With September Cool Comes Three Big Concerns
We have a week left before the start of September. I, for one, will be glad to have the dog days of summer in the rear-view mirror as it has been hot and sticky few months here in South Florida.
And I hope the Sunshine State can make through the rest of hurricane season without getting walloped this year.
That said, September and October have been two of the most challenging months for investors historically. And equities certainly have a very large “wall of worry” to climb these days. In today’s column, I highlight three of the biggest concerns I have as we move through the late innings of summer. Unfortunately, I don’t see any of them on their way to being resolved.
First is the effective closure of the Strait of Hormuz will hit its sixth month at the end of this week. No resolution seems on the horizon. I see the conflict staying on a slow boil until at least after the mid-terms in early November. Some 20% of global crude exports went through this key transit point before the country’s latest misadventure in the Middle East.
It is hard to get a true feel of what the daily deficit of exports is currently. They do seem to on the uptick. Oil has managed to stay under $100/barrel for the most part. That said, diesel crack spreads are at record highs, and the strategic petroleum reserves have fallen to worrying levels. I could easily see a spike higher in energy prices in the coming two months. On the flip side, it is hard to see what could fully restore transit flows. I remain overweight energy in my portfolio.
Second are higher gas prices. This is the last thing the struggling American consumer needs right now. The personal savings rate is under 3% and roughly at one-third its long-term average. Savings are also far under the over 7% level prior to the Covid pandemic. Home Depot ($HD), La-Z-Boy Incorporated ($LZB) and Lowe’s Companies ($LOW) all provided commentary about weak consumer demand last week. Walmart ($WMT) posted its weakest same store comp sales since 2020. The stock had its biggest daily decline since 2022 after quarterly results were posted last week. I remain deeply underweight consumer plays within my portfolio including retailers, restaurants, lodging and hospitality related concerns.
Then, finally, we have massive capital needs for the AI infrastructure. Many companies have put what was called “vendor financing” during the Internet Boom on steroids. Nvidia Corporation ($NVDA) has signed memorandums of understanding with investment firms like Apollo Global Management ($APO) to provide up to $500 billion in potential financing for AI infrastructure. Last week, news broke that Broadcom Inc. ($AVGO) is working with the likes of Apollo and Blackstone ($BX) to provide at least $60 billion in financing. And off-balance sheet liabilities at the five major hyperscalers have hit a combined $3 trillion according to a recent article in the Wall Street Journal.
Finally, we have Anthropic that is in late-stage discussions to come public. Management is reportedly seeking a $2 trillion valuation while raising some $100 billion in proceeds. This would best the valuation around Space Exploration Technologies Corp. ($SPCX) that came public in mid-June. Neither company is profitable. At some point, one has to wonder if these companies will continue to be able raise hundreds of billions of dollars every quarter from the equity and debt markets to bet on the come.
And while I optimistically await the coming of cooling temperatures down here in South Florida, I am not nearly as sanguine on the overall market.
At the time of publication, Jensen had no position in any security mentioned.
Positions: None.
