Listen below or on the go on Apple Podcasts and Spotify
More of the same and why NASDAQ 20,000 can’t be ignored (0:50). MVP of Q4 is Tesla (1:50). Uber, GM, and the future of the robotaxi race (5:10). AMD downgrade a possible signpost for tech investors (7:30). CPI data and Fed expectations (8:30). Insurance stocks, public sentiment and regulatory signals to look for (11:25).
Transcript
Rena Sherbill: Brian Stewart, our Director of News at Seeking Alpha, welcome back to Wall Street Breakfast. Always nice to talk to you.
Brian Stewart: Thanks, Rena. Nice to talk to you.
RS: Yes, likewise. So we’re at the end of another week. We’ve got holiday season, lights are out, people are feeling good for the most part. We talked about that a little bit last week, how despite some disappointing data, people are outspending.
This week, we’ve seen various amounts of good news. We had NASDAQ (QQQ) hitting a nice number. We saw some inflation data come out. We saw some reports of specific stocks. Where do you see the most important news of this week?
BS: Yeah, I think NASDAQ 20,000 can’t be ignored as a headline for this week. It’s obviously a big round number. Though in terms of just narrative kind of juice, it does kind of just fall onto more of the same. It’s the NASDAQ inching higher in a year where it’s been just sort of melting up through the year.
So we’re up 30% year-to-date on the NASDAQ. The latest move higher has been the inflation data was sort of in line with what people expected. It was a little higher. The annual inflation rate was a little higher in November than it was in October, but nothing to kind of set the Fed on a new direction. So just sort of same old, same old was enough to take it over the line.
RS: And what are you thinking stock-wise? We saw various movements, a lot of news in the tech sector for sure. What are you thinking are the most pertinent stock stories this past week?
BS: Yeah, I think fortunately or unfortunately, depending on your opinion of it, Tesla (TSLA) is just the stock that can’t be ignored. I would see it as sort of the MVP of the fourth quarter here so far. It’s up another 18% in the past week.
And if you kind of take the lens out to look at the Tesla story over the last couple of months, it’s been pretty extraordinary. The stock was closed at just below 214 on October 23rd. That was the date before its last earnings report.
And then when that earnings report came out, it jumped 21% on the next day. And it’s basically just been higher ever since. It closed nearly at 425. It was at 424.77 on Wednesday, which was setting a new closing high for the stock all-time closing high.
And so over that span from the date before its last earnings to now, it’s basically doubled. And if you even look back to the beginning of the year, it spent most of the first half of the year underwater.
So from the beginning of this year to January or October 23rd, that date before its latest earnings, there were only 18 sessions where Tesla finished above its 2023 closing price. So that’s out of 205 trading days. So like 9% of the year, and now we’re at a new high. It’s a pretty extraordinary run for the stock.
RS: And what do you attribute it to? What do you point to for that consistent rise?
BS: Well, I think an interesting coupling to look at is with Alphabet or Google (GOOG) (GOOGL), which is up 12% in the past week as well. And the catalyst that’s driven both Tesla and Alphabet recently has been the news that (GM) was closing down its Cruise driverless car unit.
So basically, giving Alphabet’s Waymo and then Tesla kind of a less competition in that space, that’s certainly a big competitor to drop out. And so I think the bet that’s going on in the tech world, especially among the giants in it, the Mag 7 tech players is the extent to which the kind of periphery businesses are now starting to bear fruit.
So the extent to which these companies can turn their kind of side projects into real revenue earnings generating type thing. So can Tesla turn the corner on robotaxis and Waymo and those kind of businesses.
And so something to look for, I think, kind of left out in the recent rally has been Apple (AAPL), which is only up about 1% in the past week. And I think Apple is a company that its investors and sort of the public at large have been waiting to turn their side projects into real earnings generators.
So it’s been an iPhone services story in recent years and services have been sort of the big move of sort of taking over a lot of the burden of revenue generation within that company. But people have been long waiting for the wearables and the health and the other kind of Apple projects to take a larger role. And so I think that’ll be sort of the story for 2025 is sort of wondering whether the big tech names can finally cash in on some of these ideas.
RS: So when we’re talking about Tesla and tech, invariably the conversation leads to Uber (UBER).
And we saw some news from Uber this week, speaking to the Cruise and the robotaxi situation and the decisions there, what would you say is the future of that? Or what do you see from the news that’s coming out? What are you seeing is the near-term future for that segment?
BS: Uber was the big loser in that Cruise news event with Cruise shutting down. Tesla and Waymo kind of took the high end of that. And then the low end came in on Uber, which dropped, it has dropped about 15% so far this week and Uber had a deal with Cruise.
So it’s still up in the air what the impact would be, but clearly, it’s going to get more expensive for Uber to try and replace its current workforce with driverless cars, which has always been the long-term goal of the company.
So I think that the worry for Uber is just that they’re going to lose the race to somebody else. And not only is Uber going to be stuck in a more expensive business model with their drivers, but eventually, they’re going to lose out to other robotaxi businesses, just get kind of lapped in the tech advancement.
RS: What are you seeing in the news world about Uber and Lyft (LYFT) and those stocks and what may happen? Any things to point out there or any points of interest for investors beyond what you just mentioned?
BS: Yeah, I really think that investors should take sort of a longer view of those stocks. And when you’re betting on Uber and Lyft, you’re not really betting quarter-to-quarter, I don’t think anymore. They’re going to be volatile stocks based on whatever metrics they announce.
But I think that you’re ultimately making a bet on whether or not they sort of saturated the market and whether or not they can kind of take profitability to the next level. Both of the companies have historically had trouble kind of maintaining profitability. So whether or not they can kind of make that that long-term turn to a consistently predictably profitable operation, I think, is probably what investors should be worried about.
RS: And as we’re sticking with the tech sector for a minute, anything else to say about that sector or stocks within it or things to look out for in the coming week?
BS: Yeah, in terms of tech, one of the interesting story is in the past week is (AMD), which is down about 10%. It was downgraded by Bank of America to neutral, which prompted the stock to dip. BofA is lowering its estimates for artificial intelligence and PC-related revenue in 2025. And I think this points to the highly competitive nature of the AI segments.
I think in the last couple of years, we kind of viewed AI as everybody wins. If you can get into the game, you can win the game kind of thing. And I think we’re going to, in the relatively near future, transition to a situation of winners and losers. Some people are going to kind of take the bulk of the market share and other companies are going to kind of fall by the wayside.
So this might be kind of a signpost on that is whether or not AMD can kind of survive in a situation where they’re competing against the NVIDIAs (NVDA) of the world.
RS: And in terms of the macro data and what it points to in terms of Fed expectations, I know we’re hitting kind of a bit of a lull, but what are your thoughts macro-wise or what should investors be thinking about paying attention to?
BS: Yeah. So the reaction of the market from the latest CPI data was basically to lock in a quarter point rate cut at the next meeting. The next meeting is going to happen next Wednesday. So there’s not much drama now, though it should be pointed out that for a while, this meeting was kind of a coin flip as recently as about November 25th, there was a 52% chance of a rate cut.
So fundamentally a coin flip. It was about 70% a week ago, which is still sort of in the range of up in the air. And now it’s trading at levels that indicate a 98% chance that there’ll be a 25 basis point rate cut come next Wednesday.
So the reaction of the market is just to make the assumption that we’re getting a quarter point rate cut this time, and then sort of look to the future. And then things start to get a little less clear when you look past this meeting.
So the Fed meeting that follows, the one next week is going to happen in late January. And current trading indicates a 23% of another rate cut at the January meeting. So leaving about a 75% chance that things are going to hold steady. So the current thinking is that the Fed is going to cut one more time and then see how it goes in January.
But if you look further, if you look to the March meeting, which is now going to be two meetings down the road after the next one, there’s a 65% chance there’ll be another rate cut by the end of that meeting. So taking into account both January and March, markets are still looking for lower rates by sort of the end of the first quarter of 2025.
So the current narrative building is that the Fed is going to cut in next week, wait in January and then cut again in March. But I think there’s a lot of uncertainty in that. Obviously, there’s a lot of data between now and even January. So there’s room for the market to be surprised in that.
Another thing that I would say is next week is relatively light both earnings and economic data, but there is retail sales coming out on Tuesday, which is another signpost for the holiday shopping season, which as we talked about last week, has been sort of strong despite some of the bumpy economic data so far.
And then there’s a couple of consumer-based companies that are going to give us some data like FedEx (FDX) is reporting earnings next week. That’s always a good sign of sort of how the economy is going, especially going into holiday. I mean, they’re shipping a lot of stuff, that means that we’re buying a lot of stuff.
And then Nike (NKE) is also reporting next week. And so just as like a bellwether of sort of consumer behavior, I think, that might be an interesting data point even just for a macro investor.
RS: Any other things to point to before we head out for this week? Anything to leave investors with?
BS: The only other interesting story that I think is worth noting is UnitedHealth (UNH) is down 13% in the past week after the unfortunate assassination of the head of its insurance unit. And the reason the stock is down is largely because there’s been a surge of support for lack of a better word for the killing.
And it’s shown a undercurrent of anti-insurance sentiment in the public. And so there’s a worry that that’s going to stir a tighter regulatory environment or even drive sort of calls for Medicare for all and that kind of thing.
So I think it would be interesting to sort of watch the political climate, especially with a new administration set to take office in January. So the next month, six weeks, kind of look for signals of what health policy might be under the Trump administration.
RS: What would you say is something to look for policy-wise that may hint towards, like, are you saying Medicare for all, promises of that nature to look for? Specifically, what are the signs, I guess?
BS: I think you would look for rhetoric from Trump himself. I mean, he’s an interesting political figure because even though he has run as a Republican and won as a Republican and has become sort of the central figure in the Republican party, his policies aren’t necessarily tied to traditional Republican policies.
So if you have a Republican president who might turn to a more populist angle on healthcare, it would be Trump rather than a kind of vanilla Republican president. So I don’t think it’s as locked in as you would think with Republican administration that something like an expanded Obamacare or, I mean, it would be called Obamacare. Obviously, that wouldn’t be a Trumpian move, but something moving more towards public option for healthcare.
I don’t think it’s off the table in Trump administration. So I would watch his rhetoric and I would watch kind of the steps that the administration takes in terms of its signaling towards Congress and as it sort of begins its process.
RS: And what are you seeing in terms of the analysts, the firms, how are they talking about dissecting what’s happening to the insurance names?
BS: Just doing a survey of Seeking Alpha analysts in the sort of post-UnitedHealth era, there’s significant worry about a kind of rising public demand for a change in healthcare. And that could be sort of as simple as more closely regulating the extent to which healthcare companies can deny coverage or deny certain procedures.
So a tighter watchdog for the insurance company. But it could be as expansive as a public option down the road. So yeah, there’s growing worry that the industry itself might come under more direct scrutiny.
RS: Worry for some, hope for others, I would imagine.
BS: Yeah, that’s a good way to put it.
RS: Yeah, as all these paradigm shifts unfold, it will. It’s interesting as investors, as humans to watch it unfold and see how it develops. This is another sector to add to that list of developing and shifting paradigms. So certainly something to pay attention to and watch.
Brian, appreciate you as always. Thanks for bringing us the news. Thanks for dissecting it with us, and enjoy your weekend.
BS: Yeah, you too. Talk to you next week.
Read the full article here