AI capex, contribution to GDP growth is declining, says BCA Research's Papic
Speakers
Marco Papic
— Chief Strategist, Clocktower Group
Kelly Evans
— Anchor, The Exchange (CNBC)
Summary
Marko Papic, Macro and Geopolitical Strategist at BCA Research, tells CNBC's The Exchange he has turned cautious on US equities near term but remains modestly bullish over 12 months with a 7500 S&P 500 target. He cites a stuck 10-year Treasury yield around 4.15%, the need for lower consumer borrowing costs, a less compelling AI capex story, and the need for more Chinese growth. He also says he agrees front-end Treasury yields will fall more than the market expects, while he is long copper and industrial metals. The conversation touches on housing policy, positive leading indicators, and global risk sentiment.
- Marko Papic is cautious on US equities near term and sees better opportunities overseas.
- He worries the 10-year Treasury yield is stuck near 4.15% and consumers need lower borrowing costs.
- He says the AI capex story is weaker than last year with doubts about adoption.
- He remains modestly bullish over 12 months, with an S&P 500 target of 7500.
- He agrees front-end Treasury yields could fall more than the market expects.
- He is long copper and industrial metals.
- He expects near-term volatility and a downturn, with housing policy a potential catalyst.
- He says more China growth is needed to be broadly bullish on risk assets.
Ideas
Cautious on US equities near term
Papic has turned cautious on US equities near term. He worries the 10-year Treasury yield is stuck near 4.15% and that consumers need lower borrowing rates to sustain the economy; the AI capex story is less compelling than last year with doubts about adoption; and global growth concerns need more improvement from China before he can be broadly bullish on risk assets. He expects volatility and some downturn over the next three months.
10-year yield stuck, needs resolution
He is worried the 10-year Treasury yield has been stuck near 4.15% since late October and does not like that setup. He is looking for resolution and thinks the 10-year yield still matters: it needs to come down a little—not too much—to support the economy and risk assets, especially because the US consumer needs lower borrowing costs.
AI capex story weaker on adoption doubts
Papic says the AI capex story does not look as great as it did last year and there are doubts about adoption, which reduces his confidence in the broader risk-asset outlook and makes him less willing to rely on AI capex alone to sustain the economy.
Long front-end Treasuries on Fed cuts
Papic agrees with Dave Cerbos that the front end of the Treasury curve will rally more—front-end yields will come down more aggressively—than the market expects as the Fed lowers rates. However, he warns that front-end rate cuts are not necessarily bullish if longer-term borrowing costs do not also come down.
Long copper and industrial metals
Papic says he is long copper and industrial metals, reflecting exposure to positive global growth/industrial signals, even as he hesitates to fully embrace the positive 10-year yield signal because the US economy has been cash-driven and the fiscal impulse to consumers is exhausted.
