Choppiness and Momentum Across Markets

Nextpower

• Ben Kallo · Robert W. Baird & Co.Bullish

  Nextracker is a long-term solar winner despite short-term panel-regulation speed bumps.

  Kallo calls it a long-term stock. He says there are short-term problems from regulations on Chinese solar panels and new panel imports, which may slow things down. He still expects solar to be part of the power equation, and says the company is a leader in utility-scale solar and is gaining wallet share. He also notes that utilities building natural gas plants and batteries will also build solar plants. The transcript names the company 'Next Power' with ticker NXT; the ticker and the utility-scale solar tracker business match Nextracker.

  “You know, short term, there's, you know, different regulations going on about, you know, Chinese panels... And other panels coming in that might take a little speed bump here. But solar is going to be part of the equation.”at 12:43

GE Vernova

Across the shows: 1 speaker in other episodes, 1 bullish and 0 bearish calls, past 30 days

• Ben Kallo · Robert W. Baird & Co.Bullish

  GE Vernova is set up strong; its gas-turbine service annuity is underappreciated and it should beat.

  Kallo says the stock has been a shocking outperformer. He downgraded it early in the year over concern about excess generation capacity, but the market did not care because electricity demand is so strong. He says the company is set up very strongly and is going to beat numbers going into the next quarter. He highlights the service business: a gas turbine sale is followed five years later by service work with better margins, under 15-20 year agreements. That works like an annuity, but is hard to model, so the market is missing it. Turbines for data centers will also run harder than before. He still sees this as a super cycle, though he is waiting for the party to end.

  “the service side of the business. So they sell a gas turbine. Five years later, they get service. It carries better margin. It's a, you know, fifteen to twenty year agreement. So it's like an annuity here, but it's hard to model that out right now.”at 15:04

Tesla

Across the shows: 3 speakers in other episodes, 0 bullish and 2 bearish calls, past 30 days

• Ben Kallo · Robert W. Baird & Co.Bullish

  Musk will reach Tesla's pay-package milestones, based on the first package being beaten in a year.

  Kallo says that when the first Musk pay package was announced, even as a bull he thought the milestones were impossible, and the second package looked even more impossible. The first package was beaten within a year, though, while the second has been expected to take about three years. He says Musk 'will get there', and that Musk is likely to have a hand in the work. Kallo's support is thin, mainly the track record of the first package, and he does not give a timeline.

  “The first one they beat in a year, the second one was like three years. This one is like... But, he'll get there.”at 17:37

US Treasuries & yields

• Thierry Wizman · Macquarie Group

  Long-end yields will be capped by a financial stress event, not slowing growth, within months.

  Wizman argues the recent rise in long-end US yields is happening because the economy is strong, not because it is slowing, so a slowdown is not what will cap yields. He is concerned that rapid yield moves have historically blown up leveraged players, citing Franklin National (1974), Continental Illinois (1984), Orange County (1994), LTCM (1998-99) and Silicon Valley Bank (2023). He expects a major financial stress event, maybe at a bank or a private credit company, in the next few weeks or months, and says that is what would put a top on yields.

  “I'm concerned that we wake up in the next few weeks or months and we see a major financial stress situation, maybe at a bank, maybe at a private credit company, and that's what puts the top in the yield.”at 3:35

• Jurrien Timmer · Fidelity Investments

  The Treasury selloff is mostly technical MBS hedging, not fundamentals; the 10-year real yield near 3% looks attractive.

  Timmer says rising yields reflect a mix of narratives. ETF and mutual fund investors have bought bonds as much as equities, and a 10-year Treasury offers a real yield near 3%, which he sees as attractive for retirement buyers. Central banks and bank-regulated institutions have not been buying, though, so the rapid growth in debt, about $17 trillion since COVID, has not been offset. Much of the current selling is technical: with rates up, few homeowners prepay mortgages. That lengthens the duration of the MBS index while Treasury duration shortens, so mortgage investors hedge by selling Treasuries. He says this reverses the 2020 dynamic, when refinancing shortened MBS duration and pushed yields lower. He says the acceleration started around the time the 10-year broke 5%, and he is not sure where it ends.

  “I would say a lot of the actions just been technical. It's hedging. ... So you sell treasuries because your durations are mismatched between treasuries and mortgages, and this is the opposite of what made yields go down even more than they should have back in 2020.”at 24:41

US elections & politics

• Monica Guerra · Morgan Stanley Wealth Management

  Divided government after midterms adds policy headline risk for tech and AI, but gridlock creates tactical entry points.

  Morgan Stanley expects some form of divided government after the midterms. Midterm years have historically been down for the S&P 500, with an average post-midterm return of -4.5% since 2000, and Guerra sees this year running above that. Divided government means more headline policy risk and possible volatility for AI, technology and private equity, as a Democratic House would scrutinize those sectors. She argues markets love gridlock, since little legislation would pass with a split Congress or a Congress facing a veto. Congressional scrutiny of AI and hyperscalers could cause weak spots, which she calls tactical entry points, because negative policy news is not negative fundamentals and would not derail the business cycle.

  “So markets love gridlock. That's important. I'm not making a call for the entire the entire market.”at 30:56

• Monica Guerra · Morgan Stanley Wealth Management

  The Democratic Party is fractured and drifting pragmatic and moderate, not toward a national DSA shift.

  Guerra says she is asked on the road whether DSA is the start of something new, and does not yet know, comparing it with how the Tea Party preceded MAGA. She is struck by how fractured the Democratic Party is in people's self-identification and sees a real moderate pull. She cites a Texas governor's race in which the Democratic candidate refused to answer a question about pronouns, which would have played differently six years ago. She says the party is taking a more pragmatic approach suited to its regions, which she does not think represents the whole nation.

  “one of the sort of critical things that I keep being struck with is how fractured the Democratic Party is as far as people's identification.”at 34:19

Europe's economy

• Thierry Wizman · Macquarie Group

  France faces a doom loop between rising sovereign spreads and protests; France could be 2027's Orange County.

  Wizman sees the French protests and the rise in French sovereign spreads as linked, not independent. Higher spreads pressure the government to cut spending, but that pressure pushes people into the streets, who demand more spending. This creates a feedback loop between the bond market and social unrest. He compares it to the 2010s European doom loop between banks and sovereigns, and says the bond market and social protests now form a similar loop. He adds that highly leveraged sovereign-linked players could be the 'Orange County' blowup of 2027, not necessarily a corporation or bank.

  “There's quite a lot of linkage, that's the protests in France and the rise in sovereign spreads in France. There's a bit of a doom loop happening in France here whereby as sovereign spreads rise, it puts a lot more pressure on the government to reduce spending, but at the same time that pressure gets the people out in the streets”at 1:58

Emerging markets

• Thierry Wizman · Macquarie Group

  Latin America's shift to pro-US, market-oriented governments could make it a golden age.

  Wizman says every recent Latin American election has moved right or center-right, and those governments (Argentina, Chile, Peru, Ecuador, Bolivia, Colombia, and likely Brazil after the runoff, with Venezuela and Mexico possibly aligned) now line up with the US geopolitically and strategically. For the first time nearly the whole hemisphere, except possibly Canada, is aligned. He expects trade, national security, border and immigration agreements to follow over the next few years. He cautions that the centrist, pro-reform governments must still perform and that the left-right swings must end.

  “This has never happened, right? To have the whole hemisphere with the potential exception of Canada looking the same way, being aligned. I think this could be a golden age for Latin America.”at 4:35

AI infrastructure & data centers

• Thierry Wizman · Macquarie Group

  Hyperscalers and data-center financiers are not at risk of financial stress; leverage risk sits elsewhere.

  Wizman says AI-related leverage is real but immature, since these companies have not been levering up for five or ten years. Operating margins and profitability at the hyperscalers are huge, and they are well equitized with good access to both debt and equity markets. He does not expect a blowup at a hyperscaler or at a company financing data centers. He expects stress instead at firms outside the industry that are hurt by high yields and the rise in rates.

  “Operating margins in those businesses are huge. Profitability is huge. These companies are well equitized... We're not gonna see a financial stress at a hyperscaler or someone who's been financing data centers, certainly not yet.”at 7:41

Power demand & the grid

• Ben Kallo · Robert W. Baird & Co.

  Years of grid underinvestment plus data centers, onshoring and electrification sustain power demand; political noise is temporary.

  Kallo argues the US underinvested in its grid for so long that the shortfall is now catching up. Data centers get the headlines, but onshoring of manufacturing and general electrification of buildings add to demand too. Old power plants that should be shut down are also still running, which worsens the problem. He sees local pushback against data centers and election politicking as real but manageable concerns. He expects the industry to work through them, that power is a national security issue, and that stocks should shake off the noise after the election.

  “we underinvested as a country in our grid infrastructure, and it's catching up with us now. And data centers are gonna get the headlines, but it's not just that. It's like onshoring of manufacturing. It's also general electrification of buildings.”at 11:18

AI bubble & tech valuations

• Jurrien Timmer · Fidelity Investments

  The AI boom is not a bubble: P/E ratios are falling as earnings grow faster than prices.

  Timmer had worried a year ago that the AI boom would turn into a bubble like the internet boom 26 years earlier. A year later he says it is not a bubble, because P/E ratios have fallen since then. Earnings are growing so fast that the market cannot keep up with them, so valuations are compressing despite rising prices.

  “a year ago, my hope would have been that the AI boom does not turn into a bubble like the Internet boom did twenty six years ago... At least I can say that it's not a bubble because PE ratios have only been falling since then because earnings are exploding so much that market can't even keep up with it.”at 20:39

US stock market outlook

• Jurrien Timmer · Fidelity Investments

  If earnings stall while bond yields rise, stocks could suffer a 2022-style reset.

  Timmer's hope is that the earnings train keeps going. If it does not, the market risks an echo or aftershock of 2022, when a reset in the cost of capital knocked the stock market down 28%, entirely because of interest rate increases. He says the same dynamic is now in play given what is happening in the bond market. He frames price as a residual of earnings and valuation, so earnings growth is the key support.

  “Right now, my hope is that the earnings train continues to chug along because if it doesn't, we run the risk of sort of an echo or aftershock of 2022 when, of course, we had this big reset in the cost of capital”at 20:49