Bank of Korea, Australia trade data, Japan Nikkei

U.S. electric vehicle giant Tesla has long been an investor darling, but its Chinese rival BYD is increasingly coming into its own.

Last week, data from both companies showed BYD dethroned Tesla in the fourth quarter as the top EV maker globally, and also surpassed Tesla’s production for a second straight year in 2023.

Should investors stick with long-time favorite Tesla or buy into the up-and-coming BYD?

Here’s what the pros say.

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— Weizhen Tan

Stock market investors and analysts have jumped the gun on reality in estimating the immediate contribution of artificial intelligence tools to corporate profits, and in anticipating the likely pace of policy easing this year by the Federal Reserve, long-time Wall Street strategist and economist Ed Yardeni said Wednesday on CNBC’s “Squawk on the Street.”

“Not only are we seeing exuberance by investors, but certainly we’re seeing exuberance by analysts,” Yardeni said. “They dramatically increased their earnings expectations for Nvidia,” and that drove down the stock’s forward P/E multiple to the 20s from the 80s. “But look, it’s a hot stock, and it’s probably going to remain a hot stock as long as AI delivers. I think it’s going to take somewhat longer for AI to deliver as much as the market seems to expect.”

Yardeni said Nvidia’s performance in the 2020s reminds him of Cisco System‘s behavior in the 1990s. “The problem is the market gets irrationally exuberant about just how much can be achieved in a very short period of time,” in terms of AI’s contribution to earnings, Yardeni said. “And I am concerned about sort of a parabolic melt up.”

What’s more, investors are expecting too many interest rate cuts from the Federal Reserve in 2024, Yardeni said. “I’m in the camp that we’re not going into recession — third year in a row I’m saying that — and I’m in the camp that believes that we’re going to get two to three rate cuts probably in the second half of the year, not four to five, which is what the market’s been discounting.”

— Scott Schnipper

New York Federal Reserve President John Williams said Wednesday that inflation data is moving in the right direction but expects monetary policy to remain restrictive.

“My base case is that the current restrictive stance of monetary policy will continue to restore balance and bring inflation back to our 2 percent longer-run goal,” the influential central bank officials said in a prepared speech.

“I expect that we will need to maintain a restrictive stance of policy for some me to fully achieve our goals, and it will only be appropriate to dial back the degree of policy restraint when we are confident that inflation is moving toward 2 percent on a sustained basis,” he added.

Williams added that risks for the Fed remain “two-sided” as it could pull back too soon and risk higher inflation or hold on to long and hurt the economy.

—Jeff Cox

Equities ended 2023 on a strong note, with the S&P 500 rallying 24.2%, the Dow Jones Industrial Average gaining 13.7%, and the Nasdaq Composite advancing a breathtaking 43%.

But HSBC believes that global equities have now overshot their fundamentals.

“Although we remain constructive on equities strategically, we expect a temporary pause in the rally,” the firm wrote. “Global equities have overshot our machine learning (ML) model’s prediction by 10% over the last 3 months.”

With “markets increasingly priced for perfection,” the bank noted that stock valuations could be vulnerable to any hawkish signaling from the Fed or upside surprises in inflation.

HSBC added that amongst all the equity sectors, consumer staples, energy and health care currently look most attractive. Regionally, this extends to China, UAE and Switzerland.

— Lisa Kailai Han

After the strong year-end rally in 2023, the market will see some upside in 2024, albeit limited, says Barclays.

“We expect a higher, yet more sober, equity market in 2024. Post an exceptional year-end rally, the bar for positive surprises has been raised and Cyclicals look toppish,” said Barclays equity strategist Emmanuel Cau.

Barclays projects “healthy consolidation” for equities after the fast-paced equity rally. Cau added that valuations and earnings could potentially create some upside potential.

“Although the rate cuts priced in the US look too aggressive to us absent a deep recession, we agree that the direction of travel is towards lower rates,” Cau said.

— Hakyung Kim