Yahoo Finance panel sees end of the 2% era and fears AI company debt in decisive earnings week

A panel of analysts on Yahoo Finance's Market Hang program assessed that the Federal Reserve (Fed, American central bank) operates in an environment in which the 2% inflation target seems increasingly distant, official data poorly describes the consumer experience and the debt of technology companies has become the main point of attention for the earnings season. The conversation, led by Nancy Tengler, took place shortly before Fed Chairman Kevin Walsh's press conference.

According to participants, the Fed continues to guide the market, albeit indirectly. Mark Malek, chief investment officer at Siebert Financial, said that despite Walsh's relative silence, other managers speak out frequently, and that interest rate futures contracts and swaps accompany each statement. For him, the central bank's communication influences consumption more than a 25 basis point increase in the basic rate. Ken Mahoney, CEO of Mahoney Asset Management, said that the quarter-point increase signaled firmness and that the market reacted with five days of gains, preferring this path to that of 2022.

Inflation target and data quality

Christine Short, head of corporate events research at TMX Wall Street Horizon, cited an article by Greg Ip, from the Wall Street Journal, according to which some models point to a neutral rate of 4.3%, above the current level. In her assessment, Walsh himself admitted that the current rate is not restrictive, which suggests an economy with higher interest rates and stronger growth. Anna Rathbun, founder of Grenadilla Advisory, argued that the Fed should review whether 2% is the correct target, citing structural factors such as the relocation of production chains, which makes production in the United States more expensive. Mahoney pointed to 2.5% to 3% as the implicit goal.

Analysts also criticized the collection of statistics. Tengler recalled that the retail sales model dates back to 1950 and mentioned a report according to which around 30% of the inputs for the consumer price index (CPI) would be interpolated. Participants said consumer-perceived inflation, from heating oil, diesel and school taxes, differs from the official figure. Malek further noted that retail sales measure spending, not volume, and can hide a less healthy consumer. Short said he takes confidence surveys, at historically low levels, more seriously.

Balance sheets and the risk of neo-clouds

For earnings week from Google, Microsoft, ServiceNow and Amazon, Short said this is the decisive week of the third quarter season. According to her, estimates continue to be exceeded, but revenues are less surprising. The analyst cited the case of Meta, which had record revenue but negative free cash flow, and was punished by investors. Participants praised Microsoft as the most balanced company between spending and debt, with positive free cash flow, estimated at $37 billion and projected at $45 billion.

Malek said he pays more attention to companies' treasury departments than their product roadmap. In his analysis, there are three layers: the cash-rich hyperscalers, the wannabes like Oracle and, below, the neo-clouds, which he described as having no reserves to fall back on and dependent on debt, including from private creditors. If they fail, he warned, chip purchases and the entire ecosystem would be affected. Short mentioned Anthropic's IPO filing (S-1) and concerns about circular financing: long-term obligations with hyperscalers are in contract, while customers can cancel subscriptions, a risk that the company itself cites.

Analysts said energy has replaced chips as the bottleneck. Short reported that GE Vernova's CEO takes 2027 and 2028 for granted, but sees uncertainty from 2029 onwards because of local resistance to data centers. Rathbun and Malek considered that the current heat in energy and memory could dissipate when supply catches up with demand, and that companies like Nvidia, Broadcom and Microsoft are sustained by their ability to innovate.

At the end of the program, Malek stated that those who change jobs every year tend to become generalists and that artificial intelligence goes after generalists, and defended specialization. Short noted that the job market continues to have few hires and few layoffs. The opinions are those of the participants and do not constitute investment recommendations.

Automatically translated from Portuguese.