Recession Risk And Pockets Of Strength

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Budweiser keeps pushing higher despite bad headlines (0:30). AI technology segments moving down (3:00). Bitcoin in the short-term and long-term (5:15). Economy not looking as sweet as it was even a month ago (6:55).

Transcript

Rena Sherbill: Brian Stewart, I call him our fearless director of news, and he better be fearless in this type of geopolitical and stock market volatility and uncertainty that we find ourselves in.

Brian, welcome back to Wall Street Breakfast. And can you start off with some good news? Is there some good news to be had?

Brian Stewart: Some stocks that have been moving up recently despite the bad headlines that we’ve been facing. One is Budweiser (BUD) keeps pushing higher. As we’re recording, it’s been up for 10 consecutive sessions. It’s only been down twice in the last 17 sessions.

It had results out last week. They were obviously taken positive by the market, but it was already drifting higher from there. So that’s one stock that’s sort of bucking the overall downward trend that the market has seen.

RS: And what are the highlights there?

BS: So that was more of an execution story. They also said that they didn’t see a heavy impact from tariffs. At that point, when they were talking, tariffs were more conceptual than they were something that was definitely on the horizon. But even in that context, they said that they weren’t particularly worried about it. And so coming from a global operation like that, investors took that to heart.

But the problem is that that might be very specific to that company. They also showed some signs of weakness. Revenue was up, but volumes were down, so they were taking advantage of of higher prices. So that was a situation where inflation was working in their favor. And they were also benefiting from a cost cutting regime, not an aggressive one, but one that was eyeing cost cutting as a goal.

So they were helped margin wise there. You can’t accept you can’t expect that from every company. And I think what we’re learning from the recent past is that when you’re dealing with high risk assets, those can go up pretty quickly, but those also come down.

A lot of the damage that’s been done recently has been done in those higher risk areas, technology, crypto, those kind of spaces. But there are pockets of strength in the more defensive sectors.

If you look at the performance of the major averages so far this year, you can see the bifurcation. So the Nasdaq (QQQ) is down around 4% year to date, but the Dow (DIA) is basically flat. The worst Dow components are Salesforce (CRM) and Nvidia (NVDA), both down about 13% so far this year.

But if you flip it around and look at the best style components, you have Amgen (AMGN). You have 3M (MMM) up. You even have (IBM) as an old fashioned technology play doing well within the Dow. So there are pockets of strength even though the overall sentiment over the past week certainly has been down.

On the upside, like I said, it’s kind of limited. It’s more companies that are holding up despite the news.

The downside, you have very heavy AI technology segments moving down. So NVIDIA was down 11% in the past week. You have Arm (ARM) down 10%. Broadcom (AVGO) was down 10%.

Oracle (ORCL), which has earnings next week, was down 6%. Oracle is a good one to look at because they have the results coming out early next week. They’re a company that has been spotlighted as a kind of an AI name. So look for commentary from them about their AI progress.

I would also look at their their spending, their CapEx, which has been going up lately as they lay the infrastructure for a bigger AI push. And I think that’s a theme that we’ll be looking at a lot with the excitements of, say, NVIDIA in the first year and a half of the AI boom rising significantly.

All those chips are being bought by somebody. So one of the things to watch out for is just the cost that AI has in actual dollar terms as these companies try and sort of get ready, gird up for the the battle ahead.

RS: And is that why tech led the sell off this week – because of the higher expenses likely coming?

BS: I mean, I think that’s a worry. I think the worry is that the revenue from additional AI investments is not gonna come as fast as we had hoped. Meanwhile, the costs are happening now. So the idea that the profits from this are gonna be delayed.

In terms of actual trading, I think it’s more just a high risk, low risk situation.

I think it was a risk off move for the stock market, and I think the test for that is crypto, which is also down kind of in lockstep with tech stocks in general. So if you could kind of look at the Nasdaq is down 4% year to date. Bitcoin is down about 3%. So those two are kind of moving in tandem, and I think it’s just generally people are rotating out of tech and looking for more for safer investments as the economic picture becomes less enticing.

RS: What would you what would you say about Bitcoin specifically, its movement in the crypto space? I’d like to remind the audience of one of my favorite quotes that we heard from John D’Agostino at our Investing Summit last summer, and he said in talking about cryptocurrency that volatility is not the same thing as risk, which I think would be wise for us all to keep in the back and front of our minds.

What would you say about where Bitcoin (BTC-USD) is going and and how volatile it’s been?

BS: So in the short term, I like to use Bitcoin as a risk asset indicator because unlike an individual company that might have fundamentals that are specific to that company, Bitcoin doesn’t have earnings reports or things of that nature that affect it.

So you can take its short term movements as a sentiment indicator, especially as it relates to higher risk assets. To your point, though, there are structural activities that are changing the way Bitcoin is being viewed by the public. So I think if you’re looking long term at Bitcoin, you’re still looking at things like institutional adoption. You’re looking at expanding its prevalence as an actual currency as opposed to an investment.

And if there’s progress in those areas then Bitcoin has an engine higher that individual stocks might not have. So I think that’s a point well taken.

If you’re an investor out there and you’re looking at crypto, you have to take the short term volatility, which is more of a sentiment play against what you view as the longer term fundamentals, which would be the expansion of the adoption of the crypto.

RS: And broadly speaking, macro wise, what are you sensing? What are you seeing based on the news that we’ve had this week, based on the tariffs, based on this geopolitical brouhaha?

BS: So the general feeling is that the economy is not looking as sweet as it was even a month ago. The Atlanta Fed has an interesting project that they do. It’s called GDP now. It’s a mathematical algorithm that takes incoming economic data and spits out a prediction for what GDP is going to be.

And that’s reached a point where it’s predicting a contraction of more than 2% for the first quarter. And a lot of that damage has happened very recently. So in February that was still predicting 3% growth for the first quarter of 2025, and now it’s predicting a more than 2% decline.

That got as sharply down as 2.8%, and that was right after the ISM manufacturing data that came out earlier this week. That showed that manufacturing in general was just above the line for contraction. That index has a 50 as the breakeven point. So anything below 50 is contraction. Anything above 50 is expansion. And it was at 50.3, so just in the expansion territory.

And then some of the subindexes, like new orders and employment were both below 50. So once that got computed into the Atlanta Fed’s algorithm, it brought the GDP prediction for the quarter way down.

So that’s not even taking into account the possible impact of tariffs. That’s a completely mathematical model based on incoming economic data. So tariffs about to take effect aren’t even priced into that at all. And so that leaves a lot of analysts worried that the tariffs might be the the tipping point event that pushes the economy into a serious recession.

RS: Anything else to note for investors or any other data points or things to look for or possible catalysts or possible opposite of catalysts coming up?

BS: Next week in terms of earnings, we have a bunch of more retailers coming out.

The retail sector is down about 10% since mid February. So that’s investors taking into account this softening economic environment and thinking that consumers both with inflation remaining pretty sticky and the labor market softening that there might be a lot of household budget cuts being made.

So look for the retailers coming out, especially we have Dollar General (DG) and Dollar Tree (DLTR). So those are interesting just because they’re at the very low end of the pricing specter. So the commentary you can get from them might be very interesting in terms of how consumers are reacting to the economic information.

Also next week, there’s CPI coming out on Wednesday. That’s gonna be an important indicator. The commentary around the Fed has shifted more towards the economy and more towards jobs and and more towards fear of a recession than it has to fighting inflation.

So to a certain degree, maybe the CPI is becoming more relevant in the Fed decision making, but it’ll still be interesting to see where that stands.

And, obviously, a softer inflationary report kinda opens the door for a sooner rate cut. If that remains dangerously high, then the Fed might have no other choice but to hold off on rate cuts and risk the recession.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.