Trivariate Research's Adam Parker on the market: 'I find myself getting more cautious'
Speakers
Adam Parker
— Head of Quantitative Research, Houlihan Lokey
Summary
Adam Parker, founder and CEO of Trivariate Research, joins CNBC's Squawk on the Street to discuss his increasingly cautious view on the broad market, the importance of hyperscaler capex, and where he sees diversification. He remains positive on TSMC and overweight health care, sees gold as newly correlated with the AI trade, and warns that tech earnings expectations are high and back-half loaded. He also highlights housing-related stocks as potential beneficiaries of Fed balance sheet expansion, though he doubts near-term fundamental follow-through.
- Adam Parker says he is getting more cautious on the broad U.S. equity market.
- He sees hyperscaler capex as a key swing factor for the market and prefers TSMC's credibility.
- He remains overweight health care as a diversifier with achievable estimates.
- He warns tech earnings estimates are high and back-half loaded.
- He sees gold as correlated to the AI trade, reducing its diversification value.
- He says housing-related stocks could rip if the Fed expands its balance sheet via GSE MBS buying.
- He is uncertain how to interpret Fed rate cuts and whether they will help stocks.
Ideas
TSMC is key AI capex beneficiary
Adam Parker is positive on Taiwan Semiconductor (TSMC), calling it a sober, credible, and probably the most important asset on earth. He followed the company for a quarter century and believes investors give TSMC more credence than less proven AI voices, making it a key beneficiary and barometer of the hyperscaler capex cycle.
More cautious on broad U.S. equities
Adam Parker is getting more cautious on the broad U.S. equity market, despite mixed signals on direction, because sentiment is elevated, earnings estimates are high (15%+ for the year and 30% tech growth), the penalty for missing estimates is harsher than the reward for beating, and Fed rate cuts are less clearly helpful. He sees the bear case as high expectations, crowded positioning, and disappointment if estimates are missed.
Gold now correlates with AI trade
Adam Parker sees gold as correlated to the AI trade, a correlation he would not have asserted two years ago. He views this as a risk because investors may think gold diversifies their portfolio, but it may not be a reliable diversifier if it moves with AI-related risk assets.
Overweight health care for diversification
Adam Parker loves and has been pushing a health care overweight because he needs diversification where estimates are achievable. He acknowledges the call was wrong for the first six months of last year but says it looks better recently, and he prefers health care as a diversifier with achievable estimates given the harsh penalty for missing estimates.
Tech estimates risk second-half pressure
Adam Parker is cautious on tech because earnings estimates are high (30% growth) and heavily back-half loaded, while the penalty for missing estimates is much harsher than the reward for beating. He thinks things may be fine in January and April, but pressure mounts in the second half as stocks anticipate results.
Housing stocks rip on Fed expansion
Adam Parker would not fight Fed balance sheet expansion, especially if GSEs buy $200 billion of MBS as in the past, because housing-related stocks tend to rip in that environment. He names Lowe's, Home Depot, Floor & Decor, and Restoration Hardware as tangentially or directly exposed, though he cautions that fundamental housing demand may not show through by February or March.
