Trail 139 — A New Era
Markets Update by Aashish Singh
Business Update by Sylvia Lo
Financial markets are fascinating. They are constantly evolving, they follow no predetermined path and much like humans, their behaviour at times is completely irrational. Every day their movements are thoroughly analysed, yet their next steps are a complete mystery. They follow a random walk and therein lies their beauty. Each week I briefly recap a few stories that captured my interest.
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Markets have been super bullish for a while — this isn’t new. But one thing to consider is this pricing at the top end of the range of possible outcomes, and another altogether to see it as a consolidation step to the next leg up. There are only two things driving the equation, earnings expectations, and rates. High earnings are obviously good. High rates discounts future earnings but also the risk of high interest costs eroding margins. What’s very clear now is that earnings are super strong with a muted impact of high rates on margins.
We saw Nvidia this week post a record result again surpassing expectations. We also had data that showed pickup in US business activity, which led traders to push out the expected timing of Fed rate cuts to year-end. Deutsche analysts reiterated calls for the S&P 500 to end the year another 150–200 points higher from these levels amidst an expectation of continued earnings growth.
The Fed’s preferred inflation gauge for April is expected to show a decline next week. Corporate credit spreads are super tight. CLO returns are booming. Options implied volatility across asset classes is near record lows. Gold, silver along with base metals such as copper, are near recent cycle or lifetime highs. Bitcoin is close to $70k levels. Chinese property markets are getting much needed stimulus while its manufacturing is improving. Hard to spot a weakness even when valuations are so lofty. Bears have been punished hard throughout the last decade, but even now continue to see significant losses at every attempt to call the top. The risk reward in shorting this bull run is apparently never good.
We are either heading to a dotcom style/GFC like crash (less likely given corporate and retail balance sheet health), a CoVID like crash (geopolitical escalation which is quite likely) or as Nvidia CEO Jensen Huang said during the earnings conference call — towards “the next industrial revolution”. The market is clearly bought into the latter.
Bearish Trades Crater
With each passing week, the bear case for Wall Street proves too tempting to pass up for a handful of gutsy traders. Risky assets with lavish valuations march on against expectations, the group of stock winners stay stubbornly concentrated, interest-rate cuts get delayed once more.
Certain things are about to reverse, these traders take the bait. In one example, they ploughed $500 million at the start of the month — the most this year — into an amped-up exchange-traded fund designed to win big when the Nasdaq 100 drops. The problem: The tech-heavy index keeps going up with a fresh 1.4% advance this week. In turn, the bearish ETF has plunged 20% this month alone.
Nvidia’s Jaw-Dropping Rise
Nvidia isn’t showing any signs of slowing. From a niche chip supplier to the videogame industry, the company has transformed into the single largest provider of cutting-edge accelerators that power artificial intelligence applications. Wall Street had high expectations going into the company’s earnings update on Wednesday and Nvidia produced yet another set of blowout results — with strong performance, a bullish sales forecast, a 150% boost to its quarterly dividend and a 10-for-1 stock split.
PCE Cooling
The Federal Reserve’s first-line inflation gauge is about to show some modest relief from stubborn price pressures, corroborating central bankers’ prudence about the timing of interest-rate cuts. Economists expect the personal consumption expenditures price index minus food and energy — due on Friday — to rise 0.2% in April. That would mark the smallest advance so far this year.
In The World of Business
This week, Scale AI, valued at $14 billion after securing $1 billion in funding, rapidly grows by providing critical data services for AI model training, despite past controversies and current challenges in maintaining data quality and innovation.
Many managers now feel overwhelmed and unprepared due to inadequate training, with a significant number being “accidental” or “quietly promoted,” leading to high employee dissatisfaction and turnover, highlighting the urgent need for tailored management training.
Scale AI
In a significant milestone, Scale AI has secured $1 billion in new funding, propelling its valuation to a staggering $14 billion. This impressive feat place the six-year-old startup among the elite companies capitalizing on the booming generative AI sector. Led by Accel, the Series F round saw participation from both returning and new investors, including big names like Amazon, Intel Capital, and AMD Ventures.
Scale AI’s meteoric rise is fuelled by its innovative services that aid companies in labelling and testing data for AI model training, a crucial component for effective AI. As corporate interest in generative AI products surges, Scale AI’s business has expanded rapidly, with a remarkable 90% of its revenue now coming from this subset of AI. CEO Alexandr Wang revealed that the company’s annual recurring revenue tripled in 2023 and is projected to hit $1.4 billion by the end of 2024. Wang also expressed confidence in achieving profitability by year-end.
Founded in 2016 by Wang and Lucy Guo, Scale AI began by addressing the “data problem” in AI, focusing on creating high-quality datasets needed to train AI models. Scale AI is investing in both human-created and synthetic data to maintain the quality and accuracy of AI models. Wang emphasizes the importance of high-quality data in pushing technological frontiers, underscoring Scale AI’s commitment to innovation.
Accidental Managers
Many managers today feel overwhelmed and underprepared for their roles, a sentiment echoed by their subordinates. A survey by Robert Walters found that 66% of managers are “accidental,” having had no formal training, and another 22% were “quietly promoted” without proper acknowledgment or preparation. This lack of readiness leaves over 80% of managers in leadership positions without the necessary skills.
The modern manager faces unique challenges, including managing hybrid work environments, addressing mental health concerns, and integrating Gen Z into the workforce. Gerrit Bouckaert, CEO of Robert Walters, noted that managers today must drive team culture, lead digital adoption, and handle emotional well-being, often resulting in “empathy burnout.” Despite the U.S. training industry’s $100 billion value, a one-size-fits-all approach to management training is insufficient; tailored transition coaching and mentoring are crucial for preparing new leaders.
Ineffective management has broader implications for employee retention and motivation. A study by the Chartered Management Institute (CMI) and YouGov found that only 27% of employees rated their managers as highly effective, with half of dissatisfied employees planning to leave their jobs within a year. Ann Francke, CEO of CMI, stressed the importance of skilled managers in preventing toxic behaviours and maximizing team potential, highlighting the urgent need for organizations to invest in comprehensive and personalized training for their leaders.
Until next week.
