Markets Price in Midterms

Anthropic

Across the shows: 101 speakers in other episodes, 129 bullish and 85 bearish calls, past 30 days

• Brad Warden · Nomura Asset ManagementBullish

  Anthropic's S1 disclosures show AI business models with pretty phenomenal monetization.

  Warden says the market had been skeptical of AI, questioning whether it could monetize. Recent data and Anthropic's S1 disclosures show that business models building on AI are pretty phenomenal. He says this is starting to answer the monetization question, though he expects pockets of excess.

  “if you look at some of the data that we've gotten recently, and some of the disclosures that we got from [Anthropic's] S1 and some of those things, the business models that are coming on the back of AI are pretty phenomenal.”at 19:32

AI infrastructure & data centers

• Erin Covey · The Cook Political Report with Amy Walter

  Data center construction was a political liability for both parties in this election cycle.

  Data centers ranked among highest voter concerns, especially in rural districts, and played a defining role in the Texas governor's race and a big role in the Ohio Senate race. Covey argues that members of both parties were vulnerable for having supported past data center construction, and for AI-funded super PAC support or work for AI companies. She calls these liabilities this cycle.

  “I think it's an issue that members from both party were vulnerable on whether they had previously supported, the construction of data centers in the past... Those were all liabilities this cycle.”at 3:36

• Brad Warden · Nomura Asset Management

  Compute demand is unchanged, and supply constraints will tighten and push prices higher.

  Warden says that when you look past the immediate news, demand for compute has not changed across its different pieces and he does not think it will. He argues that the constraints on building capacity will make supply tighter and prices go up, so the long-term AI trajectory is unchanged despite election-driven noise.

  “as you look out, you look at what's happened with the demand for compute, all of the different pieces of that, it has not changed. And I don't think it's going to change. So unfortunately, I think some of this constraint is actually gonna make things tighter and make prices go up.”at 20:20

• Brad Warden · Nomura Asset Management

  Physical data center delays are very small; the market has the AI buildout narrative wrong.

  Warden says the market is putting the cart before the horse by assuming CapEx will be held up, and that actual physical execution is seeing very little impairment. He spoke with a data center executive who reported little happening. Stalling is possible, but data centers need to engage their communities so politicians can get wins for the economics they bring. He argues that if Texas or Georgia becomes harder, the companies have many other places to go and will go if they have to.

  “It's very small. Right? And I think this is where I feel like the market's getting the narrative wrong. We are kinda putting, you know, the cart before the horse almost.”at 20:56

• Brad Warden · Nomura Asset Management

  Core AI infrastructure buildout is a multiyear cycle that will continue, with monetization the next phase.

  Warden says the core infrastructure piece of the AI trade will continue and be a multiyear cycle. He sees the market moving into a next phase focused on monetization. Hyperscalers bounced over recent days on the view that they may be more constrained on capex, but he argues the go-forward is to see monetization materialize.

  “from that perspective is, yes, the core infrastructure piece of it is gonna continue. And that's gonna be a multiyear cycle. I think part of what we're looking at now is sort of that next phase.”at 22:22

• Sarah Hunt · Alpine Saxon Woods

  Election-driven data center pushback will slow the buildout pace; infrastructure stocks sold off while hyperscalers held up.

  Hunt says infrastructure stocks sold off on election day, while hyperscalers looked better. She reads this as a signal that a slowdown in data center build-out is coming, driven by local concerns about siting, electricity pricing and related costs. She says this was partly coming anyway because some buildout could not be sited on the planned timeline. She also argues the AI spending pace had become too fast, pushing up component prices and adding to the inflation picture. She frames the next question as whether spending can be funded without pressure, and says this is a moderation rather than a repudiation of the technology.

  “All the infrastructure stocks got hit, but the hyperscalers actually looked better. And that's telling you, we think that there's going to be a slowdown because of this election in some of the data build out.”at 26:23

US elections & politics

• Erin Covey · The Cook Political Report with Amy Walter

  Republicans' path back to House and Senate control is likely at least a two-cycle project.

  Democrats won a wide House majority, with a current count of 240 seats for Democrats against 147 for Republicans and possible further gains. Covey argues that because of those wide margins, Republican recapture of the House and possibly the Senate is probably at least a two-cycle play. She also notes the Senate map favors Republicans structurally but is less tough for Democrats than expected, giving them more cushion than either party anticipated.

  “if Republicans are gonna win back the house and the senate for that matter, this is going to be probably at least a two cycle play at this point given democrats. Pretty wide margins there.”at 5:21

US jobs & labor market

• Christopher Hodge · Natixis CIB Americas

  Labor market is stable but weaker than headlines; falling wage growth means no inflationary impulse.

  Hodge says the job market is stable but not as solid as headline data suggests, because changes in immigration, population estimates and seasonality distort the picture. He argues wage growth is the better indicator of labor demand. Wage growth has been steadily declining and he expects more of the same. From the Fed's perspective, he concludes this is not a labor market providing much inflationary impulse. He notes low churn is disinflationary over time and expects this to show over the next few quarters.

  “wage growth has been steadily coming down, and we expect more of the same. And I think the bottom line from the Fed's perspective is this is not a labor market that is providing much of an inflationary impulse at all.”at 10:56

AI & jobs

• Christopher Hodge · Natixis CIB Americas

  Productivity gains let firms do more with fewer workers, with AI adoption a possible structural labor shift.

  Hodge says the economy has seen increased productivity over the past few years, and businesses are doing more with fewer workers. He links the low churn in the labor market, where businesses are hesitant both to shed and to add workers, to structural shifts that could be underway with AI adoption. He argues this makes existing workers more important to firms.

  “this is an economy that has seen increased productivity over the past few years, and businesses are doing more with fewer workers, but also makes the workers that that they have even more important to them.”at 13:53

US inflation

• Christopher Hodge · Natixis CIB Americas

  Tariff pass-through is largely done; underlying inflation heads toward 2% in coming quarters.

  Hodge says tariff impacts have largely passed through. Weak household formation and low immigration are reducing demand for housing and rents. Core services excluding housing, the largest part of the basket, is driven by hiring costs, which are slowing. Including fairly high productivity, he says this is consistent with about 2% inflation. He concedes the economy is not there yet but expects it to get closer within the next few quarters.

  “we do think that tariff impacts have largely passed through... if you include productivity numbers that are fairly high... That looks like it's something that's consistent with about 2% inflation. We're not there, but I think we're gonna get closer in the next few quarters.”at 14:49

US consumer

• Christopher Hodge · Natixis CIB Americas

  US consumer has held up despite oil prices and flat real wages, aided by the One Big Beautiful Bill.

  Consumer spending has held up well despite higher oil prices and real wage growth that has been flat to slightly negative. Hodge attributes this largely to fiscal stimulus from the One Big Beautiful Bill, which boosted spending. Household balance sheets are also supported by rising home and equity prices. He sees dispersion in discretionary spending between higher- and lower-income Americans, though he considers the K-shaped economy story somewhat overblown.

  “US consumer has held up very well in the face of higher oil prices, in the face of real wage growth that's been flat to maybe below zero. And then I think that's largely a function of a fiscal stimulus from the one big beautiful bill that really boosted a lot of spending.”at 17:05

US housing

• Christopher Hodge · Natixis CIB Americas

  Housing affordability headwinds make a significant rise in housing demand difficult to see.

  Hodge argues that slower immigration raises home-building costs, tariffs on Canadian lumber and steel raise them further, and mortgage rates near 7.5% weigh on buyers. Together these affordability headwinds make a significant increase in housing demand difficult to see. He declines to call a bottom in housing.

  “when you slow down immigration, that increases the cost of building a home. When you have tariffs on Canadian lumber and steel, that increases the cost of building a home. And when you have mortgages that are seven and a half percent or so, that that also hurts.”at 18:05

AI bubble & tech valuations

• Brad Warden · Nomura Asset Management

  Skepticism about AI company valuations is overwhelming and probably extreme, though healthy after past bubbles.

  Warden says skepticism about AI valuations is really overwhelming. He describes this as healthy, since the industry has lived through bubbles before and should scrutinize the economics. He thinks the current level of skepticism has become extreme, which implies the market is pricing in more doubt than the economics justify.

  “But I do think the skepticism now is really kinda overwhelming from a valuation perspective... But I think that's that's maybe extreme at this point.”at 22:55

Earnings & corporate profits

• Sarah Hunt · Alpine Saxon Woods

  2027 earnings estimates rely on buildout that may not happen, creating a tension that needs to be resolved.

  Hunt says the bigger problem for the market is that many 2027 earnings estimates were built on data center buildout that could be slowing, and that buildout was something she could argue would not happen anyway. Growth in 2027 was already expected to be weaker than 2026, but a lot of growth was built in. She says how this tension plays out will matter going forward, and that 2027 consensus earnings will determine it.

  “I think the bigger problem for the market overall is that a lot of 2027 earnings estimates were built in on some of the building that we could have argued wasn't gonna happen anyway.”at 28:14

Oil & fuels

• Sarah Hunt · Alpine Saxon Woods

  Crude relief won't resolve product prices or refining issues, so energy margin pressure persists.

  Hunt says higher energy prices have both an inflationary effect and a margin degradation effect that the market does not want to see. She is not sure the move in crude is a real change in the backdrop. She does not think it solves the Ukraine-Russia crisis. She points to continuing problems with product prices and refining. If prices come down enough to ease inflation, earnings of S&P 500 companies outside AI buildout could look more robust.

  “I don't think this solves the Ukraine Russia crisis at all. I think you still have problems with product prices. I think you still have issues with refining.”at 30:23

US stock market outlook

• Sarah Hunt · Alpine Saxon Woods

  Market rotation favors companies with strong cash flow and balance sheets over ever-rising AI spending.

  Hunt says the rotation is an unwind of earlier excess in AI component names and of concern that hyperscalers would overtax cash flow and struggle to borrow enough for their spending. She argues some players face more challenged funding, and that this was already building before the election. Her firm is cash flow and balance sheet focused, and she sees this as a better environment for companies with strong cash flow and balance sheets, as the market shifts toward fundamentals and away from ever-increasing spend.

  “We are definitely cash flow and balance sheet people. So for us, we were looking for... This is a good environment for companies that have very good cash flow, very strong balance sheets.”at 31:41

US rates & the Fed

• Sarah Hunt · Alpine Saxon Woods

  A December hike looks largely priced in, but March is uncertain and out-month rate projections are unreliable.

  Hunt says the market has almost baked in a December hike, with questions about whether there will be one in March. She argues projections for the out months have been wrong for much of the last couple of years, though they have been accurate when the expected outcome is close. She says the jobs data does not look inflationary, but if that changes the Fed may have to act further.

  “we almost see baked into a cake a hike in December. There's questions about whether or not there's gonna be a hike in March. It's hard to look at those projections just because they've been wrong on the out months so much over the last couple of years.”at 33:00