The consumer is 'definitely slowing': Trivariate Research CEO Adam Parker

CNBC Television
29 Apr 202409:05

TLDRTrivariate Research CEO Adam Parker discusses a shift in his market outlook, moving from a bullish to a more cautious stance. He cites three main factors for this change: the potential for stagflation, a clear slowdown in consumer spending as evidenced by corporate earnings and macroeconomic indicators, and a lack of significant recovery in China despite expectations. Parker also notes that while structural factors like artificial intelligence remain promising, cyclical benefits to margins may be less favorable than initially thought. He suggests investors may want to reduce exposure to technology and increase investments in defensive sectors like healthcare and utilities. Parker anticipates a possible uptick in inflation and advises keeping a close eye on these economic indicators.

Takeaways

  • 📉 Adam Parker, CEO of Trivariate Research, has shifted his outlook on the market from a bullish to a more cautious stance.
  • 🌟 The three pillars supporting the bull case were easing financial conditions, expanding growth margins, and a belief in earnings growth, but these are now under question.
  • ⚖️ Parker sees a 50/50 chance of the market moving in either direction in the next 10%, reflecting increased uncertainty.
  • 🛑 Stagflation is a concern, with Parker noting that if it were a stock, it would be up, indicating potential cyclical pressure on inflation.
  • 🛍️ Consumer spending is definitely slowing, as evidenced by corporate earnings and macroeconomic variables.
  • 🔍 Despite expectations, there has been no significant pickup in mentions of China recovery, demand, or initiatives in earnings call transcripts.
  • 📊 Parker suggests that gross margins might not stay strong due to a high correlation with CPI and potential cyclical headwinds.
  • 🚨 He advises a more defensive position, recommending reduced exposure to technology and an increase in healthcare and utilities if stagflation grows.
  • 💼 Structural reasons for optimism remain, such as advancements in artificial intelligence, but cyclical benefits may be waning.
  • 📈 The commodity index has risen significantly, which could mean less of a tailwind for certain sectors compared to initial expectations.
  • 🧠 In the technology sector, particularly semiconductors and AI, there's a suggestion to remain vigilant and possibly adjust positions in response to market shifts and company performance.

Q & A

  • What is the current stance of Trivariate Research CEO Adam Parker on the market?

    -Adam Parker has shifted his view from a predominantly bullish stance to a more neutral one, stating that the market could move in either direction with a 50/50 chance due to several factors such as stagflation, consumer slowdown, and lack of growth in China.

  • What were the three pillars of the bull case that Adam Parker mentioned?

    -The three pillars of the bull case were easing financial conditions, growth margins expanding, and the belief in earnings growth.

  • How does Adam Parker view the current state of stagflation?

    -Parker suggests that if stagflation were a stock, it would be up, indicating a potential cyclical pressure on inflation. He also mentions a growing concern about stagflation and assigns a 20% probability to it, which is a change from a zero probability nine months prior.

  • What is the current condition of the consumer market according to the transcript?

    -The consumer market is definitely slowing down, as evidenced by corporate earnings and macroeconomic variables.

  • What does Adam Parker suggest about China's economic recovery?

    -Parker indicates that despite expectations, there is no clear evidence of an economic recovery in China. He mentions that discussions around China's growth, demand, and initiatives have not picked up in earnings call transcripts.

  • How does Adam Parker's view on margins and their impact on the market?

    -While structural reasons for strong margins are still in place, Parker suggests that the cyclical part could be different. He mentions a potential less tailwind than initially thought, which could lead to adjustments in cyclical benefits to gross margins.

  • What is Adam Parker's perspective on the Federal Reserve's next move?

    -Parker believes that the next move from the Federal Reserve is likely to be a cut, although he admits to not fully understanding the Fed's framework and that those who follow it closely have not been successful at forecasting their movements.

  • What sectors does Adam Parker recommend for investment in the current market conditions?

    -Parker recommends trimming exposure to technology and overweighting sectors like energy, healthcare, and utilities, especially if one believes in a growing trend of stagflation.

  • What is the significance of NVIDIA's upcoming report on May 22nd?

    -The NVIDIA report is anticipated to be good, but Parker suggests that if the company indicates they are close to meeting demand, there might be a selloff as the market has already priced in positive expectations.

  • How does Adam Parker view the role of artificial intelligence in the current market?

    -Parker acknowledges that artificial intelligence is a structural change happening in the market and likes the part where companies are hyper-focused on implementing and deploying AI.

  • What is the suggested strategy for investors who are considering the current market conditions?

    -Parker suggests that investors should be more defensive, considering the slowdown in the consumer market and the potential stagflation. He advises trimming exposure to technology and increasing exposure to sectors like healthcare and utilities.

  • What is the general outlook for the semiconductor industry according to Adam Parker?

    -While Parker is optimistic about the long-term overweight recommendation for the semiconductor industry, he notes that there might be a time to rotate into the sector, depending on the market conditions and the cyclical nature of demand.

Outlines

00:00

📈 Market Outlook and Macro Trading Opportunities

The first paragraph discusses the current market conditions and outlook for macro traders. It highlights a shift in the bull case for the S&P 500, with a change in views from a previous optimistic stance. The three pillars of the bull case were easing financial conditions, expanding growth margins, and the belief in earnings growth. However, with tightening conditions and a lack of recovery in China, the speaker suggests a more cautious approach, indicating a 50/50 chance of moving in either direction. Key concerns include stagflation, slowing consumer spending, and the absence of positive mentions of China in earnings call transcripts. The speaker also touches on the potential for a cyclical uptick in inflation and the implications for margins and the market.

05:02

🛠️ Sector Shifts and Investment Recommendations

The second paragraph delves into sector-specific insights and investment recommendations. The speaker expresses a reduced confidence in the tech sector, despite its historical strength, and suggests a more defensive stance with increased exposure to healthcare and utilities in the face of potential stagflation. The discussion also covers the energy sector, with a particular focus on NVIDIA's upcoming report and its significance for semiconductors and the AI market. The speaker anticipates good news from NVIDIA but cautions about the potential for a market selloff if demand expectations are not met. There is an emphasis on the importance of staying alert to market shifts and adjusting investment strategies accordingly.

Mindmap

Keywords

💡Macro Trader

A macro trader is an individual or entity that engages in trading based on large-scale economic, political, or social factors that influence the overall market. In the script, the mention of macro traders suggests that the discussion is focused on broader market trends and movements rather than individual stocks or sectors.

💡Bull Case

The bull case in finance refers to a scenario where the market is expected to rise or where positive factors are in play. In the transcript, Adam Parker discusses a shift from a bull case to a more cautious outlook, indicating a change in market sentiment.

💡Stagflation

Stagflation is an economic condition characterized by stagnant economic growth in combination with high unemployment and high inflation. It is mentioned in the context of being a concern for the market's future direction, suggesting potential negative implications for investors.

💡Consumer Slowing

This refers to a decrease in consumer spending or a slowdown in the rate at which consumers are purchasing goods and services. The script indicates that this is being observed through corporate earnings and macroeconomic variables, which is a significant factor in the market's performance.

💡China Recovery

The concept of a 'China Recovery' implies an expectation of economic rebound in China, which would positively affect global markets due to China's significant role in international trade. However, the script suggests that there is skepticism about the reality of such a recovery, which is impacting market views.

💡Earnings Calls

Earnings calls are conference calls held by public companies to discuss their financial performance with investors and analysts. The transcript mentions scouring earnings call transcripts for mentions of China, which is a method to gauge corporate sentiment and insights into market conditions.

💡Gross Margins

Gross margins represent the amount of profit a company makes after deducting the cost of goods sold from its sales, expressed as a percentage. The discussion around gross margins in the script relates to the cyclical benefits and how they might be affected by changing market conditions.

💡Commodity Index

A commodity index is a composite measure that tracks the prices of a wide range of commodities. In the context of the script, a rise in the commodity index is discussed as a potential tailwind for certain market segments, indicating its relevance to investment strategies.

💡Stagflation Playbook

The term 'stagflation playbook' refers to a set of investment strategies that are considered effective during conditions of stagflation. The script suggests that if stagflation becomes a more prominent concern, investors might adjust their portfolios, for example, by favoring sectors like energy and technology.

💡Overweight

In investing, being 'overweight' in a particular asset or sector means that a larger proportion of the investment portfolio is allocated to it compared to a benchmark index. The script discusses recommendations to be overweight in technology and energy, reflecting a strategic investment approach.

💡Defensive Sectors

Defensive sectors are parts of the market that tend to perform well during economic downturns or periods of uncertainty, such as healthcare and utilities. The script suggests that investors might want to be more defensive by increasing exposure to these sectors in response to market conditions.

Highlights

Trivariate Research CEO Adam Parker suggests the market might be favorable for macro traders in the next couple of months due to market movements.

Adam Parker has made a pivot in his market outlook, changing from a bullish to a more cautious stance.

The three pillars of the bull case were easing financial conditions, growth margins expanding, and the belief in earnings growth.

Parker now sees a 50/50 chance of the market moving in either direction, citing uncertainty.

Stagflation is a concern, with Parker noting if it were a stock, it would be up, indicating cyclical pressure on inflation.

Consumer spending is definitely slowing, as evidenced by corporate earnings and macro variables.

Analysis of earnings call transcripts reveals no significant pickup in mentions of China growth, demand, or initiatives.

Investors' expectations of China's recovery might not be met, which could lead to market changes.

Parker has been more bullish than most due to strong margins, but now suggests this could be changing.

Structural reasons for strong margins remain, but cyclical factors might be different, with a recent uptick in the commodity index.

Gross margins might not benefit as much from cyclical tailwinds in the next six months as previously thought.

Parker assigns a 20% probability of a cyclical uptick in inflation, up from a zero probability nine months ago.

The Federal Reserve's next move is still expected to be a cut, despite recent deviations from expectations.

Under the hood, there are many opportunities, but at the market level, the situation is more balanced.

Parker suggests a shift in sector recommendations, advising a reduction in technology exposure and an increase in healthcare and utilities.

The historical stagflation playbook indicates a move towards sectors like energy, technology, and defensive plays in healthcare and utilities.

NVIDIA's upcoming report on May 22nd is anticipated to be good, but any indication of meeting demand could lead to a selloff.

The focus on implementing and deploying AI is seen as a positive for the tech sector, with Parker expecting an overweight recommendation for a long time.

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