Wells Fargo's Ohsung Kwon on Earnings Season, AI Capex, and Market Outlook

Earnings Season Outlook

• 💡 The upcoming earnings season has a lower bar, with expectations for decelerating growth.
• 📈 Despite potential Q4 weakness, optimism is expected to hold due to a rally and the potential for a reflation cycle and demand recovery.
• 🎯 Above-trend growth of 8% year-on-year is still considered strong, surpassing the usual 6% average.

AI Capex and Market Dynamics

• 🚀 AI capex is highlighted as a critical market aspect that must remain strong.
• ⚠️ It is considered too early to declare a peak in AI capex, despite market shifts regarding capex rewards.
• ⚡ Hyperscalers are unlikely to cut capex, especially amidst an AI arms race, suggesting AI capex will continue.

Market Reflation and Inventory Cycles

• 📊 The strategist favors the reflation side of the market, supported by fiscal tailwinds.
• 🛒 A potential restocking cycle is emerging, indicated by the first positive reading on the inventory cycle in three years.
• ⏳ Companies may adopt a wait-and-see approach regarding restocking until after potential tariff rulings.
• 🏭 Once tariffs are clarified, companies are expected to restock, which could kickstart the manufacturing cycle.