Stocks Fall Before Nvidia’s High-Stakes AI Results

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1:57With our unified Team Michigan approach, businesses scale faster and compete at the highest level. Michigan, pure opportunity. Seize your opportunity at michiganbusiness.org. Bloomberg Audio Studios, podcasts, radio, news. This is Bloomberg Business Week Daily, reporting from the magazine that helps global leaders stay ahead with insight on the people, companies and trends shaping today's complex economy, plus global business, finance and tech news as it happens. The Bloomberg Businessweek Daily Podcast with Carol Masser and Tim Stenebeck on Bloomberg Radio. We did, though, also kick off today with something that just kind of is staying with us.

2:44A warning from JPMorgan Chase Vice Chairman Daniel Pinto. He said and kind of gave us all a heads up that valuations in the AI industry are due for a reassessment. It's something Tim and I have been trying to get into today, which could reverberate across the stock market. Here's what he said. It's possible there is probably a correction there. And that correction will also create a correction in the rest of the segments in the S &P and in the industry. Because you are probably, in order to justify these valuations, you are considering a level of productivity. that it will happen, but it may not happen as fast as the market is pricing.

3:27There you have it, JP Morgan Chase, Vice Chair Daniel Pinto. Earlier today, that was at the Bloomberg Africa Business Summit in Johannesburg. Curious what buyer sell signals our next guest is seeing. Great to have back with us, Vance Howard, CEO and Portfolio Manager at Howard Capital Management. About$6 billion in assets under management. He joins us here in the Bloomberg Interactive Brokers Studio. This is the question we've been wanting to ask you since last time we spoke to you. Is the HCM byline model telling you to buy or sell right now? It's telling us to buy. The HCM byline is positive.

3:59Any pullback is viable until it changes trend and sort of discard the noise and just buy what's actually happening. The market's very, very healthy. You've had six great months. I mean, how do you not have a pullback after six months? Just one step back. Explain the HCM byline model and the data it takes into account and then what it tells you to do. It's a non-emotional, mechanical, repeatable process, because I want to take as much emotion out of it as I possibly can, which is incredibly challenging with the amount of things that are thrown at each and every one of us every day. But it's a math-based tool.

4:28It's just a trend indicator, and we think it's a very good trend indicator. It's done very well for us. Perfect no, but good yes. Does momentum, though, the momentum trade mess it up at all? No, not at all. But I love the momentum trade, because I love to be in those stocks. I love to be in those sectors. You've got to trade momentum. You can't sit in dead money. Yeah, but when is momentum FOMO? Like you're just tracing something without really fundamentally thinking about it. Well, it's a big computer game. It doesn't matter. Well, it's a big computer. Yeah, it doesn't matter anymore. It's a big computer game.

4:55I mean, you're trading against algorithms anymore. It's 85 % of all the volumes. But don't fundamentals matter? Well, they're always going to end up mattering in the end. But look at what's happening, Carol. When you look at what's happening with AI, look at what's happening with Tesla and that robot they're coming out with, Optimus. How much is that going to make an impact on so many companies' profitabilities and earnings per share? I don't know. That's if they come out with the robot. TBD. Do what? That's if they do come out with the robot. I think 2026 he's going to. You think so? Oh, yeah.

5:21He doesn't always meet deadlines. Well, but when he does, it's usually a big show. They've got one of those things walking around Austin, Texas right now with a cowboy hat on. Literally walking around the whole city. Definitely no person inside it? No. He stops at every red light. He stops at every stop sign. He gets out of people's way. This thing is amazing. Wait. What do you think it's going to do, though? How do you think it's going to impact our life? Are you real? Come on. We like? Yeah. Here's the thing. Here's how it's going to impact your life. And I thought about this a lot with our trading team.

5:47Let's just take Starbucks, for instance. What if you've got one person worse than the cash register and five people that are robots that are serving the coffee? This only costs$15 ,000 to$20 ,000 for Optimus, the robot, to make a cup of coffee. You've eliminated four or five jobs right there. You don't have to worry about somebody complaining, coming in for work, getting sick, getting holidays. But do robots go out and buy high heels? Probably not. That's a good point. That's a really good point. I do think about what robots are not going to be spending in the economy and what that means longer term.

6:16That's exactly right. I think you're going to see unemployment organically move higher. But I think you're going to see corporate profits in a lot of these companies move higher also. Look at what happened with Walmart. Walmart's a boring company, in my opinion. But what happens if there isn't a lot of consumer spending going on, which is so much the backbone of the economy? Doesn't that filter through until we have lower economic growth and are people out of work? That's not a good thing. That's not a good thing. It's a terrible thing. But look, I can't change it and I can't stop it. Neither can the three of us inside this room.

6:45But what we do have is the HCM buy line. So stocks want to sell off. We got a mechanical system to say we need to unwind some positions. OK, so when was the last time it told you to sell? We had a sell signal in April when we had the tariff tantrum. And then we came back in. And it was not a great trade for us because it was so volatile. Because it is a trend indicator. And when the trend changes all in like 48 hours, that's tough to trade. And if you'll remember, before we jump onto that, you'll remember the NASDAQ was down 28 % in a matter of days. That's a tough trade. The S &P 500 low for the year was back on April 8th.

7:22What day did you sell and what day did you get back in? Do you remember? To be quite candid, I don't remember. But did you miss some of the upside since then? We missed some of the upside. We did, painfully for us. But you know, when you traded... And you felt some of the downside. We did. We did. And it was a painful trade for us. I'm going to admit it. It wasn't a great trade for us. Remember the byline of 70-30? It was for everybody, it feels like. But it's a 70-30. 30 % of the time, it's not going to work. So we're going to get whips all 30%. Do you go all in and all out at times? No, we scale.

7:48You scale. Because we were talking with somebody just last week, a manager, who says that he – this was a really interesting conversation. He basically said, I'm so tactical that I'm willing to go to 100 % cash for all of my clients at any given moment. Do you ever do that? We have before. In 2008, we were 100%. The only way that we'll go 100 % to cash is if the banks are imploding, and that's what was happening in 2008. So if we're 30 % out or 60 % out, the all or none game is a tough game to trade. It is. I mean, the tax implications of that are huge. Well, tax implications, but catching both sides of the trade perfect are really tough.

8:27He said, I would rather pay 20 % taxes than have 30 % declines. I forget who that was. You're right. I can't remember. I'll find it. Well, might the private credit market create something akin to the great financial crisis? Because it does feel like increasingly we're seeing things every day. People are worried. Yeah. And I think that what should worry people is our national debt. I think that's a tipping point. If that cracks, I think we've got a real problem. Like the great financial crisis? I think like the great financial crisis. Systemic. Yeah. It's going to affect everything. I mean, the banks are going to lock up.

9:04Credit's going to lock up. People aren't going to be short or long-term loans. When you say banks, you mean the big banks, too. I think the big banks, of course. And I think it's going to affect everybody. I mean, what do you got? X amount of trillions of debt that we currently have, and every day it's getting larger and larger and larger? It's unsustainable. And if they keep printing money, Carol, your dollar and my dollar all of a sudden is not worth a dollar. It's worth a nickel. And so you've got to – the printing of money is going to have to stop, too. What about the AI bubble? I shouldn't call it a bubble because we don't know if it's a bubble.

9:30We just know it's a big spend right now. Which bubble? The AI? Oh, yeah. It's not a big spend. This is different. When we looked at, you remember in 1999 and we had the three-year bear mark and they had all these tech stocks that blew up. They weren't making any money. They were not making any money. You think this is different? They're making money hand over fist. They're making money so fast they can't spend it. What happens if in five to seven years to ten years Microsoft is so profitable they're paying an 8 % or 10 % or 12 % dividend? So, ten seconds, you're still owning the big Mag7, the big tech, the hyperscalers?

9:58I am hoping. You're buying them on pullbacks? I am hoping that NVIDIA comes out with something that shocks the market. They drop down so I can buy more. Because five years from now, NVIDIA is going to be a lot higher than it is today. It's a shame you're not more bullish. I'm just kidding. I'm just kidding. Vance Howard, Chief Executive Officer, Portfolio Manager at Howard Capital Market. Thanks so much. Stay with us. More from Bloomberg Businessweek Daily coming up after this.

10:22What if data didn't sit still? What if intelligence moved with us? Not buried in reports, but activated in real time. Where lives are being shaped. where decisions are being made. It all starts with a question. Where is the potential? Cotality turns data into clarity. Intelligence into insight. Insight into action. Because when intelligence moves, we all move forward. Cotality. Intelligence beyond bounds. Wise is the smart way to manage the currencies you need around the globe. If you've ever sent money internationally using a traditional bank, there's a good chance you've paid more than you realized.

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13:12with President Trump earlier today. This evening, by the way, there's a black tie dinner, not an official state dinner, although at that dinner we did hear Elon Musk would be there. Tiger Woods reportedly will be there as well. Yeah, a lot of officials, right? There's also an investment conference planned for tomorrow that executives from companies, including Chevron, Pfizer, they will be attending. So we wanted to kind of put this in perspective because typically you would see these two kinds of leaders meet and you think energy policy would come up, although it really didn't. Let's get to it with Dr.

13:42Ellen Wall. She's president of Transversal Consulting, senior fellow at the Atlantic Council, author of Saudi Inc., joining us from Boca Raton, Florida. Ellen, so good to have you back here. Feels like Saudi Inc. and U.S. Inc. are kind of merging. Tell me about this meeting because it was kind of fascinating. It really wasn't about conversations around oil or the energy markets. It was absolutely fascinating, especially if you had an opportunity to watch the press conference live. I think everything from the marble floors to the White House to whether or not Saudi Arabia is going to join the Abraham Accords was covered.

14:18What's interesting is the amount of money that Mohammed bin Salman is talking about potentially investing in the United States. And I think the big question on everyone's mind is where are they getting this money from, given that oil prices are pretty low? And I think the answer really is you have to look at the Saudi investment fund, the PIF, because that's really where they have a lot of their investment dollars and ready to deploy. And it really that that that fund is really independent of the price of a barrel of oil. So I think the question of whether Saudi can deliver this money, the answer is yes.

14:58But whether they actually will deliver on this is another question. And I do think that a lot of that money is probably earmarked for defense purchases. And that really depends on whether they do go through with this agreement to sell Saudi Arabia F-35s and other defense equipment that is somewhat controversial and hasn't necessarily been sold to Saudi Arabia previously. Carol mentioned that you're the author of Saudi Inc., The History of Saudi Arabia and Aramco. And I wonder now how successful the Saudi Arabian government has been, the kingdom of Saudi Arabia, of diversifying its economy away from oil.

15:37Has it been successful? That is a really great question. And I think the answer is, if you're looking at and you're trying to say, have they achieved the goals that they set out to achieve when they announced their big plan to diversify from oil? The answer is no, they have not really achieved those goals. I think really a lot of those goals were not achievable goals. What they have done is they have introduced some very important changes that I think can certainly help make the Saudi economy more robust over time. We're talking about making it easier for foreigners to visit the country, both for tourism but also to work, opening up the workspace for women.

16:16And important societal changes like that, I think, in the long run will help diversify their economy. But if you're asking whether their economy is still very much dependent on the energy industry, the answer is yes. Aramco, on the other hand, has over the past, you know, 50 years, I would say, significantly diversified itself from simply an upstream company that sold a lot of crude oil to a very diverse energy company that has multiple revenue streams. So they're not just dependent on what the price of a barrel of oil is. They make a lot of oil products. They're getting into natural gas. They make money off of trading oil in the financial sense.

16:57And so they're making a lot of money that is not dependent on whether the price of a barrel of oil is$60 or$80. So I guess what I, this relationship that we are seeing between the United States and Saudi Arabia, I feel like it's always been a bit of a frenemy kind of relationship between the two nations. Having said that, there's been times where it's been stronger, times when it has not. Is this the relationship going forward, in your view? What's so interesting about the relationship between the U.S. and Saudi Arabia is that Saudi Arabia has a very different view of the relationship than the United States does.

17:37In the Saudi mind, the U.S. is a best friend, that they've always been so close, and they've cultivated an entire kind of aura and idea about this friendship. They think the U.S. is a huge ally. If you look at it from the U.S. perspective, Saudi Arabia is, at least it can be a strategic partner. But Saudi Arabia would not be considered an ally to the United States the same way Great Britain or Canada might be considered an ally. And so I think that that leads to very different opinions about what exactly is going to go on. So, you know, whether or not Saudi Arabia has a defense agreement, yes, traditionally we have had defense agreements.

18:18But from the U.S. perspective, that's not always so guaranteed. If it's beneficial to the U.S., then it will happen. But, you know, it's not necessarily a guarantee. It's not necessarily this allyship that the Saudis often perceive the relationship to be. Well, it's interesting when you say Canada and the UK, in particular Canada, I feel like, you know, it looks almost a friendlier relationship between the U.S. and Saudi Arabia than it certainly does between U.S. and Canada right now. I guess my question really, you know, Ellen, is are we laying the ground for whoever is in the White House next, be it Democrat or Republican, that this is the relationship?

18:53Or could it change and get different depending, again, who is in the White House? I think that there's always kind of a baseline. And you could see that when Trump was kind of fishing for a compliment from MBS as, you know, oh, well, he's the best president. You know, they've had the best relationship with Trump. And MBS kind of answered that with, well, we've always had, you know, Democrat or Republican, we've always had good relations with presidents of the United States. And then he mentions Reagan as a particularly good one. So I think that MBS is certainly looking at this as he's got to lay the groundwork for his good relationships with presidents that are going to come after Trump, whereas Trump is seeing it as the here and now.

19:31The military balance of power in the Middle East, the potential F-35s that Saudi Arabia could get as a result of making a deal with the United States. President Trump said he would approve selling the F-35 fighter jet to Saudi Arabia. I'm just wondering how that changes the balance of power when it comes to the militaries in the region, especially with regard to Israel, which for years has been a U.S. ally. And also what U.S. interest the U.S. would have an interest in selling F-35s apart from getting the revenue to a U.S. company. Exactly. I do think from Trump's perspective, he thinks that the F-35s are the greatest airplane ever to be made.

20:11And so he loves that everybody wants them. And so it's more of an economic issue. I think from the Pentagon's perspective, they're looking at it as more of a strategic issue. Now, the UAE apparently got assurances they would be able to purchase these when they signed the Abraham Accords. And it was believed that this would also be a condition for Saudi Arabia. I think it's very, very clear now that Saudi Arabia is not going to join the Abraham Accords. They're not recognizing Israel unless they get unless there's an absolute there's an assured password to Palestinian state. I don't see that happening any time in the near future.

20:45So I think we're kind of going to be at a standstill here. And if the Pentagon has severe concerns about it, I think it may not actually go through as much as Trump wants it to go through. Is that more tricky or is it the AI chips that are more tricky? And does Saudi Arabia need both? The AI chips are very tricky. I do think that that's really what's going to be the focus of this investment meeting and this dinner is that the PIF wants to make these investments in these firms because that's their way of kind of getting their hands on this technology. I think from the U.S. national security perspective, they don't want their chips to be in any connection with Chinese technology equipment.

21:31And so there are serious concerns, cybersecurity concerns there that are going to have to be dealt with. But I do see the PIF potentially making investments in these firms. I don't see necessarily us producing semiconductors and chips in Saudi Arabia. But I do think the Saudis can make a case to try to get data centers in the kingdom, particularly if they can assure the security of the equipment in their country. And also if they offer, you know, basically free land and free energy. I could see I could see that being a very powerful draw. All right. Great stuff. Ellen, thank you so much. Dr. Ellen Wall, president of Transversal Consulting, senior fellow at the Atlantic Council.

22:12Stay with us. More from Bloomberg Businessweek Daily coming up after this.

22:20This is the Bloomberg Business Week Daily Podcast. Listen live each weekday starting at 2 p.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say, Alexa, play Bloomberg 1130. All right, we're going to stay on global relationships, the economies that drive them, and turn on over to Dr. Adam Posen. He's president of the Peterson Institute for International Economics. He joins us from, I believe, the nation's capital on this Tuesday. Yes, Washington, D.C. Dr. Posen, good to have you back here on Bloomberg and on Bloomberg Business Week Daily.