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Terminal and the Bloomberg Business app. We begin the sour stocks lower, much lower, global equality slammed as investor worries over China AI startup deep seek lead to questions about US tech leadership and valuations. Victoria Fernandez of Crossmark Global Investments with this to say, we expect high levels of volatility as markets try to find a broader footing than the highly concentrated environment of just a handful.
Of tech names.
There appears to be little room for error as we enter the new year with elevated sentiment levels and extremes invaluations. Victoria joins us now for more. Victoria, welcome to the program. You, of course wrote that before this big shakeout in the equity market, can you share with us your thoughts this morning as to whether you really believe this is a threat to US dominance.
Yeah, I don't know if I would say threat to US dominance, Jonathan bet I do think it's a threat to the expectations that we had coming into this year that we were going to have this extremely strong growth for this year and that that was going to lead the stock market higher and lead bony olds higher. So there is a threat to that component, and what does that mean in regards to the FED. Obviously, the tech game can turn on a dime. We've seen it over
the last twenty four hours. I do think that the US is probably still a little bit of head in this race, in this tech race, because of all of the investment that we have put in there. But it looks like the story is China is not as far back as what p people thought, They are much closer.
So it leads to some questions, and obviously we see that response in the markets today, and it also leads to the concern that the US China trade wars and the restrictions on chips and things like that could get even more heated, which will bring more volatility to this market.
So Victoria, let's go through the individual components of the market breakdown in equities, and you can share with us where you'd be constructive and where maybe you'd be hands off. So you've got the likes of Nvidia, the obvious place to start. That gets hammered, how many chips do we actually need to make this kind of progress? And then you've got the big spenders on those chips, the likes of Microsoft and Meta. They're getting some real competition, They've spent a lot of money.
They're declining this morning. And then you've got the energy.
Names as well, So the whole ecosystems being questioned. The utilities that ran up aggressively over the last twelve months are getting hit this morning too. What would you be looking to pick up the pieces with, Victoria, would you be willing to say, you know what, I'm going to stay away for the time big.
Yeah.
So, as you know at Crossmark actually been underweight a lot of these names versus the market over the past nine months to twelve months because we were taking a little bit off the table as things went along. So I think that's what you you know hopefully have done, so your position is a little bit less. I would not go in and pick names up right now at this point in time. I would let this shake out a little bit, unless you want to make a very tactical move and go in and be trading, you know,
every few hours or every day in these names. If you're a long term investor, let this shake out a little bit.
You're right.
The whole ecosystem, from utilities to chips, to the support to the software, have all been rattled here. So I would actually look at some of the other areas of the market. I would look at some industrials. I would look at some financials and see if you could find some areas there to put your money to work while you let these elements kind of fade a little bit.
How does an influence though, and there is still a lot to be learned in terms of how broadly applicable and how truly revolutionary this is. But Victoria, how much does it change thesis on the energy space in particular, at a time we're already Donald Trump wants to increase the US infrastructure and keep energy prices low.
Yeah, so obviously the energy names that are being hit today there was such this huge expectation that demand would increase because of AI, that we were going to be building lots of data centers, we were going to need all of this power coming from these companies, and that tone has shifted when you look at the oil companies and you look at some.
Of the other energy companies.
Though we've been expecting that the price of oil is going to come down, we know that that's what this current administration wants to do and that was going to be difficult for some of these companies. So we were already shifting and looking at more of the midstream, the transportation components of the oil and gas and the energy companies versus maybe some of the upstream or utilities themselves.
So I think you can make that shift and then if things change and the expectation starts to move higher again, you can add a little bit more or back to that part of your portfolio.
There's another aspect of the trade this morning, and something Jim Bianco pointed to is simply algorithmic buying in the bond space. Does a change of you with the FEDSTNE this week, Given the fact that there was so much expectation around growth and even potentially a resurgence and inflation.
Does this put a damper on that.
Given that where the stock market goes so to the sentiment, I think it.
Does a little bit, Lisa. I mean we've talked over the last few weeks about that rise in the longer end part of the curve. Then it really wasn't due to inflation expectations brape evens have held pretty steady. It was due to tertle gremium to the growth that we were looking for, meaning what I'm f saying three point three percent growth globally over the next couple of years. I have a feeling that'll probably come down if the
AI story continues the way it is today. So if growth expectations are lower, that's why you're seeing that longer end part of the curve come down, and that steepness of the curve that has been a benefit for financials and for banks will start to go away a little bit. So it does shift the story, and I think it actually gives the Fed a little bit more room to take this pause because volatility.
Is continuing to go up.
Look at the VIX today, it's up what thirty percent just this morning, and it was a net speculative short position on VIX over the weekend, so I think we'll see a lot more volatility that's going to give the FED more.
Time to pause.
Victoria, you have to forgive me.
My head's kind of spinning here because there are these competing narratives that are hard to get my head around. You've got the AI revolution that may or may not transpire in short order as a result of greater efficiency. You have a FED at the scrappling with growth expectations
and just where we are currently in the economy. And then you have politics overlaying on that, which is part of the reason why people were saying that bonds were selling off, that the deficit is just increasing dramatically, and that at some point the bond vigilantes are back. Which story are you paying most attention to? What's your sort of load star at a time of so many cross currents.
Yeah, you're right, I mean there's it's different stories you can look at, and really, depending on what you want your story to be, you can find the right evidence to back that up. For me, it's obviously the bond market, not that we say the bond market's always right, and the equity market isn't. But the bond market is giving us a lot of clues as to what's going on in regards to inflation expectations, in regards to growth expectations,
in regards to debt issuance coming in. Obviously that's tied to the political element and what we're going to see there. What is issue it's going to look like. Is it going to be more bills? Is it going to be longer term coupons, which I think it probably will be, and what does that mean for interest expense.
It's all tied together. But I'd be watching the bond market.
To see where yields go and how those bond Vigilani's actually come in and how long they want to play this game. To me, that's what's going to drive the equity market obviously, along with earnings.
No sign of the vigil lanecies this morning so far, at least, Victoria, I appreciate your time, Victoria Fernandez there of Crossmark Global Investments. Yeah, US tech leader's under pressure ahead of earnings as the Chinese AI startup Deep Seak's latest model boost cost effectiveness one running on less advanced chips. Angelo Zeno f Cfira joined US now for more, Angela, Welcome to the program. What a time to catch up
with you, sir. So Meta comes out and says it's going to spend north as sixty billion dollars on campex this year, and then Deep Seak comes out and says, slow down, maybe you don't have to spend that much, Angela, Is this good news or bad news for the likes of Meta?
Yeah, I mean.
It's amazing what a couple of days will do, right, But yeah, I mean as far as kind of what this means specifically for Meta, you know, I don't think it necessarily changes the story for Meta very much. To be honest with you, I think, you know, the company kind of just you know, they announced their CAPEX plan
on Friday, the sixty to sixty five billion. I think they're going to reiterate that when they report later this week, and you know, when we kind of think about some of the hyperscalers out there, continue to think that they're very well positioned, you know, given the free cash flow generation kind of their business models and their ability to continue to aggressively, you know, spend on some of these
next generation tools out there. But you know, whether or not, you know, this allows them to potentially kind of lower their costs of modeling or what have you. Remains to be seen, but you know, I think at the end of the day, I don't think it changes the much. Doesn't change the story much specifically for Meta I think kind of some of these chip makers that might be a little bit of a different story.
Though Angey might not change things for management. I wonder if it changes things for investors. Do you think they'll carry on supporting the amount of spending that this company is doing.
I mean, listen, I think they're going to have to tell a really good story in terms of the monetization of AI when they do a report on Wednesday. I think the investors are going to kind of want, you know, more clarity on how they plan to monetize AI. I think, you know, the ROI potential is there for this company, maybe not as clear as for some of the cloud companies out there, and kind of the need to increase capacity and.
What have you.
But I think it's extremely important for metas on Wednesday to really kind of tell a clear cut story on how they monitor how they plan to monetize AI. You're going to have LAMA four point a zero ramp here in the first half of this year. You know, clearly Meta AI has seen kind of a significant increase, and it's kind of installed based, So there are definitely ways that you know, we think that they can kind of
monetize AI here over the next couple of years. They've just got to make sure that they tell the story properly there for.
Investors, Angelo, how worried are you about a late nineteen ninety nine moment or suddenly we have valuations on a story that actually is true that there is a revolution going on, but that we don't fully understand.
What it is yet and who the winners actually will be. Do you think that there will be some more disruption that will be profound to the rally that we've seen so far, Big Tech.
Listen, I think you'll continue to see a lot of noise out there. I think the game's going to continue to change as far as kind of the AI ecosystem is concerned, as far as where valuations are concerned. You know, what we do like about tech actually is, you know,
the valuations are not extreme at all. We do think for the most part, Big Tech, you've got growth at a reasonable price among you know, kind of let's call it the mag five names that I cover within you know, tech and comm services, you know, not taking into account Amazon or Tessa within kind of that ecosystem, and you kind of, again you look at those valuations out there, You look at kind of that the secular driver specifically tied to the cloud and digital light spend, and that
continues to remain intact. And I don't actually think kind of a lot of this monetization AI potential is embedded in a lot of these kind of stories for these names,
So I'm not necessarily worried about the valuations here. Again, I think as far as the chip industry is concerned, what you're going to see start happening is you're going to potentially start seeing multiple compression on any sort of rallies here, because I think there are going to be some concerns about kind of the magnitude of spend as we go into twenty twenty six and twenty twenty seven, not necessarily twenty twenty five.
All of that being said, Angelo there was a theory out there that essentially, if this efficiency story was correct with artificial intelligence, it would be the non tech names that would benefit that much more. Simply because they wouldn't have to be as heavily cost driven as they have been in the past. Does that concern you, Do you think that we're closer to that shift that threshold in who benefits from future advancements?
Yeah, I mean, listen, get I think that the story is going to continue to change in the market here in terms of who potential winners are, you know, where you should kind of be investing and what have you.
We continue to be, you know, very big believers kind of the way you invest kind of in AI long term is you know, the cloud companies we think are going to be the biggest beneficiaries out there, especially when you kind of look at some of those companies from a valuation perspective and the amount of capacity that you're going to need here, you know, over the long term.
We also think they're going to be select semi names out there, despite some of the concern out in the market right now, that will continue to benefit in the long term. And I'm not necessarily talking you know, just you know, cloud oriented in nature, so you know, but but that said, I mean, they're going to continue to
be narratives that change here over time. And I think investors I think if you're you know, whether you're an investor or a trader, I think is also going to dictate how you kind of navigate through this market as well.
Do you think today is just the trader reaction not the investor reaction?
Listen, I think there's a lot of kind of trading involved in this market right now. But you know, at the same time, there's you know, one thing the markets hate is uncertainty, right and when you kind of think about the uncertainty that's been created here from this deep seak scenario out there, I think you've got to sell off on some names or you know, compress some of
those molts out where there the uncertainty is greatest. And I think specifically when you look at it in Vidia and then it's a name that we've liked here for a long time, Tom, I think you have to, you know, potentially put into a question, do you need to kind of continue to upgrade at the pace that we've been
upgrading at for a name like in Vidia. I mean, these annual cadences now that Invidia is on, you know, is the is the is the pace and the amount of spend that we're you know, we've got on in video right now kind of warranted in nature, and I think time will tell on that. But that said, I mean, one of our biggest competitive advantages out there, our biggest competitive advantage is the fact that we have access to
these leading edge GPUs and capabilities. So from that perspective, I do expect these hyperscalers to continue to aggressively invest.
That's what Dan Ives is also talking about this morning in his constant Twitter post following all of this. Given your work on Meta, I'd love to get your thoughts on the fact that the Information has this story out saying that there's been a scramble and almost a panic at Meta Meta, with leaders saying that they're not sure if the next Meta flagship AI version could perform as well as Deep Seek. So can they even catch up
to what Deep Seek is doing? How much is this earnings call analysts and investors going to demand answers on whether or not they were paying attention to the competition was doing.
Yeah, I mean, listen again, I think the competitive landscape is definitely kind of an intensive out here in the last couple of days, and we do have to take into you know, we do have to take China seriously at this point in time, I think it creates a lot. There are definitely and there are definitely a number of storylines here that are created also, you know, from a privacy perspective, and other type of storylines out here as well that I think the US government is going to
have to address. But as far as far as kind of the ability for kind of metas models now to be compared to the likes of you know, Deep Seek and others out there, that's just you're going to continue to you know, continue.
To see that.
So listen, I think you know that competitive landscape I think long term is good for the industry, but near term in nature I think gets a lot of investors out there.
Word Angela, I appreciate your time this morning, sir, Thank you, Angelo Zena.
There of CFIRA investors.
Ratt orders China's AI startup Deep Seeg threatens US tech dominance, leading to questions over Max seven valuations. Seema shaff Prince bal Asset Management has been saying the following, Well, the secular trend upward of the Max seven should persist.
Over the long run.
They're expensive valuations coupled with elevated bond yields, imply that investors should pay increased attention to stocks trading at more attractive valuations. Sema, John, just now for more Sema, welcome to the program. Of course you wrote that before the news over the last week. How much does the news over the last week change your thesis for twenty twenty five?
Hi, John, Well, look, as you said before, there are a lot of question marks investors. I think everyone needs some time to digest exactly how real this is, sort of the impacts, how it can be sustained. But you know, as we said, valuations are really extend. It's coming into this year, they were already going to be vulnerabilities. Now I don't think anyone quite saw this coming, but it really does accentuate that need for diversification looking at things
with lesser evaluations. But you know, we came into twenty twenty five and I think across the board outlooks the theme was us exceptionalism. We're at the end of January, or not even at the end of January, and a lot of this has the potential of already being rewritten for twenty twenty five. So I think a lot of uncertainty adding to all the tariff uncertainty, inflation, uncertainty that investors were already dealing with. It only looks like a very tough year for investors.
It seems, just to follow up this is a question the Lisa Race on a program a little bit earlier. Given what we know, and we know a fair bit over the last week, not enough, but a fair bit. Do you think it is sufficient to undermine US exceptionalism, US tech dominance.
Well, I think what it does is it does really put bigger question marks around those valuations because it reminds investors that these companies are not completely immune. It's not like they're never going to have competitors. There will be competition. So there has to be question marks around how much is being spent on chips companies like in video, what is going on with their future? You know, can this really be sustained and this demand going to be kept?
So I think there has to be question marks. I think there's a longer term story where US exceptionalism can persist, probably not to such a significant degree, just because of innovation the system. You know, we have you have an administration coming in now who is very much focused on that growth, ensuring that the US keeps it stage. So
I think you can't answer that today. But I think investors have to wake up today and say, well, look, maybe we just don't look at the US and global diversification has to be even more prominent in portfolios than they were just a week ago.
I love how when the market is flying high, we have a million investors who come on and they say, any DEVI will be applying opportunity. And then there is a true bona fide dip and people say, well this makes us rethink everything. Is this one of those moments for its impliable dip or does it make you rethink everything?
But it's a good question because I think you know, we've been like everyone else. We've been looking at money market funds and wondering why are people not deploying? And the answer that keeps coming back is that they've been looking at evaluations and they're just not sure they want to get into the big tech but they just don't like this price now today or even in a few days time when tech maybe comes down even further, investor is going to get back in at that point? I
think there's going to be question marks. I think they're not going to jump back into the market until they have real answers, and if anything, this week, what investors should be doing is looking at what are the other sectors? What are the things that can benefit from the overall gain and productivity that deep sea probably offers outside of those max seven So I think a lot of question marks. I wouldn't say that this is a buying all these big tech companies today.
That is exactly where I wanted to go. How much does this actually point people toward the direction of where AI can actually be deployed. Are there particular areas that you're looking at that are the quickest and cleanest beneficiaries of this type of efficiency?
Yeah, you know, I think like everyone else, we've been doing all the homework into the very sectors. The two that really have stood out to us are healthcare and agriculture, the clear benefits that they can gain. So I think that that story is still very much emotion. For anything, it's probably been amplified by today's news or the last week's news. So I don't think this question marks around those.
It's really about those specific companies that have really benefited from this drive up, thinking about all the infrastructure that they'll be necessary to drive the kind of AI that we've been seeing. So I think that's where the question marks are. But I think it does mean some pretty good news for other sectors around the world.
Is this a moment that you would actually want to have more exposure to the Chinese equity market.
It's such a good question. I think everyone's going to be wondering that today. You know, did we make a mistake by not increasing exposure? And then there's too many
question marks. Still, there's still a lot of concerns around the fundamental story company or investors willing to go all in into one trade, just like they did with the US with the Max seven, into a new company or one of two companies in China so that one sided better shifting, or are you going to look at the whole ecosystem within China say look, there are still some deep rooted fundamental problems that investors have to consider. So
it's global diversification. I don't think it specifically means China. It's looking at one of the other companies. What are the other countries that may be a little bit less vulnerable potentially to what's emerging today?
Siman you mentioned earlier, the US is going to make sure they maintain their tech dominance. We have seen just in the first week, so I don't know if it's a real barometer, but just in the first week, President Donald Trump has really taken aim on Canada, on Mexico, on Colombia, and he's held off on China.
Do you think something like this will push.
The administration to ratchet up the pressure on Beijing.
I have to imagine that the administration is going to try and do their homework, try and figure out how much of a threat this really is before they jump headfirst into making some additional threats. But the news over the past week, just because they hadn't moved forward with China or Europe for that matter, doesn't mean that tarifs were never going to come. I think we were just thinking about what is the timing and how dressic could
they be. If this really does prove to be something very meaningful, then yes, I'd expect that maybe tariff's on China could be greater. The US has even more of a reason to try and rain in their strengths. I suddenly don't think that it's something that they're going to jump into so that tomorrow you start to see headlines.
Just to wrap this all together, Sima, do you think that the FED has ever been less relevant on a week where we're going to be hearing from Meta, Microsoft and Tesla on the same day as a FED rate decision.
I think they're coming to this week the FED is already somewhat irrelevant because I think everyone knows that they're not going to cut rates this week. Having said that, yeah, I mean, look, this isn't going to be the headline news. No, I mean even on the blueby terminal, I struggled to see anything on the FED for this morning. But look, is this could be key because I think just want
to say one thing on this. We have been very much I think reassured that you as consumers, household balances are very very resilient because network has increased so significantly. But we can't ignore the fact that network in the US has been driven higher significantly because of equity market exposure. So any kind of concerns of equity markets does unfortunately feed through to the US economy. So I think that is something that we're not going to hear about from
the FED this week. But it's not that they have to be watching tracking very very carefully over the coming.
Months, Seema, appreciate your input. As always, sim As Sharer there of Principal Asset Management off the back of the Salas this morning. This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics, angiopolitics. You can watch the show live on Bloomberg TV weekday mornings from six am to nine am Eastern. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business app.