Latest news with #TorstenSlok
CNBC
10 hours ago
- Business
- CNBC
No stock in history has had more influence over the S&P 500 than Nvidia. What could go wrong?
The boom in artificial intelligence since late 2022 has made Nvidia's market value the largest in the S & P 500. But some on Wall Street are skeptical now that its dominance will continue. Nvidia's market capitalization — its stock price multiplied by the number of shares outstanding — ended Monday at roughly $4.5 trillion, equal to about 8% of the S & P 500. That's the "biggest weight in the S & P 500 of any individual stock," in data going back to 1981 , according to Apollo Global Management's chief economist, Torsten Slok. This comes on the heels of Nvidia shares seeing massive gains, having soared 239% in 2023, more than 171% in 2024 and 36% in 2025, through Monday's close. In the past three months alone, as the market fought its way back from April's brief tariff despair, Nvidia is 56% higher. Nearly nine out of every 10 analysts who cover Jensen Huang's company on Wall Street rate it a buy, and Nvidia now sells for 59 times its trailing 12-month earnings, according to FactSet data. "There's a reason the stock is up here, which is Nvidia continues to provide most of the most critical equipment for AI and the demand for AI usage," said D.A. Davidson analyst Gil Luria, one of the more bearish voices on Nvidia. "So, inferencing continues to rise as the models become ever so potent." NVDA 3M mountain NVDA, 3-month But there are two areas that could go wrong for Nvidia, according to Luria, who rates Nvidia a neutral and whose $135 price target implies that the stock will slide about 26% over the next year. One red flag is China. "The back and forth between the U.S. government, the Chinese government and Nvidia is a risk to a very big part of Nvidia's market," Luria continued. "They only report low-double-digit sales into China. It's safe to assume that a lot of their other sales are indirectly to China, either to Chinese companies domiciled otherwise, or sales to resellers that ultimately arrive in China. So, it's a big part of their sales that is at risk from either further action by [the] U.S. or by further restrictions from China." This past weekend, the Financial Times reported that Nvidia and Advanced Micro Devices both agreed to give the U.S. government 15% share of revenues from chips sold in China in exchange for export licenses. Wells Fargo said Nvidia can grow more than 20% as a result of the agreement, which Luria described as uncertain at the same time as it "probably bodes well for their ability to sell the B30 [chips] either later this year or at some point next year. " Beyond the lack of clarity surrounding Nvidia's presence in the Chinese market, another bottleneck also poses a threat to the company's breakneck growth. "What most of their big customers are now talking about is that the chips aren't the bottleneck – it's the ability to have a data center on the power grid with HVAC equipment ready for chips that's holding them back," Luria added. That has already started to affect the company, the D.A. Davidson analyst pointed out. "The growth in electricity usage by data centers is so significant that we're going to start running into power limitations and electricity limitations. So, Nvidia's ability to grow may start being gated by factors that are out of their control," he added. Peter Boockvar, chief investment officer at One Point BFG Wealth Partners, told CNBC that, as the market leader, Nvidia may eventually face another challenge as a result of the AI boom: increasing competition. For instance, Amazon Web Services has been making efforts to rival Nvidia when it comes to AI infrastructure , saying earlier this year that it's looking to reduce training costs associated with AI and provide an alternative to Nvidia's GPUs. "While they are riding an incredible and massive CapEx spending wave on the GenAI model [and] data center buildout, selling semis is still a very competitive and cyclical business," Boockvar said. "Nvidia's around 75% gross [profit] margin is not a long-term sustainable level, especially as their current biggest customers are all looking to be eventual competitors."
Yahoo
13 hours ago
- Business
- Yahoo
America's massive ‘money illusion' is setting the S&P 500 up for a correction as stagflation takes hold, top analysts say
A question looms over Wall Street as it digests the stock market highs in the dog days of summer 2025: Is this another version of the dotcom bubble? Apollo's Torsten Slok has already calculated that the top 10 S&P 500 companies today are more overvalued than in the late '90s tech boom. Now the investment bank Stifel is predicting that even as 'euphoric markets party like it's 1999,' a stock market correction and stagflation are ahead. Stifel's strategists, led by Barry Bannister and Thomas Carroll, wrote in a research note that they are simply 'uncomfortable' with the S&P 500 gaining 32% off its April 7 intraday low as the latest GDP figures show the actual economy slowing almost to a crawl. They further warn that 'hopium' is a powerful drug and that stock markets may be 'whistling past the graveyard.' Simply put, Bannister and Carroll say consumers are not as rich as their account balances show, following the 'money illusion' of COVID-era fiscal stimulus that they described as a 'World War–level' effort. With the mighty American consumer running out of breath amid an economic slowdown in the second half of 2025, Stifel sees a decline of 10% or more in the S&P 500. Real economic pain is brewing According to Stifel, the apparent health of the U.S. consumer belies an underlying slowdown, with personal consumption—responsible for 68% of GDP—showing effectively 0% growth year to date. Their research highlights several red flags. They note that growth in real wage income, the main driver of personal consumption, has slowed to an annual rate of just 1% as stagflation hits. In addition, monetary and fiscal policies are in a 'tug-of-war' that counteract each other, resulting in a minimal boost to consumer spending. And unlike in 2022–23, there is significantly less consumer savings to support consumption. About that money illusion: Stifel's data shows that from September 2019 to March 2022, household cash balances increased 44%, while consumer spending doubled against the historic median. Bannister and Carroll argue that the illusion kept spending afloat and helped drive asset prices upward, but it's now fading after the 'helicopter dump' of cash in the early 2020s. The tell here, they say, is that savings rates have come back into balance with equity net worth, after a period when excess money moved first through consumption, then assets. Put another way, America is essentially cash-poor. What's more, Stifel's calculation shows that the personal savings rate has fallen dramatically since COVID, so Americans have binged on spending and now have less cash on hand than in the years before the pandemic. The analysts warn that this shows the artificial boost has waned and there is no apparent new source of household spending power, amid persistent fiscal deficits and tariffs. Bank of America Research has likewise cited tariffs as it maintained its call for stagflation instead of recession. Correction coming? The Federal Reserve has been left in a 'too late' posture from stagflation, as the rate cuts that Trump keeps calling for can't save an 'overvalued' S&P 500, with inflation proving sticky and supply constrained in the economy. While the capex boom around AI temporarily supports GDP and asset prices, Stifel forecasts this bump will fade as corporate tech spending plateaus. Such a build-out, after all, occurs only once, while consumer spending power is entering a lull that could expose markets to abrupt correction, they write. Valuations have ballooned. Stifel notes the S&P 500 hit 6,375 and the Nasdaq 100 reached 23,587 earlier this month. Yet history shows that momentum can turn on a dime. 'Valuation doesn't matter until it does,' the analysts warn, citing the Great Depression of 1929, the dotcom boom of 1999, and the post-COVID atmosphere of 2021. They forecast a more than 10% selloff beckoning for the S&P 500. An explanation for a 'weird' feeling? Stifel's bearish prediction, echoing Bank of America, may offer an explanation for a 'weird' feeling permeating the economy. Nick Maggiulli, COO of Ritholtz Wealth Management and author of the New York Times bestseller The Wealth Ladder, previously spoke to Fortune about the odd state of the economy in 2025 and concluded that 'something weird's going on.' Maggiulli, whose book focuses on what his research indicates about the emerging six economic classes of the U.S., said 'the economy wasn't built to handle this many people with this much money.' He cited data showing that the upper middle class, with household net worths between $1 million and $10 million, have ballooned from just 7% of the country in 1989 to 18% as of 2022–23, with much of this run-up in wealth occurring since the pandemic. UBS Global Wealth Management has similarly documented a dramatic rise in the 'everyday millionaire,' with a fourfold increase on a global basis since the start of the 21st century. Even after adjusting for inflation, their number has more than doubled in real terms since 2000. 'There's a good portion of [everyday millionaires] that feel like they don't have enough,' Maggiulli told Fortune, 'and they feel like they're just getting by, even though statistically they're in the top 20% of U.S. households.' This story was originally featured on
CBS News
4 days ago
- Business
- CBS News
Why Trump's sweeping new tariffs are fueling stagflation concerns among economists
Some economists are cautioning that President Trump's sweeping new tariffs on U.S. trade partners, which took effect Thursday, increase the risks that the U.S. economy could enter a period of stagflation. A mashup of "stagnation" and "inflation," the term describes periods marked by high prices and low GDP growth, such as the economic doldrums of the 1970s. To be sure, U.S. economic growth, though slower so far this year than in 2024, remains relatively strong, and inflation remains far below its post-pandemic spike. But economists are flagging the potential for fresh tariffs, which took effect Aug. 7,to fuel higher prices as businesses pass on the costs of the new import duties to consumers. With the latest round of import duties, the effective average tariff rate now stands at 18%, the highest since 1934, according to an analysis from the Yale Budget Lab. Inflation likely rose 2.8% on an annual basis in July, inching higher from the 2.7% annual rate notched in the prior month, according to forecasts from economists polled by FactSet. July data for the Consumer Price Index, or CPI, will be released at 8:30 a.m. ET on Aug. 12. "The stagflation theme in markets is intensifying," Apollo chief economist Torsten Slok wrote in a research note Thursday. While prices likely crept higher last month, they're still nowhere near the post-pandemic price spike that financially hobbled many households. Yet an increase would represent a reversal of a downward trend earlier this year, and push the inflation rate farther from the Federal Reserve's goal of reaching a 2% annual rate. The economy could face another hit from tariffs if some U.S. businesses, which are on the hook for paying the import duties to the federal government, scale back hiring or expansion plans to cope with those higher costs, economists added. Last week's disappointing employment report suggested the U.S. job market is starting to wobble from the uncertainty of on-again, off-again tariffs, they noted. "To offset internal costs, you may look at reducing your workforce and curbing wage growth to offset part of the cost of goods increase," EY-Parthenon chief economist Greg Daco told CBS MoneyWatch. U.S. GDP is also forecast to slow throughout 2025, with economists polled by FactSet pegging this year's growth at 1.5%, down from 2.4% in 2024. The White House took issue with concerns raised by some economists about the potential for stagflation. "Inflation continuing to remain cool and growth rebounding in Q2 both suggest stagflation is simply the latest buzzword for panican paranoia," White House spokesman Kush Desai told CBS MoneyWatch. "Panican" is a term coined by Mr. Trump earlier this year to refer to the fears expressed by some critics about his tariffs. The U.S. economy is facing a challenging scenario from the combination of a weaker job market and higher inflation, Skanda Amarnath, executive director of Employ America, a monetary policy research institute, told CBS MoneyWatch. "The U.S. economy appears to be hitting a mild form of stagflation," Amarnath said. "I'd call it stagflation lite." The dangers of higher inflation and a weaker job market were highlighted by Federal Reserve Chairman Jerome Powell last month when he discussed the central bank's decision to hold rates steady. Powell pointed out that job creation has slowed, adding risks to the labor market, while inflation remains above the Fed's 2% annual goal. The Fed has a dual goal of keeping both prices and unemployment low. Achieving those goals requires different strategies, however. Because high interest rates make it more expensive for consumers and businesses to borrow, the Fed tends to hike rates to fight inflation. But when unemployment spikes, the Fed typically cuts its benchmark rate to make borrowing cheaper, which can encourage businesses to hire and expand. "The economy is in good shape, but it's an unusual situation in that you have risks to both sides of the mandate," Powell said at a July 30 press conference. He added that the Fed is "trying to do the right thing in what is a challenging situation because you're being pulled in two directions and you have to decide which of those it took to go in." With the job market now showing signs of stress, the challenge is whether the Fed should cut rates, or hold off because inflation remains higher than the central bank's goal — and is projected to inch higher, Slok noted. The manufacturing, retail, wholesale and construction industries, which are sensitive to the impact of tariffs, all notched fewer job gains than were initially reported, with the July jobs report's revisions. Manufacturing jobs declined for three consecutive months from May through July, the data shows. "That's consistent with a level of uncertainty on the trade side depressing the willingness to hire," Amarnath said. At the same time, "goods prices have picked up speed," he added. "Household supplies and furniture, apparel and used cars are all starting to see upward momentum, and I think tariffs are an obvious reason for that."
CNBC
25-07-2025
- Business
- CNBC
Apollo's Torsten Slok: We don't want a weak dollar, we want a weaker dollar
Torsten Slok, Apollo Global Management chief economist, joins CNBC's 'Squawk on the Street' to discuss President Trump's comments about dollar strength, macro expectations, and much more.
New Straits Times
24-07-2025
- Business
- New Straits Times
Dotcom lessons loom over AI-fuelled Wall Street surge
WALL Street's concentration in the red-hot tech sector is, by some measures, greater than it has ever been, eclipsing levels hit during the 1990s dotcom bubble. But does this mean history is bound to repeat itself? The growing concentration in United States equities instantly brings to mind the Internet and communications frenzy of the late 1990s. The tech-heavy Nasdaq peaked in March 2000 before cratering 65 per cent over the following 12 months. And it didn't revisit its previous high for 14 years. It seems unlikely that we will see a repeat of this today, right? Maybe. The market's reaction function appears to be different from what it was during the dotcom boom and bust. Just look at the current rebound from its post-"Liberation Day" tariff slump in early April — one of the fastest on record — or its rally during the Covid-19 pandemic. But despite all of these differences, there are also some worrying parallels. Investors would do well to keep both in mind. The most obvious similarity between these two periods is the concentration of tech and related industries in US equity markets. The broad tech sector now accounts for 34 per cent of the S&P 500's market cap, according to some data, exceeding the previous record of 33 per cent set in March 2000. Of the top 10 companies by market capitalisation today, eight are tech or communications behemoths. They include Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia and Tesla — as well as Berkshire Hathaway and JPMorgan. By contrast, only five of the 10 biggest companies in 1999 were tech firms. The other five were General Electric, Citi, Exxon, Walmart and Home Depot. Plus, the top 10 companies' footprint in the S&P 500 today is much larger than it was back then. The combined market cap of the top 10 today is almost US$22 trillion, or 40 per cent of the index's total, significantly higher than the comparable 25 per cent in 1999. This all reflects the fact that technology plays a much bigger role in the US economy today. By some measures, the current tech boom, driven in part by enthusiasm for artificial intelligence (AI), is more extreme than the information technology bubble of the late 1990s. As Torsten Slok, chief economist at Apollo Global Management, points out, the 12-month forward earnings valuation of today's top 10 stocks in the S&P 500 is higher than it was 25 years ago. However, it's worth remembering that the dotcom bubble was characterised by a frenzy of public offerings and a raft of companies with shares valued at triple-digit multiples of future earnings. That's not the case today. While the S&P tech sector is trading at 29.5 times forward earnings today, which is high by historical standards, this is nowhere near the peak of almost 50 times recorded in 2000. Similarly, the S&P 500 and Nasdaq are currently trading around 22 and 28.5 times forward earnings, compared with the dotcom peaks of 24.5 and over 70 times, respectively. With all that being said, a meaningful, prolonged market correction cannot be ruled out, especially if AI-driven growth isn't delivered as quickly as investors expect. AI, the new driver of technological development, will require vast capital outlays, especially on data centres, which may mean that earnings and share price growth in tech could slow in the short run. According to Morgan Stanley, the transformative potential of generative AI will require roughly US$2.9 trillion of global data centre spending through 2028, comprising US$1.6 trillion on hardware like chips and servers and US$1.3 trillion on infrastructure. That means investment needs of over US$900 billion in 2028, they reckon. For context, combined capital expenditure by all S&P 500 companies last year was around US$950 billion. Wall Street analysts are well aware of these figures, which suggests that at least some percentage of these huge sums should be factored into current share prices and expected earnings, but what if the benefits of AI take longer to deliver? Or what if an upstart (remember China's DeepSeek?) dramatically shifts growth expectations for a major component of the index, like US$4-trillion chipmaker Nvidia? Of course, technology is so fundamental to today's society and economy that it's difficult to imagine its market footprint shrinking too much, for too long, as this raises the inevitable question of where investor capital would go.
