The infoshot to help kick-start your week
Markets fall after AI & Mag 7 valuation concerns and revelations about Burry shorts
US markets closed nearly 2% down for the week after concerns over valuations of AI & Mag 7 stocks came to a head. Over $500bn was wiped off the value of AI chipmakers, with the bosses of Goldman Sachs and Morgan Stanley speaking of fears about an imminent correction. The sustained US Government shutdown, nearing the record for the longest ever, added to these pains, with increased instability and uncertainty in US markets. UK and European markets also suffered from the sell-off, with UK markets perhaps struggling with the uncertainty of the upcoming budget.
The news that Michael Burry had bet nearly $1 billion against tech giants Nvidia and Palantir, exacerbated these issues. Burry, who initially rose to fame for predicting the 2008 housing market crash and was immortalised in the book and subsequent film, “The Big Short”, had previously posted about ‘bubbles’ on X in late-October. Known as a contrarian investor, the two puts represent around 80% of Scion’s portfolio and echo similar positions that Burry has historically taken, including a 2021 bet against Tesla and 2023 bet against Semiconductors through the iShares Semiconductor ETF.
Positively for markets, US private-sector employment numbers on Wednesday were encouraging and on Sunday, the US Senate voted in favour of a deal aimed to end the Government shutdown.
Reeves refuses to rule out raising one of the ‘big three’ taxes whilst BoE holds interest rates amidst inflation concerns
UK Chancellor Rachel Reeves refused to rule out raising VAT, Income tax or National Insurance contributions when asked by the press. Such rises would break the Labour manifesto pledge and signal a change in stance by the Chancellor on how to increase government revenue to maintain her self-imposed fiscal headroom. This comes on the back of an IMF report in the last week which showed that UK national debt has grown higher than any other advanced economy, suggesting that Reeves has got an even larger job on her hands to marry reducing the inherited and ongoing budget deficit with the urgent need for economic growth and fiscal stimulus.
This challenge is further complicated by the BoEs decision on Wednesday the 8th to maintain interest rates at 4%, in line with analysts’ predictions. Citing sticky inflation at 3.8% – driven by global process but nearly double the target of 2% – the tight 5:4 vote to break the pattern of five consecutive rate cuts since the summer of 2024 and hold further rate cuts until after the autumn budget suggests they are waiting to see the plans for the economy laid out by the Chancellor on the 26th along with global, particularly US, political and economic developments.
Mamdani and Musk mayhem
On Tuesday 4th November, the democratic-socialist Zohran Mamdani was elected Mayor of New York City, beating former Governor, Democrat turned Independent, Andrew Cuomo, in the process. This signals a major upset to the political status quo in the United States and could underpin a revival of the Democratic party in the US. Mamdani ran on a mandate of rent freezes, free buses and higher taxes, amongst others; policies that evidently resonated with a city struggling with inequality, inflation and poverty. With an annual operating budget of more than $115bn (about the same as the entire state of Florida) and a workforce of roughly 300,000, it will be interesting to see whether he can get the support needed to put these policies in place despite fierce opposition from President Trump, Republicans and the wealthy of New York City, and whether it will reframe the national debate between Democrats and Republicans.
In rather stark contrast, on Friday, Elon Musk’s $1 Trillion Tesla pay-package was approved. Based on hitting numerous sales and performance targets, including delivering one million Optimus Robots, bringing one million self-driving Robotaxi vehicles into operation and achieving a market cap of $8.5 trillion in a decade, nearly twice that of Nvidia, it could be argued that Musk deserves this package should he deliver these results. This comes at a time of several headwinds for Tesla, such as declining sales in Europe, the strengthening of competitors such as BYD who out-sold Tesla in German markets, and the polarisation of Elon Musk amongst consumers.
Coming Up:
- UK GDP numbers, Thursday 13th November at 07:00
- US Inflation statistics, Thursday 13th November at 13:30
- EU economic forecasts and GDP numbers, Friday 14th November at 10:00
Notice:
For regulated financial advisers and investment professionals only, Copia does not provide financial advice, and the contents of this document should not be taken as such. The performance of each asset class is represented by certain Exchange Traded Funds available to UK investors and expressed in GBP terms selected by Copia Capital Management to represent that asset class, as reported at previous Thursday 4:30pm UK close. Reference to a particular asset class does not represent a recommendation to seek exposure to that asset class. This information is included for comparison purposes for the period stated but is not an indicator of potential maximum loss for other periods or in the future.
