markets

1/2/25

Will capital spending on AI continue to boom?

Spending a whole lot of money on chips with the hopes of making a whole lot of money via AI has been the dominant strategy for most of America’s leading companies. Two noteworthy exceptions to this trend are Nvidia and Broadcom, which are designing chips that power the AI boom.

The AI-linked outlays from the S&P 500’s “hyperscalers” — Microsoft, Amazon, Alphabet, Meta, and Oracle — are estimated to total in the hundreds of billions in 2024, prompting shortages of the cutting-edge semiconductors to train and refine generative-AI models and a frenzied build-out of data centers to harness their power. This is a big source of current profits for some tech giants that’s giving another group of tech giants something to dream on (and start to enjoy).

Narratives around the merits of all this capital spending have evolved and shifted over time. But with every hyperscaler besides Microsoft handily outperforming the S&P 500 in 2024, it’s hard to argue that investors are overly pessimistic on the prospective return on investment.

Right now, a shorthand summary of investors’ view is that this is a case of throwing good money after good. This raises the risk that a negative turn in how much companies are willing to spend building out these new capabilities coincides with a more pessimistic view on the returns that will be generated from these capital outlays.

Of course a universe of more benign scenarios exists, including relatively uncorrelated outcomes from a correlated investment boom — that is, clear winners and losers. Or this tree of capex seemingly growing to the sky. But to quote the famous statistician and trader Nassim Taleb: “I've seen gluts not followed by shortages, but I've never seen a shortage not followed by a glut.”

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markets

10m

Kenvue plunges after reports suggest RFK Jr. may try to link prenatal Tylenol use to autism

Kenvue sank 15% Friday after a WSJ report said Health and Human Services Secretary Robert F. Kennedy Jr. may attempt to link prenatal Tylenol use to autism in an upcoming government report.

Kenvue, the maker of Tylenol and formerly a division of Johnson & Johnson prior to a 2023 spin-out, pushed back, saying the science shows “no causal link” between acetaminophen use during pregnancy and autism, and pointed to FDA and medical groups that agree on the drug’s safety.

The FDA itself has found no “clear evidence” of harm but advises pregnant women to consult providers before taking OTC meds.

The report is also expected to float a folate-derived therapy as a potential treatment.

Tylenol is just the latest well-established medication to face scrutiny under Kennedy, who has already stirred controversy by reshaping vaccine policy and amplifying doubts about mRNA shots.

Kenvue shares are now down over 18% year-to-date.

RFK Jr., HHS to Link Autism to Tylenol Use in Pregnancy and Folate Deficiencies

RFK Jr.

The FDA itself has found no “clear evidence” of harm but advises pregnant women to consult providers before taking OTC meds.

The report is also expected to float a folate-derived therapy as a potential treatment.

Tylenol is just the latest well-established medication to face scrutiny under Kennedy, who has already stirred controversy by reshaping vaccine policy and amplifying doubts about mRNA shots.

Kenvue shares are now down over 18% year-to-date.

markets

45m

Lucid surges following 6 days of losses after headlines misidentify Cantor Fitzgerald’s lower split-adjusted price target as a good thing

It’s been a shortened week, but still a rough one for Lucid. Investor blowback to the luxury EV maker’s 1-for-10 reverse stock split has sent shares to all time lows this week.

After six straight days of closing lower, Wall Street appears to have decided enough is enough and is loading up on Lucid shares on Friday, sending them up 13% in recent trading. As of 2:10pm eastern, Lucid trading volumes were at more than 240% of their 30 day average.

Some of the move could be attributed to traders reading headlines that don’t take into consideration Lucid’s reverse split. Cantor Fitzgerald on Friday slapped a new price target on Lucid of $20, compared to its previous target of $3. Some news outlets (not us!) presented that as an increase. The problem: With the 1-for-10 reverse split in effect, a comparable price target would have been $30. The new $20 target is actually... a cut.

Palantir slips under 50-day moving average, amid momo reversal

What goes up, doesn’t always keep going up.

Palantir CEO Alex Karp PLTR insane valuation

markets

4h

Momentum stocks reverse, weighing on US markets

Momentum stocks dragged the market lower Friday, with stocks like Palantir Technologies, SoundHound AI, Rocket Lab, Robinhood Markets, and GE Vernova continuing a recent slide.

(Robinhood Markets, Inc. is the parent company of Sherwood Media, an independently operated media company.)

The iShares MSCI USA Momentum Factor ETF opened 1% higher and built on those gains before reversing hard early in the session to trade 1% lower as of 11 a.m. ET.

If it closes at these levels, this fund that holds US stocks with the best risk-adjusted trailing returns will have completed a so-called “bearish engulfing candle pattern.” As the name suggests is, this is considered to be a negative technical signal that occurs when, the day after a security rises, it ends up opening above the previous day’s closing price and closes below the previous day’s opening price.

markets

7h

US stocks rise as soft job growth fortifies bets on a Federal Reserve rate cut this month

ETFs that track major US stock indexes are higher and short-term yields are falling after the August jobs report continued to confirm the trend of labor market cooling, calcifying bets on a Federal Reserve rate cut this month.

Non-farm payrolls rose by just 22,000 in August, while economists had expected an addition of 75,000. The unemployment rate ticked up to 4.3%, in line with estimates. Revisions to the past two months were also negative, but not as severe as in the July report.

The SPDR S&P 500 ETF was up 0.3% to session highs in the minutes following the release, while two-year US Treasury yields fell below 3.5%.

A report and market reaction like this suggests traders are embracing the idea that the softening in the US labor market is primarily driven by supply-side factors in light of major changes to net immigration, as recently argued by economists at the St. Louis Federal Reserve Bank, and isn’t a worrying sign that the US economy is on the verge of a recession.

With revisions, June’s non-farm payroll growth is now -13,000. That’s the first month of net job losses since December 2020. And the underemployment rate (or U6, which includes the unemployed, those employed part time who want a full-time job, and those who want a job but aren’t looking for one currently) rose to 8.1%, its highest level since October 2021.

Some see this data as much more concerning than the market reaction implies.

“Since a month or two ago, policy hawks, growth bulls (I call them wrong), have been arguing two things. First, sequential growth should perk up because the weakness in the summer was all a function of uncertainty around Liberation Day. Second, focus on the ratios because the unemployment rate is still low,” Neil Dutta, head of US economics at Renaissance Macro Research, wrote. “Both of these views were wrong as we now know. Employment growth is still cooling (there is no uptick in hours either) and the unemployment rate is rising. Bye Felicia!”

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