A Correction Was Overdue: AlTi Tiedemann CIO Curtin

Correction in Tech Stocks and Market Outlook

Key Concepts: Correction, Bear Market, Recession, Hard Data vs. Soft Data, MAG Seven, Gen AI, Spending Beneficiaries, Digital Infrastructure, Broadening Market Participation.

Market Correction and Volatility

The Nasdaq 100 is experiencing a correction, potentially closing down for a fifth consecutive week, a losing streak not seen since May 2022. This raises concerns about further market weakness. However, the speaker believes this is a correction, not the start of a bear market, primarily because they don't foresee a recession. The upcoming April 2nd deadline related to tariffs introduces volatility. High levels of pessimism in the market are seen as encouraging.

Recession Concerns and Economic Indicators

While acknowledging mixed consumer data, the speaker argues against an impending recession. The dichotomy between "hard data" (jobs, personal incomes, household balance sheets) and "soft data" (consumer sentiment, inflation expectations) is highlighted. Soft data appears weaker, but hard data remains strong. A potentially negative GDP in the first quarter of 2025 is expected due to proactive import buying by companies, impacting net trade. However, strong hard data points suggest underlying economic resilience.

Investment and Spending Surge

Investment is expected to surprise positively. India's commitment of $500 billion over the next four years, combined with investments from Apple and TSMC, amounts to approximately $1.4 trillion of expenditure back into the United States. Potential CapEx benefits from the funding bill in Congress, such as 100% expensing of R&D and depreciation, could further stimulate the economy.

MAG Seven Performance and Strategy

While the MAG Seven (Meta, Apple, Google, Amazon, Microsoft, Nvidia, Tesla) have been strong performers, most are negative YTD. The speaker's firm is underweight the MAG Seven, favoring managers who have effectively communicated their investment strategies and expected returns. Meta is specifically mentioned as having done a better job of communicating how their spending will result in better metrics. The focus is shifting towards "spending beneficiaries," particularly in digital infrastructure, general infrastructure, power, energy, and onshore production. These areas are considered less correlated to equity markets and offer strong counterparties.

Gen AI Adoption and Market Broadening

Gen AI adoption has primarily benefited hyperscalers and chip manufacturers. The speaker anticipates a broadening market participation, noting that 97% of the recent market decline is attributable to the MAG Seven, while other sectors are in positive territory. European and Chinese markets are also mentioned as being positive. The cost of compute power and large language models is expected to decrease, leading to greater adoption and productivity enhancements across various sectors of the global economy. These potential profitability and productivity gains are not yet fully priced into the market.

Conclusion

The speaker believes the current market situation represents a correction, not a bear market, driven by strong underlying economic fundamentals and a potential surge in investment and spending. While acknowledging near-term volatility, they advocate for a focus on "spending beneficiaries" in infrastructure and a longer-term perspective on the broader adoption of Gen AI. The firm's strategy involves being underweight the MAG Seven and focusing on managers who can effectively demonstrate returns on investment.