the pandemic may have, indeed, permanently changed how younger cohorts see retirement. But retiring at younger ages could have big consequences for monetary policy. It also could be harder for employers to find workers, which means the labor market could be tight for years to come. Source WSJ
401(k) Contribution Rate Matched Record High in 2023: It’s a rare bit of good news on the retirement front: Record contribution rates for 401(k) accounts continued in 2023. The average percent of salary funneled into plans maintained 2022’s record pace of 11.7%, when combining contributions from both employees and employers, according to Vanguard Group’s annual How America Saves report. Employees alone contributed an estimated average of 7.4%, and an unprecedented 43% of savers either hiked their contribution rate themselves or had it bumped up through auto-escalation features. Still, signs of financial stress were evident in the report. The percentage of participants taking hardship withdrawals hit a record 3.6%, up from 2.8% in 2022. Just under 40% of those withdrawals went to avoiding a home foreclosure or eviction, while the next most common reason was for medical expenses. Additionally, the average account balance — while up last year — was nowhere near the level needed to afford a comfortable retirement, especially with Social Security benefits facing a potential cut in the next decade. The average balance rose 19% in 2023 to $134,128. Source Bloomberg
Railroad Bridge Between South Dakota and Iowa Collapses Amid Flooding: A railroad bridge collapsed during flooding in the Midwestern U.S. that has led to water rescues, evacuations and at least one death and has brought additional misery during a vast and stubborn heat wave. The bridge connecting North Sioux City, South Dakota, with Sioux City, Iowa, collapsed into the Big Sioux River late Sunday, an emergency manager said. Images from local media showed a large span of the steel bridge partially underwater as floodwaters rushed over it. There were no immediate reports of injuries from the collapse. The bridge is owned by BNSF Railway, whose officials did not immediately comment. Floodwaters have risen over days of heavy rain in South Dakota, Iowa, Minnesota and Nebraska. More rain is expected, and many rivers may not crest until later this week. Minor to moderate flooding was expected along the Missouri River, according to officials with the U.S. Army Corps of Engineers. “As long as the levees hold, we’re not expecting any major impacts,” said John Remus, water management division chief for the corps in the Missouri River basin. Source PBS
Major Record Labels Sue AI Music Startups: The three largest record labels are suing two artificial intelligence music companies, alleging the firms committed “mass infringement of copyrighted sound recordings” by using artists’ songs to train their AI services—marking the latest faceoff between the entertainment and AI industries. In lawsuits filed against Suno, Inc., and Udio AI, the record labels—including UMG, Sony and Warner—accused the companies of “massive and ongoing infringement,” alleging they copied sound recordings from the labels “en masse and ingested them into its AI model,” which the plaintiffs say violate copyright laws. The record labels said that while the output of the AI systems from Suno may not infringe upon the copyrighted recordings, they confirm “Suno has copied specific Copyrighted Recordings into its training data to build its service,” according to the suit, and made similar allegations about Udio. RIAA Chairman and CEO Mitch Glazier said in a media release the music community has “embraced AI” and is partnering to build AI tools “centered on human creativity that put artists and songwriters in charge,” but services like Suno and Udio that “copy an artist's life's work and exploit it for their own profit without consent or pay set back the promise of genuinely innovative AI for us all.” Source Forbes
Brookfield’s Plan to Turn Malls Into Minicities Falls Short: Brookfield Property Partners spent billions in 2018 to assume full ownership of mall-owner GGP when malls were out of favor on Wall Street. Executives at the firm defended this contrarian bet in part by saying that they would turn most of the company’s 125 malls into minicities with residences, offices or hotels as well as stores. Six years later, only two malls, in Atlanta and near Seattle, have been redeveloped in this way, with another two—in North Carolina and Denver—in the pipeline. The slow pace of its redevelopment efforts shows how difficult, expensive and time consuming it is to revamp enclosed malls. Getting approvals from cities and towns is a lengthy and sometimes contentious process, often because of community pushback. And other mall tenants, particularly department stores, often have multidecade contracts that allow them to block nonretail development. Brookfield executives say they are only at the beginning of their long-term plans for their mall portfolio. They have redeveloped more than 40 former department stores since 2018 and say they will continue to move forward with residential and other nonretail projects where it makes financial sense. But they acknowledged that the Covid-19 pandemic, followed by rising construction costs and interest rates, have delayed and, in some cases, scuttled redevelopments. Source WSJ
Llama Golf Caddies Drive Tourism: Golfing with llama caddies — who carry your clubs uncomplainingly — is the hottest ticket in North Carolina. At the Sherwood Forest Golf Club in Brevard, North Carolina, the phone rings 3-4 times a day with people who want to book the llama golf caddies. The llamas also go trekking with guests at nearby Earthshine Lodge — where the female llamas live. They work regularly with SOAR, a wilderness therapy program for children with ADHD and learning disabilities. And they do weddings — and go to schools on class photo day. Tourism and recreational activities involving llamas have been on an upswing. Llama (and alpaca) lovers attend competitive llama shows and invite llamas to visit schools, libraries and nursing homes. You can go hiking with your own llama — and the pack-bearing animal may even carry your gear and beer. Golfing with llamas is more about the experience and novelty than about the golf, which proceeds slowly. "It kind of takes all the tension out of the game," said Jenifer Lyons of Black Mountain, North Carolina, who likened golfing with llamas to yoga with goats. Source Axios |
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Data Centers Use More Energy Than Most Countries: The almost overnight surge in electricity demand from data centers is now outstripping the available power supply in many parts of the world, according to interviews with data center operators, energy providers and tech executives. That dynamic is leading to years-long waits for businesses to access the grid as well as growing concerns of outages and price increases for those living in the densest data center markets. The dramatic increase in power demands from Silicon Valley’s growth-at-all-costs approach to AI also threatens to upend the energy transition plans of entire nations and the clean energy goals of trillion-dollar tech companies. In the US, power demand is expected to grow by 40% over the next two decades, compared with just 9% growth over the past 20 years, according to John Ketchum, chief executive officer at NextEra Energy Inc., the world’s biggest builder of wind and solar energy that isn’t backed by a government. Data centers are the biggest reason for that demand boom, Ketchum said, citing electrification and manufacturing as other factors. Asked why data centers were suddenly sucking up so much power, his answer was blunt: “It’s AI,” he said, citing the energy needs for training models and also the inference process by which AI draws conclusions from data it hasn’t seen before. “It’s 10 to 15 times the amount of electricity.” And the conventional wisdom in Silicon Valley is that the amount of energy needed will only go up. Source Bloomberg |
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