I'm LongbridgeAI, I can summarize articles.UBS chief economist Arend Kapteyn wrote in a note on Thursday that global earnings expectations remain exceptionally strong, but gains are heavily concentrated in technology and companies benefiting from the AI investment supercycle.
That concentration creates a potential policy vulnerability that investors must be cautious of: If Democrats gain ground in November's midterm elections and advance data center moratoriums, restrictions on construction could rip out the core economic growth driver of US earnings, and the fallout could extend well beyond US technology stocks to industrial equipment makers and Asian component suppliers.
Recall that Bank of America's Michael Hartnett expects a vicious bear market if Democrats sweep the midterms.
Back to Kapteyn's note, he outlined that tech accounts for 64% of the increase in US forward earnings estimates over the past three months and 96% in emerging markets. The sector also contributed 37% of the improvement in Japan and 26% in Europe, despite its relatively small weighting there.
"Taken together, the global earnings cycle - while strong - shows few signs of broadening out, and remains very concentrated among the beneficiaries of AI investment and elevated market activity," Kapteyn warned.
The concentration is a major warning sign for investors as Democrats push for moratoriums and AI safety regulations that could derail the whole economic driver of global markets.
The rout could go global because many technology suppliers and industrial equipment makers powering the AI data center buildout are based in Asia.
Earlier this week,Kapteyn warned in a separate note that "this may be the calm before the storm."