Markets
markets
Matt Phillips

Morgan Stanley: Don’t fight the rally, here’s why

Morgan Stanley’s chief US equity analyst, Mike Wilson, is out with a fresh note taking a look at one of his favorite fundamental indicators for the market.

It’s the bank’s somewhat idiosyncratic measure of analyst earnings expectations for S&P 500 (SPDR S&P 500 ETF) companies.

It’s a bit of a complicated, triple bank shot, meta-derivative he calls the “rate of change on earnings revisions breadth.” But for our purposes, just think about it as the short-term trend in the share of analysts who are lifting or lowering their expectations for S&P 500 earnings per share. Here it is:

Morgan Stanley S&P 500 earnings revisions breadth

Wilson wrote:

“Earnings revisions breadth troughed two weeks after Liberation Day and the beginning of the re-acceleration in this gauge coincided with Microsoft Q1 earnings release... In our experience, when revisions breadth is accelerating in a V-shaped manner from an extreme low, equity markets typically remain supported and pullbacks remain shallow and unsatisfying (like the past 6 weeks).”

In other words, while there’s still a lot of uncertainty out there about the longer-term impact of President Trump’s tariffs on the US economy and corporate profits, the markets are increasingly looking past it, setting the stage for better-than-expected earnings results in the coming quarters.

We’re seeing some of this dynamic play out today, as companies like Boeing, Carnival, and JPMorgan Chase are all seeing analysts pencil in higher full-year 2025 EPS expectations.

Such a trend helps explain the S&P 500’s roughly 20% rally off its April bottom for the blue chips, which pulled the market to within 2% of a new all-time high for stocks.

This driver explains why traders shouldn't fight the S&P 500 rally

This driver explains why traders shouldn't fight the S&P 500 rally

It’s a bit of a complicated, triple bank shot, meta-derivative he calls the “rate of change on earnings revisions breadth.” But for our purposes, just think about it as the short-term trend in the share of analysts who are lifting or lowering their expectations for S&P 500 earnings per share. Here it is:

Morgan Stanley S&P 500 earnings revisions breadth

Wilson wrote:

“Earnings revisions breadth troughed two weeks after Liberation Day and the beginning of the re-acceleration in this gauge coincided with Microsoft Q1 earnings release... In our experience, when revisions breadth is accelerating in a V-shaped manner from an extreme low, equity markets typically remain supported and pullbacks remain shallow and unsatisfying (like the past 6 weeks).”

In other words, while there’s still a lot of uncertainty out there about the longer-term impact of President Trump’s tariffs on the US economy and corporate profits, the markets are increasingly looking past it, setting the stage for better-than-expected earnings results in the coming quarters.

We’re seeing some of this dynamic play out today, as companies like Boeing, Carnival, and JPMorgan Chase are all seeing analysts pencil in higher full-year 2025 EPS expectations.

Such a trend helps explain the S&P 500’s roughly 20% rally off its April bottom for the blue chips, which pulled the market to within 2% of a new all-time high for stocks.

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markets
Max Knoblauch

Rivian climbs as it rolls out a “universal hands-free” update and scores an upgrade from Baird

Shares of EV maker Rivian are on pace for their 10th best day of 2025 on Thursday, following an upgrade from Baird to “buy” from “hold” and the rollout of its new hands-free driving update.

Baird raised its price target on Rivian nearly 79% to $25, writing that “2026 is the year of R2.”

Meanwhile, Rivian says its new hands-free feature will allow drivers to take their hands off the wheel across 3.5 million miles of US and Canadian roads.

Despite referring to it as “universal hands-free” driving, the EV maker says the feature will not stop or slow for traffic lights or stop signs, follow navigation systems, or make turns, and will function only on roads with visible lane lines.

Rivian revealed the update at its AI Day last week, when it also hinted at a robotaxi plan.

Rivian rolls out new 'Universal Hands-Free' driving feature | TechCrunch

Rivian rolls out new 'Universal Hands-Free' driving feature | TechCrunch

Meanwhile, Rivian says its new hands-free feature will allow drivers to take their hands off the wheel across 3.5 million miles of US and Canadian roads.

Despite referring to it as “universal hands-free” driving, the EV maker says the feature will not stop or slow for traffic lights or stop signs, follow navigation systems, or make turns, and will function only on roads with visible lane lines.

Rivian revealed the update at its AI Day last week, when it also hinted at a robotaxi plan.

markets
Matt Phillips

The stock market loves your rising electricity bill

Utilities with a footprint in the massive PJM Interconnection, the country’s largest power grid, were up Thursday after prices set in a key auction hit a record high of $333.44 per megawatt-day.

Such power providers, including Talen Energy, Constellation Energy, and Vistra, saw tidy gains shortly before midday.

“This auction leaves no doubt that data centers’ demand for electricity continues to far outstrip new supply, and the solution will require concerted action involving PJM, its stakeholders, state and federal partners, and the data center industry itself,” Stu Bresler, set to become PJM’s chief operating officer next month, told Reuters.

As I’ve previously mused, political pushback from high power prices, partially created by the AI boom, could become a constraint on development of such sites. Democrats in the US Senate are now calling for hearings on the issue.

It’s fertile political soil. This morning’s US CPI report for November showed electricity prices up nearly 7% year over year, the highest since the tail end of the postpandemic inflation in April 2023.

Costs on Key US Grid Hit New Record, Testing Affordability

Costs on Key US Grid Hit New Record, Testing Affordability

“This auction leaves no doubt that data centers’ demand for electricity continues to far outstrip new supply, and the solution will require concerted action involving PJM, its stakeholders, state and federal partners, and the data center industry itself,” Stu Bresler, set to become PJM’s chief operating officer next month, told Reuters.

As I’ve previously mused, political pushback from high power prices, partially created by the AI boom, could become a constraint on development of such sites. Democrats in the US Senate are now calling for hearings on the issue.

It’s fertile political soil. This morning’s US CPI report for November showed electricity prices up nearly 7% year over year, the highest since the tail end of the postpandemic inflation in April 2023.

markets
Luke Kawa

Micron’s earnings, soft inflation, and OpenAI valuation chatter revive speculative AI trade

The three biggest news events since markets closed yesterday are all helping spur a big bounce-back for the more speculative companies tied to AI:

  • Micron’s eye-popping Q2 guidance reaffirmed beyond a shadow of a doubt how hot AI demand continues to run in the near term.

  • While the data is undoubtedly messy, core CPI inflation decelerated by much more than anticipated in November. Lower rates are a clear positive for more marginal companies levered to the AI theme, whose stocks trade with a higher embedded risk of default and whose bonds have also been suggesting more credit risk as of late.

  • OpenAI reportedly getting its hands on more money (and commanding a higher valuation in the process) provides some semblance of valuation support for these firms and also a better fundamental foundation as well: more cash in CEO Sam Altman’s pockets means more cash he has to make good on commitments to OpenAI’s many suppliers.

Put together, the key news items since Wednesday’s close are producing massive gains for the likes of Bloom Energy, Cipher Mining, POET Technologies, CoreWeave, IREN, and Nebius.

markets
Matt Phillips

GE Vernova upped to “buy” at Jefferies

GE Vernova is up early, enjoying the benefits of both a rebound in the AI data center trade and an upgrade to “buy” from analysts at Jefferies. In a note published on Thursday, they wrote:

“We upgrade to Buy. More positive on the outlook for Power (gas pricing & services visibility) and electrification yet shares are down since the December 9th Analyst Day. $815 PT up from $736. Gas turbine pricing continues to positively surprise and services provides visibility deeper into the 2030s, eventually offsetting gas equipment weakness.”

The target is slightly above the FactSet consensus price target of $753 on the stock, and implies a 23% premium to GE Vernova’s closing price on Wednesday. The stock is up almost 100% in 2025.

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