NewEdge Wealth Senior Portfolio Manager and Head of Fixed Income and Macro Ben Emons Joins Yahoo Finance Live to Discuss Microsoft and Alphabet Earnings Reports, AI Impact on Big Tech, and First Republic Bank Stock Drop increase.
video transcript
Dave Briggs: Big tech earnings pushed the numbers up today. See NASDAQ up about 50 points about 45 minutes before the close. Can tech stocks lead us to a summer rip? Bank of America thinks so, and so does our next guest.
We have Ben Emons, Senior Portfolio Manager at New Edge Wealth. I’m honoured to be able to meet you. Summer rips – it’s a new one for me. I’d rather not read it. It looks like a RIP that can go in the opposite direction. What’s next for Big Tech, following what we saw yesterday from Microsoft and Google?
Ben Emmons: Yes, it is. lip. To put it correctly, I think it’s probably the RIP on the one hand and the market is under pressure due to the prolonged banking crisis. On the other hand, what Big Tech is discovering is that artificial intelligence is suddenly becoming a predictable hype, but it’s also critically important to continuing to drive growth and revenue.
And part of what Google and Microsoft reported yesterday was that it will be an important part of their business going forward. So Microsoft’s surge today in particular was driven by their view that they are the artificial intelligence leader and are taking a real step forward. Microsoft has a huge weight of over 12.5% on his NASDAQ, so I think that’s behind that rip. So we can expect some outperformance from here as more news about artificial intelligence and how it impacts the technology’s bottom line.
Sheena Smith: Ben, at least for now, it doesn’t sound like you think much of the hype around AI over the last few months is overkill. But what about some of the risks government officials are potentially trying to crack down on AI? What does that mean from an investor’s perspective?
Ben Emmons: Certainly the explanation is that as we’ve seen with the more extreme version that we’ve seen with the Chinese government, in fact, yes, because once you start cracking down, very quickly negative sentiment across the market. So, in this particular case, will artificial intelligence significantly reduce jobs in the future?
That seems to be the biggest fear. And it is to be seen. It’s been around for a really long time. It’s a matter of how it is implemented and what it does for productivity which is a good thing. People are pointing to this latest episode of AI boosting these tech shares. Just like technology upgrades in the 1990s brought a productivity boom.
It’s true, it would actually be a really positive development for the economy. But I think your view is that governments will be very cautious when it comes to implementing AI that could impact employment.
Dave Briggs: AI is certainly all the talk, and was mentioned over 50 times in Google’s earnings call. But isn’t the revenue story still all about the cloud?
Ben Emmons: very. And that’s the main driving force. And I think it was for Google, in that particular case — that was a positive factor.
But I think these companies are well positioned to deliver top-line growth here as well. And in the weakened environment we’re dealing with, people are paying for growth. So can we reach higher multiples here?
But I think these strains at least have a lifespan. Because it shows that these companies can weather economic change. Especially now, it seems we are getting closer and closer to recession time.
Sheena Smith: Ben, let’s switch gears and talk about what’s going on inside the local banks. Because First Republic Bank has actually been suspended again. It was stopped many times throughout the trading day, many times from the hour. How do you, or how do you assess, the risks that First Republic Bank currently faces? What does that really mean for the broader banking sector?
Ben Emmons: yeah, that’s definitely a problem. Because for First Republic, it’s really important to see the client’s assets move out very quickly. This is a new dynamic compared to what Deposit saw on his flight in March. And I think this gives a signal to the wider market that the problem is not over yet. And I think confidence issues continue to be a major factor in the decline in regional bank share prices.
Because the local bank index hasn’t really recovered as much as the Federal Reserve intervened in March. And now the rest of the stock market did, but not the local bank stocks. Moreover, these bank stocks are more closely tied to what is happening on the economic floor, and if it weakens and lending declines, margins will continue to shrink.
So I think it’s an ongoing story. It doesn’t necessarily have to be an exact parallel to what happened between 2007 and 2008. However, there are clear signs that local banks will continue to weaken, indicating that the economy remains weak. And I think that’s the bigger message to investors.
Dave Briggs: Can the First Republic survive without government intervention?
Ben Emmons: It’s just floating in the air right now. There are still plenty of calls to get the private sector involved and inject billions more, either through deposits or equity injections. So what we’ve seen before at other banks heading into the weekend is a stage like this. Another kind of emergency.
The problem here is that the FDIC has hit the insurance fund hard, even though it has already taken significant steps for Signature Bank and other Silicon Valley depositors. So there are some limitations on what they can do to help the First Republic in this case. So it’s really unclear what happens here.
Interestingly, however, today there was no contagion impact like yesterday. And that’s because earnings from First Republic showed a significant drop in deposits. The market has digested it. But I think it will continue to be a lingering risk that will remain in the market until the summer.
Sheena Smith: And here we resumed trading again. Today he is 36% off. Ben Emmons, nice to meet you. thanks so much.
