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New from Goldman Sachs: Global Views: Downside Growth Risks
1. Oil price risks are skewed to the upside.
"The prices of gasoline, diesel, jet fuel, and European/Asian natural gas are now near or even above their March/April highs."
In GS's upside scenario, Brent tops $140 by spring 2027 if Gulf supply stays 5mb/d below February levels.
4. AI's labor market impact is spreading beyond the technology sector.
"Across nonmanufacturing industries, the share of US firms that have adopted AI in regular business functions now shows a statistically significant negative correlation with employment growth and a statistically significant positive correlation with unemployment."
Computing/data hosting and web search lead on both AI adoption and rising unemployment.
5. Goldman still expects fewer Fed hikes than the market is pricing.
"Our strongest global view is that central banks will deliver fewer hikes than currently priced."
The GS baseline (50% odds) is two hikes, then cuts to 3.25% to 3.5% later. Markets have fed funds sitting near 4.5% through 2027. GS also puts 15% odds on a recession path that takes rates near 1% by 2028.
Vincent Deluard (@VincentDeluard) on France and the markers of a sovereign debt crisis:
โFrance has been kind of like a group project where someone is likable. Everybody likes him, but he doesnโt contribute anything. Doesnโt show up at the meetings and kind of rides along.โ
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The AI investment boom has accounted for nearly half of S&P 500 earnings growth this year. Goldman expects that tailwind to fade by 2028, with EPS growth of 11% in both 2027 and 2028.
@GoldmanSachs
theideafarm.com/markets/overโฆ
New from Bridgewater: Change Is Accelerating Because Itโs All Interconnected
1. Change and concentration are accelerating, increasing the risks of destabilization.
"In the past two years, Nvidia has overtaken Apple to become the most valuable company relative to GDP in history. By year-end, we will have built more compute in the last two years than in the prior six combined, most of it in the US."
4. Different markets are pricing very different futures; most are far from pricing an unrecognizable world.
"Today, we estimate that AI equities are discounting something like 3.5% annual productivity growth. Thatโs more than we estimate is needed for the US to make its debts sustainable. Across a reasonable range of assumptions, we assess AI stocks to be pricing trend nominal GDP growth well above the recent past"
5. Thoughts on Navigating This Environment
"At a point in time, we see a modal path and also accumulating tail risks....At the same time, we believe this is an environment in which it is important to hedge the asymmetric consequences of risks, including an AI accident, geopolitical conflict, and stalling AI progress."
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US data center installed capacity is about 3x Europe's. US stocks have also added $40 trillion in market cap since the end of 2022, more than all of Europe.
@apolloglobal
theideafarm.com/global-marcoโฆ
Vincent Deluard (@VincentDeluard) on whatโs really funding the US consumer:
โWe started the year with about 8%, 9% growth in personal income tax collection. Now itโs closer to 5%, and 5% is my gut feeling of where inflation is at.โ
โWhy has consumption been so resilient? Itโs because the stock marketโs big enough and people have been taking money out of investment accounts, out of 401(k)s.โ
โWe have savings rates at generational lows. Eventually, the sole justification for the bull market is the bull market itself. Itโs a very circular argument.โ
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The US market cap sits near 2.9 times M2 money supply, while the UK, France and Japan all sit below a ratio of 1.
@Gavekal
theideafarm.com/global-marcoโฆ
The Idea Farm retweeted
Spent a week with Vincent on the road visiting Latam clients - a high quality, must follow. Great guy and a high altitude mountain climber!
Vincent Deluard (@VincentDeluard) on where the VIX would be with normal correlations:
โWhatโs been extraordinary really since the summer is that this correlation matrix basically is zero. We have about a third of US stocks trading at negative beta.โ
โThe average stock correlation with indexes is around 5%. This is unprecedented. It probably has to do with pair trades by pod shops, the AI trade and great earnings.โ
โIโve actually recalculated where the VIX would be if we had a normal correlation between stocks. By normal, I mean 50-60%. The VIX would be around 40.โ
Vincent Deluard (@VincentDeluard) on UK pensions going from 50% to 5% in UK stocks:
โIf you look at the average defined benefit pension in the UK, they used to have 50% in domestic stocks 20 years ago. Now itโs down to 5%.โ
โThey kept basically international stocks and they just took the balance on domestic stocks, like relentless selling of UK assets. First it was the foreigners. They sold first after Brexit.โ
โThe MSCI UK share of global market cap is 2%. Itโs less than the UK share of GDP. And come on, the UK is still a major economy.โ
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Coatue estimates AI capex from hyperscalers, labs and neoclouds will reach $2.8T in 2028E, about 1.5x annual US mortgage originations. That is also roughly 3x the US national defense budget and 3.5x S&P 500 non-AI capex.
@coatuemgmt
theideafarm.com/markets/publโฆ
