Will This Stock Winning Streak Continue? with Noelle Acheson

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1:24And now to the top analysis of today's markets.

1:33Can the stock market winning streak continue? Hi, everyone. Happy first summer Friday edition of the Real Vision Daily Briefing. We moved it a little earlier because we know a lot of you are getting kicked off for the weekend. With me today is Noelle Ocheson, the editor of Crypto is Macro Now newsletter. Hi, Noelle. It's great to see you. Hi, it's so good to see you too. Great to be here. So it was an interesting day today. We saw the S &P 500 rally. You know, Stocks look like across the board they're in rally mode here in the U.S. S &P climbed above 4 ,300 for the first time since last summer.

2:09A lot of people are kind of watching that target area. And yet, as the day went on and as we're sitting here sort of mid-session, a little past mid-session, it looks like stocks are struggling to hold on to the rally. Does it feel like investors are just taking a breather here, or is this four-week winning streak running out of steam? Well, like you said, Maggie, it is Friday and it is the start of summer. And so, yeah, there's probably some breather going on. But I'll be honest with you, Maggie, I'm not a perma bear by any means. I might go get this rally. I've been saying that for some time now.

2:41It just doesn't make sense. Sure, earnings were perhaps a bit too negative heading into the year. The contraction that we're expecting to be biting around about now is being pushed back. Doesn't mean it's not coming, though. And we're seeing all sorts of earnings downgrades. We're seeing the consumer's obviously size of weakness on interest rate expectation. And not as a go-to-many, the bond market was saying there was a 100 % chance of a rate cut before the end of the year. Now they're saying there's a very slim chance of a rate cut before the end of the year. And this change, which is really material for all sorts of assets, especially in the stock market, hasn't been reflected yet.

3:17We know that the stock rally has been very driven by tech stocks. And I wouldn't be surprised to see signs of that flagging roundabout now. Yeah. So your audio, for me at least, was a little weird there. So I just want to repeat that. So we have seen a big change in expectations. We've got the Fed meeting next week. You're saying that all those aggressive easing that was priced in has come out now. They're not even sure there's going to be one cut this year? Absolutely. The bond market is finally waking up to what many of us have been saying all along, that inflation is looking better. There have been some massive surprises to the downside in the reflation reports we've seen from key economic areas over the past couple of weeks.

3:57That doesn't mean rates are coming down. And to be honest, nor should they. Inflation is going to be really hard to get anywhere near the target. Good sign so far. Too soon to relax, basically. And the bond market's finally acknowledging that. The stock market isn't. Yeah. So why not? Where do you see the disconnect? What do you think is going on? I mean, we know that the rally had been pretty narrow, a lot of it driven around the enthusiasm around AI, AI-related stocks like NVIDIA, Microsoft. Why is the stock market, is that powerful enough to offset the concerns about rates? I don't think so, Maggie.

4:34I think the stock market has been driven so far because liquidity has been in the market. It hasn't been as tight as many expect it to be at this stage. And running on fumes, momentum, keep it going. Why not? The money has to go somewhere, right? We're seeing signs of it starting to flag, though, as I mentioned. I was looking at a chart this morning which plots the S &P equal weight index versus the NASDAQ and the standard S &P. It has significantly underperformed so far this month. But over the past five days, it has started to outperform, which suggests that the tech-driven rally so far is starting to flag.

5:11AI is a massive thing, of course. that will continue to attract a lot of hype, but that doesn't mean the entire stock market can maintain that kind of hope or hopium, if you want to say, for much longer. Yeah. How are you thinking about this going into the Fed meeting? Because we've had this, as you say, they're moving away from those rate cuts later in the year, but there's still division. The Fed still may pause. And it seems like this market wants to take, we just have Dan in the chat commenting, you know, the bulls are going to be raging next week if they pause or skip, which looks likely.

5:46We'll see. But won't that just embolden another move up? It seems like the market's looking for reasons to rally. Then again, we could argue that a pause is already priced in. The bond market's been signaling that for some time. It's very likely. It would, in my opinion, be the sensible thing to do because we are seeing inflation start to come down. It would make sense here, as indeed Powell has said many times, step back, wait for some more data to come in and then reassess. What happens in the July meeting, that's actually more important because the market is more divided on that. In other words, there is more likely to be a surprise there one way or another.

6:22That will very much depend on what we get on the CPI next week. It will depend on the employment data that will be coming out before then. I expect us to see a slowdown in inflation. That could start another bull rally, actually, because that's probably not priced in. Again, that doesn't mean the rates will move just yet. We saw Canada raise rates this year, although their inflation is starting to slow down. Australia doing the same thing. We're seeing in Europe, where I am at the moment, we're seeing some really good inflation deceleration. But the ECB is also saying more rates, more rate hikes coming, because I think everyone with experience in this knows you can't really stop such a massive machine so quickly.

7:00And nor would it make sense to relax. Yes. Yeah, especially if they then just have to pick up again. You know, you'd rather sort of, I'm sure that was not an easy decision for the Bank of Canada. So if we are looking, if stocks seem like they're kind of stretched at this point and they're not really, maybe they've priced in the pause, but they're not really reckoning with this higher for longer. Do you see a significant sell-off here or are we likely just not to push higher? My view is that we do have a significant sell-off coming. But then again, I have been saying that for some time and just wondering why is this still going up?

7:38The consumer is still strong in the United States. However, there are signs, especially on the margins, that's weakening. And unemployment, I should say, as we know, whenever a contraction bites, it moves really fast. That is not yet priced in. So once the scare numbers start to come in, which I do expect to happen soon, then yeah, it can move very fast because the valuations are inflated, as we've seen historically inflated and relatively inflated. So what would the scare number be? What would that be? What would cause people to suddenly say, you know what, I'm nervous here? Unemployment jumping to 4 % at the next reading.

8:16It could happen. We saw a 30 basis point hike in the last one. We could see that again. That would send a very strong signal that the contraction is starting to show up. And again, look at the charts. It moves really fast and it's painful. I mean, we all know probably at this stage, all of us know people who have lost their jobs over the past year. That is not as widespread yet as it's going to be. And that kind of pain changes sentiment. Even if an individual doesn't lose his or her job, it doesn't mean that they're not going to be cutting back on spending because they're seeing that all around them.

8:50Animal spirits in this are going to be working against the stock market, much more than the bond market, in my opinion, because there's some structural issues coming there. and again, it moves quickly and it affects the global markets around the world as well because this feeds through to fundamentals such as the dollar, such as bond yields in other areas as well. It could get really messy. We haven't had this kind of a scare for quite some time, Maggie, which is another reason why I think when it happens, it'll be harsh. We're just not prepared for it. So this is the pivot moves away from some of the other focuses and for a while it was the obsession about rates and really is on the economy, on this recession?

9:30Yes, rates matter because rates are a key factor in discounting pretty much any kind of asset you want. So rates do matter to investors more than earnings, for instance, but they are intertwined. They're not totally disassociated. When we start to see yields move as well, and when we start to see changes in the interest rate expectations for the next 12 months, not just to the end of the year, then we'll start to see further, faster shifts in valuations. What will start it? The earnings. So it's an earnings recession, too, because you could right now what we're seeing is, you know, if you get that weak data, then the Fed cuts come back in.

10:06Right. The expectation for cuts come in. But is that not does that not matter once we see earnings start to be taken down? I don't think it matters, Maggie. The earnings will start to be taken down, perhaps not as much as many might fear, because they have a lot of margin. There is room for them to come down. But again, it's all about valuations. It's not, you know, the adage is not it's not what you're buying. It's what you're paying. Right. That doesn't. Yes. Interest rate cut expectations will probably take up again. Mistakenly, in my opinion, the Fed cannot give up the fight on inflation. Inflation is not going away and the Fed can't be shown to be relaxing on that.

10:41That would be a harsher mistake, as you said a moment ago, than hiking too much or keeping high for too long. That is easier to fix. And let's face it, politically, I know the central bank is independent, but politically, it would be much better to lower rates next year when there is an election coming up than there would be to raise next year when you realize you've made a mistake this one. Hey, everyone. We're going to take a quick break right now to hear a word from our partners. We'll be right back with more of the day's top analysis on the Real Vision daily briefing.

11:16Yeah, and they like to do nothing as they get closed so that they can stay out of the fray. So any policy adjustments that have to be made, you're right. It would be better to be easing and it would be better to be sort of in the first half of the year so that they can step out of the way in the second half. So the million-dollar question, I guess, is, okay, so if it plays out that way, as you just described, what about tech? What about tech? Does everything get taken down, or do we see the market segment because this narrative around AI and this enthusiasm around some of these tech names is strong enough?

11:51I mean, you had big names, right? Stan Druckenmiller earlier this week saying, listen, I don't think this is a 13-month play. I think this is years when you're looking at something like NVIDIA. Do we have a part of the market that's able to hold up or do you see it all getting hit? Everything being relative in life, I see everything getting hit, but parts of the market, especially the tech sector, holding up a lot more because, again, money has to go somewhere. It could sit in cash or you could buy dips. We've seen this in many other sectors as well. You could buy dips should it come down. And we do know that AI is going to be making a material impact on many of the tech stocks.

12:27What we don't know, Maggie, is kind of an impact, which stocks for that matter, and when this will start to show through in the earnings. There's a lot of froth around AI at the moment. We see this in the headlines practically every single day, and we're seeing this in asset prices as well. Will this froth actually materialize into bottom line? Probably not, but that doesn't mean there isn't a lot of benefits and gains to be had in the meantime. Yeah, and two big M's around that we've been talking about. We've seen merger activity, which is interesting, and then moat. Does anybody really have a moat around that?

13:02It's impacting our society, but are they going to be able to translate that into earnings? Can you really ring fence whatever you're doing with that? And then are you using it appropriately? Everyone's going to be talking about it on their earnings call, but who can really translate that into the bottom line I think is going to be really important. And we are, of course, at the end of the first week of our Festival of Learning AI edition because of the importance of this topic, both in investing and, frankly, just coming across all of our lives. We've had some amazing conversations. I just wanted to share with everyone a little bit of those for those of you who haven't had a chance to actually watch them yet.

13:37Let's have a listen. 65 million years ago, a 20-kilometer asteroid struck the Earth. And it changed the environment so rapidly that the slow lumbering dinosaurs that were not agile died, went extinct. It was the furry little mammals, our ancestors, that were agile and able to adapt rapidly that dominate the planet. Well, the asteroid that struck the Earth over the last couple of decades is exponential technologies. and they're changing the business world so rapidly that unless you have the agility to utilize these technologies, you will go extinct as a company. Really, I think like in the short term, it's really going to be used kind of as a productivity booster more so than a job replacement just because so many companies don't have any talent in the space.

14:25You know, it's really a battle for that, I'd say. So I don't think those job cuts are going to happen anytime soon. There could be inequality happening there as well. You know, there might be a more uneven distribution of wealth over time, especially if you get regulation in place by these large companies trying to protect their moats, essentially, right? It's not just ethical AI, but also cultural AI. What it means is building that cultural of ethical AI compliance, transparency, responsibility, oversight, and accountability across all team members rather than keeping it as a technical function.

14:59It is not the function of a CTO or a CIO or a CFO. rather it will be a dotted function to all these C-suite people, but directly reporting to the CEO, handling just privacy, innovation, and overall governance around these metrics. Right. There's no way we could catch up to that. There's so much that the level of data to process and the level of patterns to look into is just too much. And I think it's untenable for us to do that. So I think the only hope is really, Okay, how do we create, you know, things like maybe we need to create new kinds of best practices on the design. I'm very torn here because this is actually a very interesting juncture.

15:42Peter Thiel very famously said, you know, they promised us flying cars. We got 140 characters. Man, what you're looking at now is something far more important and scary than an alternate form of transportation. it is a genuine rewiring of human capability and brain that opens us up to being something totally different, right? And so that's part of the reason why I just emphasize how important and powerful this juncture is, that we involve ourselves in the conversation and take an active role in deciding what do we actually want coming out of this. And those full episodes are on our website. Next week, we're going to be looking at how to use AI to invest, to scale up your business.

16:28I'm really excited for those. So if you're not a member, it's free. You just need to register, sign up on the link that Brian has probably already dropped in the chat, if not he will. Some really, really great stuff and so topical as we were talking about, Noelle. So it's sort of been this interesting dynamic. When you look at this, how do you know what's real? How do you know it's froth? We've had people saying, oh, it's like the dot-com. And no, it's not. It's completely different. How are you thinking about this? That is such an excellent question, Maggie. And watching the clip, I had this big smile on my face because honestly, it's deja vu all over again.

17:06I've been studying crypto industry and applications and assets now for many years. And this is so reminiscent of crypto three, four, six years ago. Blockchain was going to change the world. You remember all of that, I'm sure. I mean, I'm sure there are books even with those titles. And nothing will ever be the same again. And if you're not learning about this, you're going to be out of a job, et cetera, et cetera, et cetera. And we're starting to hear exactly the same kind of refrains now. Obviously, this is a very different technology. And obviously, times are very different now than they were back then, not just on the monetary side, but also on the geopolitical side.

17:40But it is reminiscent. It is an example of the hype that we were talking about before. Yeah. We saw back then that, yeah, a lot of promise, huge promise and definite impact. We saw this in crypto after all, but not what everyone is expecting. And it highlights the point that as back then with crypto, we don't yet know what AI is going to be used for. We know it's powerful, but how do you make money on it? We know it's going to change the way we work, but exactly how? We don't yet know what we're dealing with, and yet it is already being assigned pretty inflated valuations in public markets, also in private markets.

18:14It's deja vu. Yeah, that's such a great point. What's the problem it's solving, right? What's the use case? And Peter and Salim Ismail did a whole workshop because they're talking about there's going to be a difference between those who figure that out and those who don't. And it is kind of a big wild west right now. I'm wondering, do you think the enthusiasm, because it is early stage, and I think it was Mike Green, a couple people pointed out, it feels different too because it's touching individuals and consumers in this way that bridge maybe wasn't there in some of the crypto DeFi space. So it feels like that's just fueling the momentum.

18:56Do you think the enthusiasm around AI is pulling capital out of other parts of the market, whether it's other assets or the crypto market? Yes, for sure. Two really good points you raised there. This is different from the crypto boom back then, because although we were promised that it was going to touch everyone's lives, people couldn't really see how it could. But let's face it, making AI images in mid-journeys, that's seriously cool. And who hasn't played around with asking for some creative output in a summit that will tell me exactly how to fix my dishwasher? That kind of stuff is really cool.

19:28We've all played with it. What we don't yet know is how that will make profits for anyone or even how that will change the environment. As for pulling funding out, we're seeing this already. You've probably seen on Twitter some of the well-known venture capitalists from Silicon Valley tweeting things like, if you're in crypto, pivot to AI. We're going to see this in the funding. Once that picks up again, let's face it pretty quiet at the moment. We're going to start to see this in some of the venture capital funding as well. And that's as it should be. Venture capitalist jobs is to find where can they make the most money for their partners.

20:00And that is going to be in the hot new technology at any given time. And right now, that is AI. It's not necessarily crypto. Crypto is still evolving, but let's face it, it's got quite a few headwinds. But the funds that leave the crypto industry and go into AI are the hot money funds that were responsible for some of the outrageous valuations in some crypto projects a couple of years ago. The outrageous salaries that have been paid. The businesses that really shouldn't have had funding to start with. And we all know how too much money entering an industry does. It can sometimes trigger some crazy behavior.

20:37So basically, yes, the hot money will move into AI, and that's fine. That means that the crypto companies that do get funding will hopefully have a much better product market fit plan. They'll actually have a business plan, some of them. The salaries will be more reasonable, and they'll have a better chance of surviving because of the additional rigor that they have to go through to get the funding in the first place. So it's, yes, it's not, but it's not bad news. We're going to take another quick break to hear a word from our partners. We'll be right back with more of the day's top analysis on the Real Vision Daily Briefing.

21:12Yeah, you're right. And we saw this, this is where the reference to the dot-com era, I think, makes sense as well, because we certainly saw a lot of rationalization, much stronger business plans get funded and come out of that after the froth left. And maybe a cautionary tale for AI as everyone rushes into the industry, you know, make sure that the business plans are there and that the profit line comes through. I want to get to a couple of questions because there are good ones. Dan saying, so if tech comes off, as everyone says, what's the best to buy? Energy slash banks, question mark, or just anything other than tech?

21:50How do you see that? Is it going to be a rotation or just is it all going to – is it into different asset classes? Because I think you laid out your scenario that stocks are going to see some pain. Stocks are going to see some pain. But again, as we talked about before, the tech sector on the whole, once the valuations are slightly less inflated, we would continue to do well. That's generally – my personal preference is generally to invest in the future and the unknown, the risk side of it. Again, that's down to individual investors' risk preferences. But we do know that there are some big changes coming.

22:24There always are. That's what tech companies do. They're always trying to improve the bottom lines as well as the lives of their clients. But in terms of banks and energy, we are always going to need banks and energy. And as rates come down, sure, sometimes banks have a hard time fitting that into their profit paths. But there will be a way. Banks are evolving in terms of their technological applications all the time. I think banks would be interesting. And especially on the energy side. We know that needs for energy is not going away. Oil price is quite weak right now. I expect it to start climbing, especially as demand picks up in the summer, especially as we have the Chinese demand starting to pick up also compared to last year, certainly, and as supply remains tight.

23:02So also the technology side of energy these days is another fascinating area to look into. So I'm glad you brought up those two great points. Glad you brought up China because this has been on the front burner and then it kind of moved to the back burner a little bit. Some disappointment around what that reopening looked like and the strength there. Do you see China contributing to either economic growth or are they going to start easing so we see some liquidity coming from there? Could that help? What's happening with China? China is disappointing on the economic front. This is what we're seeing across our headlines every single day.

23:38But this overlooks the fact that China is growing. It's just growing less than they had forecast. But it can't grow less than they had forecast. So yes, there's probably some easing coming. We might even see the easing come as soon as next week. And that will make a big difference, not only to their local stock markets and bond markets as well, but possibly to risk assets around the world because the China easing, it's a very big market. And so it should make some difference. We also know that they will continue to do what they need to do to meet their growth targets. It's not really an option.