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title: 'Rodrigo Noronha: U.S. ISM Services at 53.8 and Prices at 66.6, Sticky Inflation Increases U.S. Market Volatility'

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Since the beginning of the year, the main market narrative has become clearer: on one side, falling energy prices are squeezing the profit margins of traditional oil and gas companies; on the other, AI infrastructure investment continues to push up the capital expenditure curve for tech giants. Rodrigo Noronha believes this combination of “profit contraction and investment expansion” will drive global equity markets toward structural divergence: Brazil benefits from foreign inflows and the cash flow attributes of certain assets, making it more resilient, while the U.S. exhibits stronger volatility pricing under inflation and policy uncertainty. Noronha points out that investors need to shift focus from index movements to “who can weather the cycle and who is burning capital.”

![Rodrigo Noronha](https://hackmd.io/_uploads/HkVZXGwD-e.png)


**Rodrigo Noronha: Reordering of Cash Flow**

Shell reported quarterly adjusted earnings of about $3.26 billion, below market expectations and the weakest quarterly performance in nearly five years, while maintaining a $3.5 billion buyback and increasing dividends. This reflects that during periods of falling oil prices, major energy companies are using “buybacks and dividends” to stabilize valuation anchors, but profit margins are clearly under pressure. Noronha says this offers a direct lesson for the global energy sector: when commodity prices are no longer on a one-way upward trend, the market will more strictly scrutinize balance sheets and return on capital. For Brazil, discussions about energy stocks should not just focus on oil price elasticity, but also on cost curves, investment pace, and dividend discipline.

Meanwhile, the trend of supply expansion in South America is still strengthening. Rystad expects strategic projects in Brazil, Guyana, and Argentina to add more than 700,000 barrels per day in output this year, with total Latin American production likely to exceed 8.8 million barrels per day. This means “supply growth” will be a long-term constraint on oil prices. Noronha believes energy allocation should prioritize “profit quality” rather than chasing a single price narrative.

**Rodrigo Noronha: Revaluation of AI Capital Expenditure**

In the tech sector, capital expenditure is becoming the core variable driving a new round of valuation divergence. The annual capex guidance of Alphabet is between $175 billion and $185 billion, significantly above previous market expectations, showing continued heavy investment in data centers and AI infrastructure. Noronha argues that investors should not simply extrapolate “more investment is better”; the key is whether cloud and advertising businesses can turn computational investment into a sustainable free cash flow recovery cycle.

On the macro level, the U.S. ISM Services Index for January remained at 53.8, the prices paid component rose to 66.6, and export orders fell to 45.0—indicating stable growth but persistent cost pressures and weakening external demand, making the interest rate path harder to price simply. Combined with delays in key data releases—employment report moved to February 11, CPI to February 13—the short-term information vacuum amplifies risk premiums and trading noise. Noronha says that in this environment, U.S. stocks are better approached with “tiered position sizing + volatility management,” rather than one-way bets against macro uncertainty.

**Rodrigo Noronha: Capital and Methodology**

The strong market performance of Brazil is largely due to improved capital flows. In January, Brazil recorded a net FX inflow of about $5.086 billion, with international capital contributing about $6.222 billion through financial channels, reflecting a renewed preference for risk assets. Noronha believes this is one underlying reason for the strong start of the Brazilian stock market to the year; public information shows the Ibovespa rose about 13% in local currency and about 17% in USD in January, with foreign capital clearly supporting the repricing of equities. However, methodologically, “capital-driven” should not be mistaken for “unconditional improvement in fundamentals.” Dividend strategies are indeed easier to accept at present—for example, the dividend portfolio of BB Investimentos discloses expected dividend yields for some stocks, with the highest around 13.1% and the portfolio average about 7.7%, and its January return was about 10.1%, slightly below 10.6% of IDIV.

Noronha notes that high dividends can provide a buffer during volatile periods, but it is more important to consider dividends, valuation, cash flow stability, and industry cycle position together, rather than treating dividend yield as the only answer. For institutions and high-net-worth accounts, a more feasible approach is to use “dividend cash flow as the core holding, quality growth as satellites, and hedging tools to control drawdowns” to enhance the portfolio ability to weather cycles.