From the Team @ HPLT 2/10
Business & Markets Update
Monday Monday… Off we go!
Market volatility feels like it's here to stay in the near-term, with trade war developments dominating throughout last week and no obvious or imminent end in sight there. Even when we do get clarity on tariffs, fully understanding the longer term impact on both companies & us (the consumer) will take months, if not years. Trump headlines (and again, policy implications broadly), along with earnings and economic data will be the most obvious 3 points of focus for market participants for the time being.
Major US indices (S&P, Nasdaq, Russell 2k etc) all closed down for a 2nd straight week, with big tech lagging after earnings… Mainly Google (-9% on the week) & Amazon (-3.5% on the week). Its always worth zooming out after a week like that: Those two stocks, in the last 12 months are +27% and +34%, respectively. Pullbacks in stocks (and the market in general) are typically healthy in the long-term, often helping to confirm a steady uptrend, provide people with buying opportunities, and prevent markets from getting overheated/overvalued (which happens, a lot).
Q4 earnings are now > than 60% completed, and on average companies have reported better-than-expected results. The blended earnings growth rate for the S&P 500 stands at 16.4%, its highest level since Q4 ’21. With most of mega-cap tech reporting last week, there was an ENORMOUS emphasis on AI and spending around AI in the coming years, that investors were forced to chew on and try to understand. I’m going to include an excerpt from the Amazon earnings call where the President & CEO of the company touches on just how much (and why) they are spending on the future of AI @ Amazon. It’s a powerful statement on AI capex and will give us all a sense on where Silicon Valley stands on the future of technology in general.
Finally, we saw the January new-payrolls report at the end of last week, which came in below expectations but the prior two months were revised (much) higher, so mixed takeaways there. We also had a closely watched consumer sentiment report that was lower for a second straight month, with a rise in ‘year-ahead inflation’ expectations… Sentiment will always be driven by inflation expectations, general affordability for the consumer, personal financial situations, and national market/economic conditions.
Amazon blurb from last week’s earnings call:
Andy Jassy
This is Andy. On the CapEx side, as Brian mentioned earlier, we spent $26.3 billion in CapEx in Q4. And I think that is reasonably representative of what you could expect in the annualized CapEx rate in 2025. The vast majority of that CapEx spend is on AI for AWS.
It's -- the way the AWS business works and the way the cash cycle works is that the faster we grow, the more CapEx we end-up spending because we have to procure data center and hardware and chips and networking gear ahead of when we're able to monetize it.
We don't procure it unless we see significant signals of demand. And so when AWS is expanding its CapEx, particularly in what we think is one of these once-in-a-lifetime type of business opportunities like AI represents, I think it's actually quite a good sign medium to long-term for the AWS business. And I actually think that spending this capital to pursue this opportunity, which from our perspective, we think virtually every application that we know of today is going to be reinvented with AI inside of it and with inference being a core building block just like compute and storage and database.
Some charts that stuck out last week:
Capital spending from the big boys (vs the rest of S&P)
A quick snap of equity positioning at the start of Trump's 2nd term vs his 1st in 2016:
10-year chart on the Payrolls report mentioned above to visualize the steady post-2020 bounce in American jobs
Another week, another record high for Gold
(Two most obvious reasons: geopolitical turmoil + inflation concerns from tariffs)
Two Good Interviews to Watch
Admittedly, these are for the market junkies out there- but two good 30 minute conversations that took place at the iConnections conference down in Miami a couple weeks ago… one with Founder of Point 72 and Owner of the NY Mets, Steve Cohen, and the other with VC firm Altimeter’s Founder, Brad Gerstner.. Links below:
This week is yours for the taking, GO GET EM!