Keep pulling the thread on Skanda Amarnath.
Investment in the AI boom, including tech equipment, software, and industrial equipment, has surpassed 7% of GDP, exceeding the peak share of housing investment during the 2000s bubble.
Despite discussions of a productivity boom, the US recently experienced negative real compensation growth for the year, suggesting gains are flowing to corporate margins instead of household living standards.
Analysis by Neal Dutta shows that 15 non-tech S&P 500 companies, with a collective $2 trillion market cap, now have a daily return correlation of 0.5 or higher with the semiconductor ETF (SMH).
Companies such as Vertiv, Eaton, Caterpillar, Cummins, and GE Vernova are trading like semiconductor stocks because their order books have become increasingly dependent on AI CapEx.
In the first quarter, US worker compensation grew 0.8% while domestic corporate profits jumped 2.7%.
Labor's share of US gross domestic income has fallen to 51%, the lowest level since records began in 1947.
The corporate profit share of US gross domestic income has climbed to 12.1%, the highest level since 1950.
Skanda Amarnath predicts the Federal Reserve will misinterpret persistent, broad-based inflation from supply shocks as a demand problem and will raise interest rates in response.
Neal Dutta believes that if the Federal Reserve hikes rates due to supply-side inflation rather than strong demand, it would be a very negative outcome for the economy and capital markets.
A key risk to the current economic cycle is the willingness of non-tech companies to continue their AI expenditures, as they will eventually need to see a return on that investment.
Skanda Amarnath stated that the current macroeconomic picture is characterized by supportive financial conditions, better-than-expected growth, and higher-than-desired inflation.
According to Neal Dutta, growth in total wages and salaries remains sluggish, and he has a concerned outlook for consumer spending.