The Underlying

The Underlying #027

The Underlying — Mon, 03 Feb 2025 15:02:50 GMT

The markets were already stretched—an AI-fueled rally, a dollar that won’t stop climbing, and an economy trying to price in a second Trump administration. Then, Trump pulled the trigger. A 25% tariff on Canada and Mexico. A 10% hit on China. No warnings, no phased rollout—just immediate economic warfare. The market is now in full recalibration mode, as traders attempt to price in not just the tariffs, but the implications of a Trump economy where policy decisions arrive like flash crashes—unexpected, violent, and indisputable. Trump wants to prove a point, and he doesn’t care how much bleeding happens in the process. The tariffs were never about trade deficits or manufacturing jobs—they’re about dominance, leverage, and setting the tone for the next four years. If the market thought Trump might hold off, it was wrong. And now, everyone knows that this is just the beginning.

QQQ Key Levels

Bullish above 520 → 535

Uncertain between 520 → 505

Bearish below 505 → 498

Tariff Terrorism

Donald Trump’s latest tariffs aren’t just policy; they’re theater, power projection, and a reminder that he plays by his own rules. A 25% tariff on imports from Canada and Mexico and a 10% levy on China sent shockwaves through global markets, rattling risk assets and reinforcing what’s been clear since 2016—Trump is going to wield economic weapons decisively. The market’s immediate reaction was exactly what you’d expect: the U.S. dollar surged, Chinese stocks tumbled, oil prices climbed, and equities entered a state of panic. But this isn’t just about trade policy. It’s about domination through uncertainty.

Trump didn’t just introduce the possibility of tariffs in his campaign; he put them front and center. And now, right at the start of his new term, he’s pulling the trigger. The goal isn’t simply economic leverage—it’s psychological. Markets, business leaders, and foreign governments now know that this isn’t just posturing. The tariffs are here, and there’s no reason they can’t double overnight.

Frontloading the pain is a classic Trump maneuver. The market was flying high off AI euphoria, and now it has to reckon with a hard dose of reality. These tariffs drive up production costs, disrupt global supply chains, and create immediate inflationary pressure. Energy markets are already reacting—tariffs on Canadian crude threaten to drive up gasoline prices just as consumers are starting to feel confident again. Meanwhile, retaliatory tariffs from China are all but guaranteed, which could put further pressure on U.S. exports. The market has to price in the chaos, and Trump is betting that it will break before he does.

The Market’s New Taper Tantrum

If you remember 2013’s Taper Tantrum, you already know how this plays out. Back then, the Federal Reserve merely suggested it might slow down quantitative easing, and the market threw a full-blown fit. Stocks sold off, yields spiked, and the Fed was forced to ease back on its plans. The market made it clear: any policy action that hurts asset prices must be punished.

Now, we’re staring down the same dynamic, but the stakes are bigger. The single greatest threat to equities isn’t just tariffs—it’s the possibility that Trump gets serious about deficit reduction. Markets have been fueled by government spending for years, and any real attempt to cut the deficit would slow the economy down hard. Trump knows this, but the market can’t take the chance that he might actually follow through.

This is where things get interesting. If Trump signals he’s willing to cut spending, the market’s response will be immediate: sell first, ask questions later. The best way to keep Trump from following through is to make sure the Dow crashes every time the words “spending cuts” are mentioned. This is what happened in 2018 when the market tanked after Jerome Powell signaled rate hikes, forcing Trump to go on the offensive against the Fed. Expect something similar here.

The paradox of Trump’s economic policy is that he wants to be seen as fiscally responsible while also keeping markets happy. But there’s no scenario where cutting the deficit doesn’t hurt growth, and there’s no scenario where a weaker economy doesn’t mean lower stock prices. The market isn’t just reacting to the immediate pain of tariffs—it’s getting ahead of the possibility that Trump might actually tighten the fiscal screws.

Earnings Roulette and the AI Reality Check

Even without the tariffs, this week was always going to be a defining moment for the market. We are heading into one of the heaviest earnings weeks of the quarter, featuring some of the biggest names across tech, AI, e-commerce, pharma, and semiconductors.

Palantir, Google, AMD, and Amazon are at the center of the AI trade, and their earnings will be the first real test of whether AI hype can hold up under economic pressure. Palantir, in particular, has ridden the AI defense boom, but now it has to show sustained revenue growth beyond government contracts. Meanwhile, Google and Amazon need to prove that AI-driven efficiency actually translates into real margin expansion, not just flashy product announcements. If these companies miss, the AI trade could take its first real hit of the year.

Consumer stocks like Disney, Estée Lauder, and Clorox will offer a critical look at how confident the average consumer is feeling. If companies start talking about pricing pressures, weaker demand, or changing consumer habits, it could signal that inflation is taking a deeper toll than expected. Tariffs will only amplify those concerns, especially in retail and consumer staples.

Semiconductors are the wildcard. AMD, Qualcomm, and SiTime are set to report, and their results will tell us whether the chip boom is still intact or if the AI cycle is already showing signs of overheating. Nvidia has carried the entire semiconductor rally on its back, but that only works if other chipmakers prove that demand is broad-based. If there’s even a whiff of weakness, the AI bubble could start leaking air.

The risk heading into earnings isn’t just the results themselves—it’s that tariff uncertainty is now a new factor in every company’s outlook. If executives start guiding lower because of trade concerns, it could set off a much deeper equity selloff.

Trump’s Market Volatility Machine

This is what makes Trump different from any other political force in modern markets: he introduces volatility as a feature, not a bug. He doesn’t operate like previous administrations, where policy decisions are signaled well in advance and markets have time to adjust. Trump keeps investors, businesses, and foreign leaders guessing at all times, which means they have to price in uncertainty.

Markets hate unpredictability. That’s why volatility is spiking right now—not just because of tariffs, but because there’s no clear roadmap for what comes next. Trump could double tariffs tomorrow. He could escalate trade wars without warning. He could pivot to deficit reduction in a way that causes a full-blown market panic. There is no stable ground, and that’s exactly how he likes it.

It’s not just about economic policy—it’s about controlling the narrative. Trump wants to make sure that when the market moves, it moves in response to him. If stocks go down, he wants it to be because of his tariffs, his trade war, his economic decisions. This level of influence over the market is something few politicians ever achieve, and he’s going to use it to his advantage.

The market isn’t just reacting to what Trump is doing—it’s reacting to the fact that it has no idea what he’ll do next. That’s the real risk, and it’s not going away anytime soon.

Brace for impact. Volatility isn’t leaving anytime soon.

DeepSeek’s Echo – The AI Shockwave Still Reverberates

Last week, DeepSeek dropped a bomb on the AI industry, and the dust still hasn’t settled. A high-performance, low-cost AI model out of China challenged the dominant U.S. AI players, threatening the economic moats of Nvidia, OpenAI, and every hyperscaler betting big on AI infrastructure. This week, the implications of that shock are colliding headfirst with a trade war escalation, and the AI sector is facing its first major test under real economic stress. At the center of this are AMD, Google, and Amazon—all set to report earnings in the shadow of DeepSeek’s disruption. Nvidia has been the undisputed winner of the AI boom, but its valuation assumes an insatiable demand for AI chips. If DeepSeek’s approach gains traction, AI compute may no longer be a high-margin, hardware-intensive game.

Investors will be watching AMD’s data center numbers closely, looking for any signs that hyperscaler demand is softening or that cloud providers are hesitating on CapEx investments. But the biggest unknown is how DeepSeek fits into the escalating U.S.-China tech war. If China retaliates against Trump’s tariffs with AI export restrictions, chip bans, or aggressive domestic subsidies for AI development, we could be looking at the beginning of an AI arms race on a scale we haven’t seen before. The U.S. has spent years cutting China off from high-end semiconductor technology, but DeepSeek’s model proves that China can still compete in software and algorithms. The question now is whether the U.S. tries to shut that door entirely, and how China responds.

For investors, the AI trade is no longer about who builds the best models—it’s about which companies can sustain their economic power in an era of geopolitical uncertainty. If tariffs force China to become more self-sufficient in AI, the U.S. dominance in AI infrastructure could erode faster than anyone expected. And if DeepSeek’s models prove they can compete with OpenAI, Nvidia’s premium pricing power could be in serious jeopardy. This is the AI market’s first real stress test. The hype cycle was easy when rates were low and competition was minimal. Now we’re about to find out what AI adoption looks like when margins are squeezed, trade wars intensify, and new players emerge to challenge the incumbents. The tech sector just got a whole lot more interesting.

Disclaimer:

We provide financial opinions, not advice. The information We share is based on personal analysis and should not be considered a recommendation. I am not liable for any losses incurred from reliance on my opinions. Consult a qualified financial advisor before making investment decisions. The Provider does not hold any responsibility or liability for the accuracy, timeliness, or suitability of the information provided, and shall not be held accountable for any direct or indirect damages, losses, or expenses arising from the use of or reliance on the information presented. By accessing or using the information provided by the Provider, you acknowledge and agree to this disclaimer and release the Provider from any legal or financial liability arising from your use of such information. This disclaimer is subject to change without notice and applies to the current version of information provided by the Provider. By continuing to access or use the information provided by the Provider, you signify your understanding and acceptance of this disclaimer. If you do not agree with the terms of this disclaimer, please refrain from using the information provided by the Provider.

The Underlying #026

The Underlying — Mon, 27 Jan 2025 14:50:32 GMT

This week could very well be the turning point for markets as a mix of major tech earnings, Chinese economic data, and the Federal Reserve’s rate decision dominate the headlines. Amidst a sea of uncertainty, there’s a compelling case to go long here—especially for traders looking to take advantage of volatility and potential rebounds in key sectors.

The market started the week with a sharp selloff in the tech sector, triggered by a bombshell announcement from Chinese AI firm DeepSeek. Their release of a high-performing, budget-friendly AI model has shaken the foundations of the U.S. tech industry. DeepSeek’s innovation puts the current AI gold rush into question, raising doubts about the necessity of spending billions on infrastructure like Nvidia’s chips. While Nvidia’s $3.5 trillion valuation may face scrutiny, the broader market stands to benefit from the democratization of AI, enabling smaller players to adopt cutting-edge tools at a fraction of the cost. This could be a tailwind for industries outside of tech—think manufacturing, retail, and even healthcare, as they find new ways to integrate affordable AI solutions.

In addition to this, China’s PMI data showed a concerning contraction in manufacturing, falling to 49.1. While the decline could be a seasonal anomaly tied to the Lunar New Year, weak new orders, foreign demand, and pricing pressure highlight ongoing structural challenges. The Yuan’s slide adds further weight to concerns over China’s recovery narrative, but this weakness could signal future easing from Beijing—a potential catalyst for global risk assets, particularly commodities.

QQQ Key Levels

Bullish above 520 → 535

Uncertain between 520 → 505

Bearish below 505 → 498

Will We See a More Reserved Fed This Week?

The real focus this week (outside of earnings) is on the U.S. Federal Reserve’s rate decision on Wednesday. The consensus points to a pause in rate cuts, with Chair Jerome Powell expected to emphasize a data-dependent approach moving forward. While the Fed’s immediate path seems clear, the backdrop of a stronger labor market and persistent inflation adds layers of complexity. Trump’s return to the presidency has brought renewed pressure on the Fed to slash rates, but Powell’s commitment to independence suggests he’ll stay the course. Markets, meanwhile, are watching the press conference closely for clues on how the Fed will navigate the remainder of 2025.

The uncertainty swirling around DeepSeek’s announcement, Chinese data, and the Fed’s decision presents a unique opportunity for traders willing to take calculated risks. While the tech sector faces scrutiny, the potential for lower-cost AI to unlock value across other industries could be a long-term boon. This week’s earnings from Meta, Apple, Tesla, and Microsoft will likely highlight AI’s continued importance, providing a clearer picture of how these firms plan to maintain leadership amid increasing competition. A pause in rate cuts paired with Powell’s balanced messaging could reassure markets that the Fed is maintaining control over inflation without tipping the economy into recession. Investors anticipating this outcome might find opportunities in sectors that benefit from stability—financials, industrials, and even consumer discretionary.

The weak PMI print could prompt Beijing to announce additional stimulus measures, boosting risk appetite globally. Commodities and EM equities could stand to gain if China signals stronger policy support. The current tech-led selloff feels overdone, given the broader implications of AI adoption. The narrative may quickly shift as markets digest this week’s data and earnings. This is a critical juncture for the markets. The fear-driven selloff in tech may have created an entry point for savvy investors who see the bigger picture. The mix of improving AI access, potential easing in China, and the Fed’s steady hand could catalyze a shift in sentiment. Don’t miss this opportunity—position long, and be ready to ride the wave of optimism as the week unfolds. Trade smart, and watch for Powell’s tone on Wednesday—it could set the stage for the rest of 2025.

DeepSeek’s R1 and the Dawn of a New Day

The tech sector began this week under pressure after an industry-shaking announcement from Chinese AI firm DeepSeek. Their release of a high-performing, budget-friendly AI model has sent shockwaves through markets, forcing a reevaluation of big tech’s dominance and exposing vulnerabilities in its heavily capitalized moats.

DeepSeek’s breakthrough challenges the narrative that high-performance AI must come at extraordinary cost. By leveraging advancements like memory-efficient architectures, multi-token predictions, and modular Mixture of Experts models, DeepSeek has made reasoning—a cornerstone of advanced AI—accessible at consumer-level hardware prices. This not only puts the future of AI into sharper focus but raises serious questions about whether firms like Nvidia, with its $3.5 trillion valuation, can sustain their current trajectories.

The implications are massive. Reinforcement learning just *works*. Lower-cost, high-quality AI opens the door for industries beyond tech—healthcare, retail, and manufacturing—to implement transformative tools without breaking the bank. This democratization could unleash a tidal wave of productivity and innovation across sectors that were previously priced out of the AI revolution.

But the DeepSeek announcement also raises a red flag for U.S. tech giants. For years, firms like OpenAI and Nvidia have positioned themselves as indispensable players in the AI ecosystem, investing billions to create impenetrable barriers to entry. DeepSeek’s announcement is a reminder that these barriers may not hold against the momentum of Chinese competition. As Lina Khan aptly pointed out, monopolistic practices haven’t spurred innovation as much as they’ve calcified power—DeepSeek’s entry is proof that the moat isn’t as deep as many assumed.

The Bigger Picture: A New Era of Opportunity

For traders, this week’s events signal more than just a tech selloff. They reveal a broader opportunity in sectors poised to benefit from AI democratization. Industries that have struggled to compete due to cost barriers now stand a chance to adopt cutting-edge tools, potentially driving a surge in productivity and growth.

As investors consider the implications, it’s clear that this is a moment to go long—not just on tech but on the broader market. The broader market, from manufacturing to logistics, could see a significant boost as DeepSeek’s innovations reduce the cost of AI adoption. These sectors are ripe for disruption, and this week’s developments may accelerate their transformation. While China’s manufacturing PMI data showed a contraction, this could pave the way for Beijing to announce further economic support. This would be a bullish catalyst for commodities, emerging markets, and global growth. With the Federal Reserve’s rate decision this week, markets may find stability if Powell delivers a balanced, data-driven message. A steady hand from the Fed could reassure investors and temper fears of over-tightening. While the tech sector faces short-term scrutiny, earnings from firms like Meta, Tesla, and Microsoft this week could remind investors of the sector’s long-term resilience and adaptability.

DeepSeek’s Warning: Innovation Without Inclusion

While the democratization of AI has broad benefits, it also exposes the fragile underpinnings of our current economic structure. The fear isn’t just that companies like Nvidia will face pressure—it’s that the value of human labor itself could be challenged.

If AI tools become ubiquitous and cheap, what happens to industries built on human expertise? The analogy to horses replaced by cars is often used, but there’s a critical difference: cars needed drivers and buyers. In a future where AI powers a closed-loop economy of “robots + raw materials + energy → more robots,” the demand for human labor—and consumption—could shrink dramatically.

This isn’t just speculation. It’s the logical outcome of systems that prioritize capital efficiency over inclusion. Without meaningful efforts to redistribute the gains from AI through mechanisms like universal basic income or labor reskilling, we risk entrenching a new kind of economic feudalism—where the few thrive while the rest are left behind.

The Path Forward

DeepSeek’s announcement isn’t just a story about AI—it’s a turning point for markets, labor, and innovation. As we move into this new era, the focus must shift to building systems that balance efficiency with inclusivity. The democratization of AI should not come at the expense of the workforce. Instead, it should be an opportunity to redefine work, productivity, and value in a way that benefits everyone.

This is the time to think big and act boldly. For traders, the fear-driven selloff in tech may be creating a golden opportunity to position long. For innovators, it’s a chance to build systems that truly democratize access to AI. And for policymakers, it’s a moment to rethink the structures that will define this new age of intelligence.

The new era is here— invest in its potential.

Beyond Nvidia: The Next AI Investment Horizon

DeepSeek’s latest release isn’t just a tech breakthrough—it’s a wake-up call for investors still focused on Nvidia as the cornerstone of AI growth. By delivering high-performance models at a fraction of the cost, DeepSeek has shown that the future of AI won’t be limited by massive hardware dependencies. This isn’t the beginning of the end for Nvidia, but it does mark a turning point where the focus shifts from infrastructure to application.

For years, Nvidia’s dominance has been driven by its essential role in the compute-heavy AI boom. Hyperscalers spent billions on GPUs, cementing the company as the clearest winner of the AI race. But DeepSeek’s models, with their cost efficiency and ability to run on smaller-scale hardware, reveal a broader truth: the AI market is maturing, and opportunities now lie in the companies enabling AI adoption across industries.

Take Snowflake and Confluent, for instance. These data infrastructure players are critical for managing the growing flood of information that AI generates and consumes. Or companies that streamline the complex workflows of developing AI-powered software. Companies like UiPath are bringing automation and optimization into industry and into process management—areas far removed from AI’s big-tech roots but no less transformative.

This shift doesn’t mean Nvidia is obsolete—far from it. Efficiency gains may increase overall AI adoption, sustaining demand for GPUs even as individual workloads become less hardware-intensive. But Nvidia’s valuation already assumes perfection. The real growth story now is in the ecosystem of tools, platforms, and specialized solutions enabling AI’s expansion into new markets.

For investors, the message is clear: it’s time to look beyond the hardware. The real value lies in the companies driving AI’s practical adoption—those building the bridges between cutting-edge technology and everyday utility. The next wave of opportunity won’t be about who builds the fastest chips; it’ll be about who can make AI indispensable to businesses everywhere.

Disclaimer:

The Underlying #025

The Underlying — Tue, 21 Jan 2025 13:30:55 GMT

Well, it’s certainly been a whirlwind of a week. Days after launching his own memecoin, which soared to $75 before settling near $32, President Trump was sworn in for his second term. The memecoin, branded as $TRUMP, has sparked significant regulatory and ethical concerns while making billions in market value for his business affiliates. Meanwhile, Melania Trump launched two tokens of her own, and the cryptocurrency market saw Bitcoin hit a record high of $109,071 before retreating.

Amidst the chaos, Trump signed a flurry of executive orders, including one to withdraw from the World Health Organization, end birthright citizenship for children of undocumented immigrants, and revoke several Biden-era policies. The volatility and uncertainty are palpable, with markets reacting strongly to these developments. Elsewhere, Elon Musk made headlines with his usual onstage theatrics, as Tesla shifts its focus toward robotics and autonomy under his leadership. In other news, Netflix (NFLX), Johnson & Johnson (JNJ), United Airlines (UAL) and General Electric (GE) are among the major earnings reports this week.

In this issue, we’ll break down how the TikTok ban is impacting Meta Platforms (META), dive into the high stakes surrounding United Airlines’ (UAL) earnings, and explore the latest developments in Tesla’s bold pivot into embodied AI and its implications for the market. With volatility surging and uncertainty at its peak, what matters most this week? Let’s dive in.

QQQ Key Levels

Bullish above 515 → 525

Uncertain between 510 → 505

Bearish below 505 → 498

Zuck Sucks Up To Trump As TikTok Finds Itself Racing Against The Clock

Meta Platforms (META) finds itself at the center of the storm as the TikTok ban saga unfolds, directly impacting its stock price and investor sentiment ahead of its January 29 earnings report. With the Supreme Court upholding the TikTok ban and President Trump signaling a potential 75-day delay via executive order, the stakes are high for Meta, which has been both a beneficiary and a target of scrutiny in the social media space.

On Friday, January 17, Meta closed at $612.77, and the implied volatility (IV) for the January 31 options was 61%, reflecting the elevated uncertainty surrounding the TikTok situation. The market’s implied move for Meta ahead of earnings is 13.31%, translating to an $81.57 swing in either direction, with a projected range of $531.20 to $694.34. This signals heightened expectations for both volatility and a potentially significant reaction to earnings.

The TikTok Ban: A Double-Edged Sword

The TikTok ban has been a wildcard for Meta. On the one hand, the removal of its biggest competitor in the short-form video space could bolster Instagram Reels and drive user growth. On the other hand, Meta continues to face backlash from frustrated TikTok users, many of whom have directed their ire at Mark Zuckerberg, accusing Meta of benefiting from the ban. Adding to the complexity, Meta’s historical data-sharing practices with Chinese companies have resurfaced, highlighting the thin line it walks between opportunity and controversy.

Analysts are divided on how the TikTok ban will ultimately play out for Meta. Some argue it provides a unique window to capture displaced creators and advertisers, while others caution that the ongoing regulatory spotlight could dampen any near-term gains.

Earnings Expectations and Guidance: The Pressure Is On

Meta’s Q4 earnings report will be a critical moment to address these uncertainties. Investors will be looking closely at:

1. Reels Performance: Has Instagram Reels successfully captured market share from TikTok, or is the platform still struggling to keep pace?

2. Ad Revenue Growth: With TikTok’s future in limbo, will advertisers shift their budgets to Meta, or will the broader macroeconomic slowdown weigh on ad spend?

3. Generative AI and Efficiency Gains: Meta’s push into AI and its focus on cost discipline under its “Year of Efficiency” mantra will be key narratives for the earnings call.

4. Outlook for 2025: Any guidance that touches on the potential impact of a prolonged TikTok ban or regulatory pressures will be closely scrutinized.

What to Watch Next

The elevated IV reflects the market’s uncertainty, and the implied move suggests big swings post-earnings. If Meta delivers strong guidance, highlights gains in Reels, and effectively manages the regulatory narrative, the stock could push toward the upper bound of its implied range. Conversely, any signs of weakness or unexpected headwinds could trigger a drop toward the lower bound.

For now, investors are bracing for the earnings report, with Meta’s ability to navigate the TikTok drama and capitalize on the opportunity in the spotlight. With volatility surging and emotions running high, January 29 could mark a defining moment for the tech giant.

Subscribe now

Can United Airlines Soar Post-Q4 Earnings? A Volatile Flight Path Ahead

United Airlines (UAL) has been flying high, with shares up over 170% in the last year, significantly outpacing its industry peers like Delta (DAL) and American Airlines (AAL). With Q4 earnings set to be reported on January 21 after market close, the question remains: can UAL continue its impressive ascent, or is turbulence ahead?

On Friday, January 17, UAL closed at $107.38, and the implied volatility (IV) for its January 26 options soared to a staggering 118%, reflecting heightened market uncertainty. The options market is pricing in a 16.62% implied move, translating to a potential swing of $17.85 in either direction, with a projected range of $89.53 to $125.23 by expiration. For a stock already riding high, the stakes couldn’t be higher.

Q4 Expectations: Strong Earnings but a Tough Bar to Clear

Analysts expect Q4 adjusted EPS to rise 50.5% year-over-year to $3.01, with revenue projected to grow 5.6% to $14.39 billion. UAL’s track record of nine consecutive quarters of earnings beats offers confidence.

Notably, UAL has consistently delivered an average earnings surprise of 26.91% over its last four reports, and the airline has capitalized on robust air travel demand and operational efficiency to fuel growth.

However, the pressure is on: Wall Street will be watching closely to see if UAL can exceed already lofty expectations and deliver guidance that justifies its recent rally.

Fuel for the Takeoff: Valuation and Market Position

Despite its stellar rally, UAL trades at just 8.5x forward earnings, a deep discount to the broader S&P 500’s 22.4x multiple. This valuation provides room for further upside, especially if UAL confirms the bullish outlook analysts expect for FY25, with earnings projected to rise over 20% to $12.56 per share.

What’s fueling this optimism? Analysts point to strong demand for premium, corporate, and transatlantic travel as tailwinds, bolstered by UAL’s strategic hub locations and expanding market share. Recent upgrades include:

Bank of America raising its price target to $120 from $100.
Evercore ISI boosting its target to $135 from $85, citing robust post-election travel demand and strong holiday season performance.

Risk Factors: Fuel Costs and Volatility

One wildcard is fuel costs, which have historically been a significant driver of UAL’s margins. While lower fuel prices helped boost profitability in Q3, any uptick in energy costs could pressure future earnings. Additionally, the elevated implied volatility reflects market concerns about whether UAL can maintain its momentum amid macroeconomic uncertainty.

What to Watch in Q4 and Beyond

For investors, key metrics to monitor in the earnings report include:

1. Passenger Revenue Growth: Can UAL sustain double-digit growth in premium and corporate travel?

2. Profit Margins: Will operating efficiencies offset any potential rise in costs?

3. Guidance for FY25: With EPS expected to rise 20%, clarity on how UAL plans to achieve this will be critical.

4. Load Factor and Capacity Utilization: Metrics that could reveal whether demand is cooling or staying resilient.

The Bottom Line

Ahead of Q4, UAL analysts maintain a consensus price target of $128.06, suggesting nearly 19.3% upside from Friday’s close. With robust air travel demand and a valuation that still leaves room for growth, UAL remains one of the most compelling names in the airline sector. However, with IV signaling high volatility and implied moves suggesting big swings, investors should buckle up for a bumpy ride.

Will UAL’s Q4 earnings be enough to power the stock above $125, or will it face turbulence? We’ll know soon enough. For now, the runway is clear for takeoff.

Per Aspera Pecunia Ad Astra: Musk’s Net Worth Moons as Trump Talks of Going to Mars

Tesla continues to dominate the EV market but is pivoting toward autonomy, robotics, and software-as-a-service (SaaS)-like margins. The Q4 2024 report highlights record deliveries of 495,570 vehicles, though it marks Tesla’s first annual delivery decline as it shifts focus to products like the Cybertruck, Optimus robot, and autonomous Cybercab.

For 2025, Tesla targets 20%-30% growth in vehicle sales, with new affordable EVs and advancements in full self-driving (FSD). Analysts predict Q4 earnings of $0.76/share (+7% YoY) and revenue of $27.16 billion (+8%). Tesla’s long-term growth potential in “embodied AI” (robotics and autonomy) fuels optimism, but the market remains skeptical about near-term FSD commercialization.

Elon Musk’s Role in the Trump Administration

Musk’s advisory role as co-chair of the Department of Government Efficiency (DOGE) under President Trump grants him unprecedented access to influence policies on autonomous vehicles, deregulation, and federal streamlining. However, this brings potential conflicts of interest:

If Musk formally joins the federal government, conflict-of-interest laws could force him to sell his Tesla, SpaceX, and X holdings, possibly triggering a massive share dump. Under Section 1043, Musk could defer capital gains taxes (~$60B) by reinvesting in diversified funds. A sale of Musk’s $299B Tesla stake could cause short-term stock pressure, weakening investor confidence in Tesla’s leadership.

While Trump benefits from Musk’s innovation and influence, their relationship is inherently transactional. Tensions could arise as Musk’s growing spotlight competes with Trump’s. Geopolitical risks (e.g., U.S.-China relations) and Musk’s international ventures could strain this alliance.

Risks:

Political Overhang: Musk’s involvement in politics introduces volatility for Tesla, with risks tied to regulatory changes (e.g., potential repeal of EV tax credits).
Leadership Perception: Investor sentiment is deeply tied to Musk’s vision. A perceived or actual distancing from Tesla could harm its valuation.
Execution Challenges: Scaling FSD, Cybercab, and Optimus while maintaining EV profitability requires significant investment and technological breakthroughs.

Opportunities:

Autonomous Growth: Deregulation under Trump could fast-track autonomous vehicle approvals, creating significant upside for Tesla’s Cybercab and FSD businesses.
New Revenue Streams: Robotics and embodied AI (e.g., Optimus) could redefine Tesla’s competitive moat and boost margins.
Market Leadership: Tesla’s dominance in EVs positions it to capitalize on first-mover advantages in autonomy and robotics.

Valuation & Outlook

Analysts estimate Tesla’s 2025 earnings at $11.88/share (+15.2% YoY) and project long-term growth driven by autonomy and robotics. By 2030, revenues could reach $240B with net margins expanding to 18.5%, supporting a $850 price target (16.5% CAGR).

However, Tesla’s valuation—buoyed by optimism around intangible assets—makes it vulnerable to short-term shocks. Musk’s potential share sale and political entanglements amplify this risk, creating heightened volatility in the near term.

The Bottom Line

Tesla remains a high-risk, high-reward investment. Its pivot to robotics and autonomy offers transformative potential, but risks tied to Musk’s political role, potential share divestment, and execution challenges loom large. For long-term investors willing to endure volatility, Tesla’s innovative edge and strategic positioning could still yield substantial returns.

Disclaimer:

The Underlying #024

The Underlying — Mon, 13 Jan 2025 13:31:46 GMT

This week, markets are poised to navigate a complex landscape shaped by pivotal economic indicators and unforeseen natural calamities. Anticipation surrounds the upcoming Producer Price Index (PPI) and inflation data, with investors keenly analyzing these metrics for insights into potential Federal Reserve policy adjustments. Concurrently, the cryptocurrency sphere is experiencing heightened volatility, influenced by a robust U.S. dollar and the U.S. government’s strategic liquidation of substantial Bitcoin holdings. Adding to the market’s unease, the devastating wildfires in Los Angeles have not only led to significant human and property losses but are also disrupting economic activities, particularly within the entertainment sector. As these diverse factors converge, stakeholders are bracing for a week marked by uncertainty and heightened market sensitivity.

QQQ Key Levels

Bullish above 522 → 526

Uncertain between 510 → 505

Bearish below 505 → 498

This Week In Macro

Tuesday, January 14: The Producer Price Index (PPI) MoM data will be released at 8:30 AM EST, with expectations of a 0.3% increase, slightly lower than the prior reading of 0.4%.

Wednesday, January 15: Inflation takes center stage with several key data points at 8:30 AM EST:

Core Inflation Rate MoM is forecasted at 0.2%, down from 0.3% previously.
Inflation Rate YoY is anticipated to tick up slightly to 2.8% from the prior 2.7%, reflecting ongoing inflationary pressures.

Thursday, January 16: A big day for economic data:

Retail Sales MoM (8:30 AM EST) is expected to grow by 0.5%, slowing from 0.7% in the prior month.
Over in China, at 9:00 PM EST, GDP Growth Rate YoY is forecasted to accelerate to 5.1% from 4.6%, while Industrial Production YoY is expected to hold steady at 5.4%.

Friday, January 17: U.S. housing data will take the spotlight with:

Building Permits (Preliminary) forecasted at 1.46 million, slightly higher than the prior 1.493 million.
Housing Starts, expected at 1.31 million, marginally up from the previous reading of 1.289 million.

One (Bird) Flu Over the Cuckoo's Nest

The resurgence of H5N1 bird flu, with confirmed outbreaks in Maryland and Delaware, is adding a layer of uncertainty to an already complex market environment. While officials emphasize that poultry and eggs remain safe for consumption , the virus’s rapid spread among bird populations has already impacted agriculture stocks like Cal-Maine Foods (CALM), which reported soaring earnings tied to rising egg prices amidst reduced supply. This dynamic underscores how the outbreak could ripple through related markets, including consumer staples and pharmaceuticals.

Market implications extend beyond food supply chains. Vaccine developers like Moderna (MRNA) are ramping up efforts to prepare H5N1-specific solutions, including mRNA technology that could address future mutations. Meanwhile, companies in sanitation and healthcare, such as Clorox (CLX) and Johnson & Johnson (JNJ), may see shifts in demand as public health measures intensify. Historical trends suggest that heightened uncertainty around potential pandemics often fuels volatility in affected sectors, making it essential for investors to assess their exposure.

Subscribe now

While the immediate risk of widespread human transmission remains low, health experts are concerned about the virus’s potential to mutate, which could increase its transmissibility. This evolving situation requires close monitoring. Whether H5N1 remains a regional agricultural issue or escalates into a broader public health concern, its market impact will hinge on factors like vaccine availability, government response, and consumer sentiment. As with any unfolding event, staying informed is key to navigating potential volatility.

Will 10s Go To 5 In 2025?

The 10-year Treasury yield is inching toward the psychologically significant 5% mark, raising alarms across financial markets. While this isn’t uncharted territory, it signals mounting pressures on stocks, borrowing costs, and fiscal stability. Historically, rising yields have been associated with equity market declines, and recent history offers a stark reminder: when the yield last hit 5% in October 2023, the S&P 500 dropped to a five-month low.

Much of this volatility can be traced to concerns over fiscal policy and inflation. President-elect Donald Trump’s economic agenda, which includes expansive tax cuts and tariffs, has stoked fears of higher inflation and ballooning deficits. These policies may require increased Treasury issuance to cover spending gaps, potentially flooding the market with bonds and driving yields higher. The Federal Reserve’s stance has also shifted; with inflation data reaccelerating and wage pressures persisting, markets have dialed back expectations for rate cuts in 2025.

For investors, this environment presents challenges and opportunities. Higher yields mean increased borrowing costs for consumers and businesses, which could pressure sectors reliant on cheap capital, such as housing and tech. However, rising rates also create opportunities in fixed-income markets, particularly for those seeking higher returns on safer investments like Treasury bonds. The futures market reflects these mixed sentiments, with a notable increase in put options activity, signaling bearish bets on bond prices and expectations for higher yields.

While a 5% 10-year yield is certainly not guaranteed, it remains a plausible outcome given the current fiscal and monetary backdrop. As uncertainty grows, investors must weigh the implications of rising yields on equities, credit markets, and broader economic activity. Whether this is the start of a structural shift or a temporary adjustment depends largely on how fiscal policies evolve and whether inflation pressures persist. For now, staying alert to these dynamics is crucial to navigating the potential market turbulence ahead.

BOJ Hinting At A Hike

The Bank of Japan (BoJ) is signaling a potential rate hike as core inflation reached 2.7% in November, surpassing its 2% target. Wage increases are spreading across industries, including smaller firms, supporting the BoJ’s belief in sustained inflation. These developments, coupled with the yen’s depreciation from 140 to 158 per dollar since September, have heightened inflationary pressures by driving up import costs. The BoJ’s January 23–24 policy meeting will weigh these factors and new economic forecasts to decide whether to raise the short-term interest rate from its current 0.25%.

Market participants are closely watching the BoJ’s moves, as a rate hike could ripple through global markets. Higher Japanese interest rates might attract capital back to Japan, influencing bond yields and currency dynamics worldwide. This focus extends to the AUD/JPY currency pair, which is hovering around 98.00. While the BoJ considers rate hikes, the Australian dollar (AUD) faces its own headwinds, including a projected rate cut by the Reserve Bank of Australia (RBA) and weak Chinese inflation data that signals deflationary risks. These factors, combined with uncertainty over the BoJ’s next steps, contribute to the currency pair’s volatility.

Despite optimism about wage growth and inflation sustainability, the BoJ is navigating external uncertainties, including U.S. trade policies under the incoming Trump administration. These policies could impact Japan’s export-reliant economy, as highlighted by concerns from Japanese firms about potential volatility. The central bank remains cautious about pushing up borrowing costs too soon, as global risks continue to cloud the outlook.

Thanks for reading The Underlying! This post is public so feel free to share it.

Investors globally are monitoring the BoJ’s decisions, as any rate hike would mark a significant departure from Japan’s long-standing ultra-loose monetary policy. If the BoJ acts, it could signal broader monetary adjustments across major economies grappling with inflation and wage growth.

BTC Slides as the Dollar Rides

The cryptocurrency market is grappling with significant volatility, driven by a strengthening U.S. dollar and a U.S. government decision to sell a substantial portion of its bitcoin holdings. Bitcoin (BTC) recently fell below $92,000, marking a new low for 2025 and moving further from December’s peak of $108,000. Some analysts attribute this decline to the U.S. Dollar Index (DXY) reaching a two-year high of 109, a trend that typically inversely impacts cryptocurrency prices. If the dollar stabilizes or weakens, the crypto market could find some relief.

The more widespread headline is that the U.S. government is preparing to liquidate $6.5 billion worth of bitcoin seized from the Silk Road marketplace. The recent court ruling authorizing this sale involves 69,370 bitcoins and has sparked concerns over the potential impact of such a large-scale liquidation on market sentiment. Historically, government asset liquidations have been gradual to minimize disruption, but uncertainty looms as the sale coincides with President-elect Donald Trump’s impending inauguration and possible crypto policy shifts.

Broader market trends also underscore the crypto downturn. U.S. spot Bitcoin and Ethereum ETFs saw withdrawals of $582.9 million and $159.3 million, respectively, marking record outflows. Memecoins and AI-related tokens, such as AI16Z and HYPE, have suffered double-digit losses. While some analysts predict a further drop to $81,000 if key support levels fail, others remain cautiously optimistic about a medium-term rebound as the market adjusts to fiscal and monetary policy shifts.

Looking ahead, Trump’s administration may introduce significant regulatory changes, with speculation around the creation of a strategic bitcoin reserve. Such policies could reshape the narrative for digital assets. For now, the crypto market’s trajectory hinges on the interplay of macroeconomic factors, government actions, and investor sentiment, making it a sector to watch closely in the coming months.

Disclaimer:

The Underlying #023

The Underlying — Mon, 06 Jan 2025 13:31:17 GMT

Happy New Year, folks! The markets have kicked off 2025 with a bang—and a wobble. After two years of blockbuster returns, volatility is back in focus, with the S&P 500 closing its first week down 0.5%. The Nasdaq and Dow followed suit, signaling a year where sharp turns and surprises might define the trading landscape. The CBOE Volatility Index (VIX) is inching toward 20, a clear warning that the smooth trajectory of recent years is fading into memory.

This week, all eyes are on Nvidia as CEO Jensen Huang takes center stage at CES 2025. With AI chips for PCs rumored to debut and insights into the broader artificial intelligence market, Huang’s keynote could shape the narrative for Nvidia and the tech sector in the months ahead. Meanwhile, economic data, including Friday’s jobs report, will offer critical signals on labor markets and Fed policy, testing the market’s resilience in this choppy environment.

In a time of transition, leadership in the markets is shifting. Energy and healthcare are emerging as key defensive plays, while small- and mid-cap stocks, buoyed by lower rates, could shine in the early months of the year. But caution remains essential—volatility doesn’t just create opportunity; it tests conviction. As we dive into 2025, staying nimble and informed will be more crucial than ever.

QQQ Key Levels

Bullish above 520 → 526

Uncertain between 520 → 510

Bearish below 510 → 505

Volatility Returns: Buckle Up for 2025

After a blockbuster 2024, with the S&P 500 climbing 23% and mega-cap tech stocks carrying much of the weight, 2025 is kicking off with a different vibe. Market volatility is back, and strategists across Wall Street are signaling that this year won’t follow the smooth trajectory we’ve seen over the last two years. The CBOE Volatility Index (VIX), Wall Street’s so-called fear gauge, is creeping back toward 20 after spending much of late 2024 below 13. Rising uncertainty about fiscal policy under the incoming Trump administration and stretched valuations in key sectors are adding fuel to the fire.

Increased volatility isn’t necessarily a bad thing, though. It creates opportunities for investors with a sharp eye for risk-reward dynamics. Melissa Roberts at Stephens notes that historically, higher-volatility stocks in the Russell 2000 index tend to outperform lower-volatility peers in January and February, with this trend holding in seven of the last eight years.

Adding to the uncertainty, shifts in sector leadership are underway. Katie Stockton of Fairlead Strategies recently pointed out a defensive rotation, with relative strength moving away from tech-heavy sectors toward energy, utilities, and healthcare. If this rotation sticks, the S&P 500 could face headwinds, and we might see the VIX climb back above 23, a move that Stockton notes would represent a 35% increase from current levels.

Even with these concerns, Wall Street isn’t sounding the alarm just yet. Analysts at JPMorgan believe that broader earnings growth in 2025, particularly outside the “Magnificent Seven,” could drive a more balanced market rally. While mega-cap tech might take a back seat, cyclical sectors like industrials and housing could see outsized gains as valuations normalize.

For investors looking to navigate this bumpy start, strategists recommend a mix of defensive plays and high-quality growth stocks. Ken Laudan of Buffalo Blue Chip Growth suggests focusing on companies with strong balance sheets and robust cash flow generation. Stocks like Thermo Fisher Scientific, GE Vernova, and Honeywell are well-positioned to weather any turbulence. Meanwhile, small- and mid-cap stocks, which stand to benefit from easing interest rates and a potentially lighter regulatory touch, could emerge as the winners in early 2025.

As we head deeper into the year, expect pullbacks. Healthy bull markets need pauses, and 2025 is shaping up to be a year of digestion after two years of massive gains. Whether it’s a 5% stumble or a more dramatic 10% correction, these moments could provide the buying opportunities that define the next leg of the rally. The key? Stay nimble, stay informed, and embrace the chaos.

The Week Ahead: JOLTing into 2025

It’s a packed week for markets, with plenty of catalysts to keep traders on their toes. Tuesday kicks things off with a focus on Europe and the U.S. The EU Inflation Rate YoY Flash and Unemployment Rate will provide insight into the region’s economic health, while the ISM Services PMI and JOLTs Job Openings in the U.S. will help shape sentiment stateside. The labor market strength and inflation momentum coming out of these reports could set the tone for the rest of the week.

On Wednesday, all eyes turn to the Fed. The FOMC Minutes drop in the afternoon, offering a deeper dive into the central bank’s mindset. Is the Fed leaning toward keeping rates higher for longer, or are cracks starting to appear in their hawkish armor? Expect markets to hang on every word, looking for hints of a potential pivot—or at least a softening in their stance.

Friday promises to bring fireworks with Non-Farm Payrolls and the Unemployment Rate. A weaker jobs number could soothe nerves about additional rate hikes, while a stronger-than-expected report might inject fresh volatility into the market. And don’t overlook the Michigan Consumer Sentiment data—it’s a key barometer for how Americans are feeling about the economy and could provide clues about spending trends heading into Q1.

Subscribe now

To cap off the week, we turn to China on Saturday. The Inflation Rate YoY and trade data will take the spotlight. Export and import numbers will be critical for understanding global demand dynamics, while the inflation report will shed light on how the country is navigating its reopening and broader economic recovery.

From labor markets to inflation trends, this week offers no shortage of data points to chew on. Stay sharp—there’s a lot in motion.

Carvana’s Comeback or a Mirage?

Two years ago, Carvana seemed destined for failure. The online used-car retailer was drowning in legal issues over vehicle titles, weighed down by billions in debt, and its stock was trading near zero. Bankruptcy looked inevitable. Fast forward to early 2025, and Carvana has defied the odds, posting a $148 million net income in Q4 and watching its stock skyrocket nearly 300% in 2024. For some, this is a miraculous turnaround; for others, like the short-selling firm Hindenburg Research, it’s all smoke and mirrors.

On January 2, Hindenburg released a report titled “Carvana: A Father-Son Accounting Grift for the Ages,” accusing the company of using questionable practices to prop up its financials. According to the report, Carvana has been relying on unstable loans and accounting manipulation, including $800 million in loan sales to a suspected undisclosed related party. Hindenburg also claims that Carvana is artificially suppressing delinquency rates by allowing its loan servicer, an affiliate of DriveTime—a company run by CEO Ernie Garcia III’s father, Ernest Garcia II—to grant generous extensions to subprime borrowers. The report describes a tangled web of related-party transactions, including shared revenues, profit-sharing agreements, and leased facilities, all allegedly designed to boost Carvana’s numbers while insiders cash out billions.

Carvana responded swiftly, calling the report “intentionally misleading and inaccurate” and dismissing the claims as recycled arguments from other short-sellers. The company emphasized its track record of being one of the most heavily scrutinized public firms since its 2017 IPO and reaffirmed its commitment to executing its turnaround plan in 2025. Despite their strong pushback, Carvana’s stock dropped 1.9% the day the report was published, closing at $199.56—its first close below $200 since October.

The response to Hindenburg’s allegations has been mixed. JPMorgan analysts urged investors to “buy on weakness,” arguing that the issues raised in the report are largely “known unknowns” already factored into the stock price. They noted that Carvana’s improving EBITDA per unit and free cash flow are more critical indicators of the company’s health than the claims outlined in the report. On the other hand, some analysts, like those at BTIG, acknowledged the plausibility of certain allegations but found other arguments unconvincing, pointing out that much of the report revisits past criticisms.

Carvana’s recent trajectory raises a larger question about the sustainability of its recovery. The company has undoubtedly made progress, cutting costs and improving its operational efficiency, but Hindenburg’s claims underscore the risks of relying too heavily on subprime lending and related-party dealings. With rising auto loan delinquencies and macroeconomic uncertainty on the horizon, 2025 could be a pivotal year for Carvana. For investors, the company remains a high-stakes bet—a turnaround success for some, and for others, the next big implosion waiting to happen.

Disclaimer:

The Underlying #022

The Underlying — Mon, 30 Dec 2024 13:31:00 GMT

As 2024 draws to a close, the market’s tape still looks surprisingly robust. The Nasdaq Composite has soared more than 30% in 2024, while the S&P 500 returned over 25%— even the Dow has climbed 14% this year! It’s a holiday-shortened trading week—no major earnings, just a few updates on housing and manufacturing—but the so-called “Santa Claus” rally has been underwhelming so far. Historically, this stretch packs a positive punch, yet rising bond yields, now hovering around 4.6% on the 10-year Treasury, threaten to put a damper on equities if investors grow uneasy about the Fed’s higher-for-longer stance.

Beneath the surface, the fundamentals remain intact. Earnings are projected to climb roughly 15% year-over-year in 2025, and key economic indicators have yet to show major cracks. That said, valuations aren’t cheap, and sentiment gauges are flashing exuberance, leaving the market with a higher risk of turbulence if a negative catalyst appears. With two final sessions left in 2024, it’s a waiting game to see whether the bullish momentum can hold or if we’ll head into the new year on shaky ground. Investors might want to keep a close watch on yields, Fed signals, and any signs of an unexpected turn in consumer or business data.

Subscribe now

NQ! Key Levels

Bullish above 21800 → 22100

Uncertain between 21600 → 21800

Bearish below 21540 → 21000

Thanks for reading The Underlying! This post is public so feel free to share it.

Powell’s Speech Opens the 2025 Volatility Floodgates

2025 look like it could get off to a shaky start, courtesy of renewed uncertainty around President Trump’s return to the White House and a Federal Reserve that just dialed back its forecast for next year. Instead of four quarter-point cuts, the Fed now sees only two, prompting the stock market’s fear gauge to spike and bond yields to climb. Major indices tumbled on Powell’s announcement, and while there’s been a modest bounce since, the underlying breadth has stayed soft. Throw in the possibility of fresh tariffs and deregulation, and you have a recipe for volatility that could linger well into Q1.

Politics only makes the situation more combustible. Fiscal and monetary policymakers rarely move in perfect sync—especially when one side wants robust growth to please voters, and the other wants to clamp down on inflation. We’ve seen this tension flare up before: The Fed shoulders the burden of being the “bad guy,” while politicians campaign on promises that might ramp inflation higher. So here we are, facing a Fed forced to do the dirty work of rate hikes or slow-motion cuts as inflation remains sticky, and a new administration that might prefer a looser, growth-oriented stance.

Until these clashing aims get sorted out, expect the market to stay on edge. We don’t know if Q1 will tilt bullish or bearish—it could just churn as headlines unfold—but it’s safe to say investors should prepare for more bumps. In this high-stakes environment, we can expect continued market volatility until clearer policy directions emerge from the Trump administration and the Federal Reserve. Investors should remain vigilant, diversifying their portfolios and seeking safe-haven assets like gold, which traditionally attracts capital during periods of uncertainty. Additionally, keeping an eye on evolving economic indicators and Fed communications will be crucial for navigating the expected volatility. Wall Street isn’t exactly handing out gold stars for measured optimism, but maintaining a cautious and informed approach will be essential for weathering the storm ahead. If you’d like to keep tabs on volatility swings, I recommend you to check out Vol Vibes.

With a fresh slate of policies looming and Powell’s foot hovering near the brake pedal, caution remains the word of the day.

Subscribe now

Rocketing into 2025: Space Stocks Set for a Wild Ride

Space stocks are gearing up for a stellar 2025, fueled by President Trump’s historic return and his entourage of technocrats, including heavyweights like Elon Musk and David Sacks. If these tech visionaries get their way, we could witness a renaissance in deep tech—think aerospace, defense, nuclear, space exploration, quantum computing, and materials science—all potentially thriving under a lighter regulatory hand. This optimism is already reflecting in the market’s volatility surges for names like KULR, Oslo, RKLB, Spire, and ASTS. Take Rocket Lab (RKLB), for instance, which saw a positive uptick in its latest earnings report, signaling investor confidence in their ambitious launch schedules.

However, navigating the space sector isn’t all smooth sailing—or should I say, smooth orbiting. While SpaceX mulls over another public offering, hinting at a growing appetite in the public markets for space financing, Blue Origin is busy prepping new launches, and Bezos has already been seen schmoozing with the incoming president. Despite the buzz, many space companies remain unprofitable, making this a high-risk playground where fortunes can orbit just as quickly as they ascend. It’s a sector where volatility isn’t just expected—it’s a constant companion, so tread carefully or you might find your investments taking an unexpected detour.

For those who still want to hitch a ride without the meteoric risks of picking individual stars, space-focused ETFs like ROKT, ARKX, or UFO offer diversified exposure to the cosmos of space stocks. These funds can help mitigate the inherent risks while still capitalizing on the potential upside of a burgeoning space industry. So, whether you’re aiming for the moon or just trying to keep your portfolio in orbit, consider these broader options to navigate the wild expanse of space investing without getting lost in the vacuum.

SOLving the ETF Puzzle: Solana’s Ascent in the Altcoin Arena

As Bitcoin whipsaws around the $100k level, investors are shifting their gaze from the crown jewel of crypto to the glittering array of altcoins. Money is flowing out of BTC and into alternatives, driven by the volatility that Bitcoin ETFs have spurred. With Bitcoin ETFs like MicroStrategy’s (MSTR) and Fidelity’s (FBTC) injecting liquidity and driving up BTC’s price through heightened volatility, the stage is set for altcoins to ride the wave of institutional interest.

Enter Solana (SOL), a standout among the altcoins eyeing ETF approval. Several firms, including Volatility Shares, have already filed for Solana ETFs, signaling strong confidence in its potential. Solana isn’t just another blockchain; it’s buzzing with activity from platforms like pump.fun, where memecoin trading is heating up and generating fees in SOL. This creates a dual benefit: increased transaction volume and inherent value accrual for Solana, making it an attractive candidate for ETF inclusion.

What sets Solana apart is not just its technical prowess but also its user-friendly ecosystem. The Phantom wallet, renowned for its ease of use, lowers the barrier for new users, fostering broader adoption. As more users flock to Solana’s network, the demand for SOL tokens grows, further supporting its upward trajectory. Add to this the speculative frenzy around Solana ETFs, and you’ve got a recipe for substantial institutional inflows and heightened volatility through options trading.

However, it’s not all smooth sailing in the Solana stratosphere. The path to ETF approval is fraught with regulatory hurdles, especially given the SEC’s cautious stance on cryptocurrency classifications. Yet, the incoming Trump administration, with its technocrat-heavy crypto council, might just tilt the scales in Solana’s favor. Paul Atkins’ nomination as SEC chair and the appointment of crypto czars like David Sacks could accelerate the approval process, making Solana ETFs not just a possibility but an imminent reality.

For investors looking to capitalize on this potential surge without navigating the perilous waters of individual altcoin picks, Solana offers a compelling opportunity. Its uptrend is supported by both organic growth and speculative ETF anticipation, creating a fertile ground for institutional and retail investors alike. Keep an eye on Solana as it prepares to take center stage in the next wave of crypto ETFs—because when the stars align, SOL could shine the brightest.

Disclaimer:

From Axioms to Alpha

The Underlying — Tue, 17 Dec 2024 18:10:50 GMT

Trading, like physics, can feel impossibly complex—an endless cascade of price ticks, breaking news, and sentiment swings. But beneath this chaos lies structure. Markets follow laws, universal principles that don’t care if you’re trading Apple stock, Bitcoin futures, or soybean spreads. Prices emerge, risk materializes, and alpha is extracted through the interplay of agents, orders, and information. Today, we’re building from the ground up—a deep dive into the axioms that govern markets, the lemmas that emerge from those axioms, and the strategies that bridge abstract principles to real trades. By the end, you won’t just see the markets; you’ll understand their structure.

The foundation begins with the Zeroth Axiom: Universality. This is the most liberating idea in trading—there is no special market, no singular instrument that operates on its own set of rules. Whether you’re analyzing crypto, options, or equities, the laws remain invariant. The same principles of conservation, equilibrium, stochastic evolution, and scaling behaviors apply. The instruments differ on the surface—payoff structures, liquidity, regulatory nuance—but the underlying structure holds. Trading is, fundamentally, an exercise in universals. Learn to see the patterns at their root, and you can trade anything.

From there, the First Axiom introduces the state-space of markets. At any moment, the market is a probability distribution over microstates—each microstate describing agent holdings, latent demand, and orders in the book. These microstates are unknowable in totality but aggregate into the macroscopic observables we measure: price, volume, volatility. Picture this like particles in a box. Each “particle” represents a trader’s position, limit order, or willingness to transact, and together, they produce the patterns we trade. This state-space is the canvas of the market. Trading is about identifying shifts in its distribution—where probability mass is moving, why it’s moving, and how to position ahead of it.

If the First Axiom gives us the canvas, the Second Axiom tells us that markets don’t paint in straight lines. Market evolution is stochastic; prices reflect not deterministic truths but averages over a shifting, probabilistic state-space. This is where risk lives. Risk is the spread of the distribution—how wide or narrow the range of outcomes is. Uncertainty is more profound: it’s when the distribution itself shifts, when the rules of the game change. A world of known distributions is one where risk models (like implied volatility) thrive. A world of shifting distributions—where central banks pivot, crises erupt, or regimes break—is where uncertainty reigns. The trader’s edge comes from navigating this stochastic system better than the crowd: anticipating shifts, managing uncertainty, and positioning for how the distribution re-stabilizes.

The Third Axiom formalizes this movement: markets evolve through stochastic processes, nudged by trades, news, and liquidity. Think of it as a probabilistic framework for how the state-space transitions over time. Every trade adjusts the local probabilities; every shock nudges the system globally. Prices move not because of certainty but because probabilities are constantly recalibrating.

But even within this randomness, there are constraints—The Fourth Axiom: Conservation Laws. Wealth, shares, and capital don’t vanish; they redistribute. If one agent buys, another sells. If liquidity vanishes in one part of the order book, it accumulates elsewhere. These conservation principles force the system into balance, locally and globally. Arbitrage is the purest example. Persistent arbitrage opportunities—riskless profits—cannot exist for long because the system works to eliminate them. Like thermodynamics forbidding perpetual motion, no-arbitrage constraints keep the market stable.

Here’s the thing, though: markets are not closed systems. The Fifth Axiom reminds us they are open, driven, and far from equilibrium. Information flow, policy shocks, and sentiment changes act as external energy inputs, pushing the market into new states. The idea of equilibrium is tempting, but misleading. Markets rarely settle. Instead, they exist in quasi-stable regimes—pauses between transitions where patterns (like factors or trends) briefly dominate. These regimes are where the hunt for alpha begins. The transitions themselves—when the market moves from one state to another—are where volatility spikes, liquidity fractures, and opportunity explodes.

And yet, in the absence of shocks, the market drifts toward randomness. The Sixth Axiom: Entropy and Emergent Order tells us that markets trend toward maximum uncertainty—entropy—where no structure remains. This is efficiency’s endgame. When there’s no alpha left, the system looks random. But before that point, while external forces still inject energy, local structure emerges: patterns, imbalances, anomalies. Alpha is about spotting these temporary deviations—low-entropy pockets—before the crowd arbitrages them away.

The market’s response to new energy brings us to the Seventh Axiom: Fluctuation-Response. Small signals—like a mild uptick in inflation—produce linear reactions, predictable shifts in price. But larger shocks? They trigger nonlinear, critical transitions. This is volatility’s story. A small shock destabilizes the state-space, and the system becomes hyper-responsive. Volatility clusters, liquidity fractures, and price moves cascade. The trader’s sensitivity to these shifts is alpha—reading the regime, recognizing the signals, and positioning for the break.

The Eighth Axiom tightens the no-arbitrage principle as a stabilizing force. Free lunches vanish over time. But transient inefficiencies—short-lived imbalances, lags in information flow, structural anomalies—can and should be exploited. This is why speed of execution really matters in some cases.

Finally, the Ninth Axiom: Scaling and Universality reveals the elegance behind market behavior. Across instruments and timeframes, the same patterns emerge: fat-tailed returns (that are distributed in a log-normal way), volatility clustering, volatility’s long term memory and reversion to the mean, liquidity shocks and gamma squeezes. These are not bugs; they’re features. Just as physical systems exhibit critical phenomena near phase transitions, markets exhibit scaling laws—universal behaviors that repeat, if you know where to look.

These axioms are intended to help you separate risk from uncertainty—to know when to hedge, when to adapt, when to strike. They show us how to trade volatility, treating it like temperature in a thermodynamic system: low and stable when markets settle, high and chaotic when transitions erupt. They explain momentum—how markets “remember” through delayed reactions, slow flows, and herding behavior. They frame order flow as the local gradient of the state-space: every trade a force, every imbalance a shift in probability.

Trading, then, is a process of extracting structure from noise. You’re not predicting prices—rather you are mapping distributions. You’re exploiting shifts in uncertainty. Whether it’s spotting alpha in low-vol regimes, positioning during transitions, or recalibrating in post-shock stabilization, the process remains the same: observe the system, identify its structure, and act before entropy wins. You’re trying to apply systems thinking to a fundamentally uncertain system with local and global dynamics that are constantly in flux.

Subscribe now

Markets are not magic; they are machines—they are systems—probabilistic, stochastic, and driven by universal laws. The tools we use—factor models, volatility surfaces, market profiles, trendlines—are approximations, lenses for seeing where the system deviates from randomness. The better you understand the axioms, the clearer the market becomes. You don’t trade assets. You trade probabilities. You trade states. And you trade the shifts that redistribute those states.

So here’s the takeaway: start with the axioms. Let them ground your thinking. Toy around with them to build your own framework or several—ones that are adaptable, robust, and built on first principles. Because in a world that drifts toward entropy, clarity is the ultimate edge.

See you next time—until then, exploit the structure, respect the entropy, and trade the state space.

Disclaimer:

The Underlying #021

The Underlying — Mon, 16 Dec 2024 13:30:57 GMT

The S&P 500 hovers near record highs, treasuries show signs of stabilization, and cryptocurrencies maintain their upward trajectory amid growing institutional adoption. Yet beneath the surface, a complex narrative unfolds. The Fed's cautious stance on 2025 rate cuts collides with market optimism, while Tesla's remarkable rally showcases the growing influence of political connections and social media in modern markets. Meanwhile, Micron's upcoming earnings could offer fresh insights into AI's transformative impact on the semiconductor industry.

As we approach the final trading days of 2024, attention shifts to the delicate balance between monetary policy and market expectations. From the Fed's evolving rate cut timeline to the intersection of politics and corporate strategy, this week's developments highlight the increasingly interconnected nature of markets, technology, and policy. Let's dive into the details.

NQ! Key Levels

Bullish above 21500 → 21800

Uncertain between 21350 → 21500

Bearish below 21400 → 21000

Death by 1000 Cuts? Not in This Economy.

The U.S. Federal Reserve is expected to announce a 0.25% interest rate cut on December 18, 2024, with a 96% probability of this move. However, future Fed policy remains uncertain. The focus will be on the Federal Open Market Committee (FOMC) projections, which include interest rate forecasts, GDP growth, and inflation expectations. These projections are key for market movement, especially since they will indicate the pace and scale of future rate cuts. If the FOMC projections remain similar to those from September 2024, with moderate rate cuts, it could support equity and commodity prices, while weakening the dollar and bond yields. However, if the projections suggest fewer or slower rate cuts, it could lead to a stronger dollar, higher bond yields, and pressure on equities and commodities. Fed Chair Jerome Powell’s press conference will further shape market expectations.

Despite expectations of a cut there is growing caution about future rate cuts in 2025. While the Fed will release updated economic projections, its message is likely to be more cautious and "hawkish" compared to earlier this year. This shift reflects concerns over persistent inflation, a strong labor market, and other uncertainties, including the U.S. election and global geopolitical risks. Some analysts now expect the Fed to signal that it is nearing the end of its rate-cutting cycle. A recent survey of economists reveals that the Federal Reserve is becoming more cautious about further rate cuts due to concerns over persistent inflation and the potential economic impact of policies under a possible return of Donald Trump to the White House. Some economists now foresee the federal funds rate staying at 3.5% or higher through 2025, compared to predictions of it falling below that threshold in the previous survey. This shift reflects growing concerns that inflation could remain elevated due to Trump's proposed tariffs, deregulation, and tax cuts.

There are whispers of worry that inflation, particularly core PCE inflation, may not fall below the 2% target until at least 2026. This is a significant change from earlier projections, as the median estimate for core PCE inflation has risen from 2.2% to 2.5%. The economists also noted that inflation has been "stickier" than expected, with a more gradual easing of price pressures.Additionally, the labor market has held up better than expected, with the unemployment rate at 4.2%—lower than the Fed's September projection—and job creation slowing to a sustainable pace. The Fed is cautious about further rate cuts due to concerns that reducing rates too much could overheat the economy, fueling inflation again. While some feel that consumer demand and wage growth remain strong, the Fed still appears focused on achieving a "soft landing" and balancing inflation control with economic stability. Overall, markets are expecting a more reserved outlook for 2025, with fewer rate cuts or a more gradual pace of easing.

While real GDP growth remains relatively stable, with estimates rising to 2.3% from 2% since September, economists are concerned that Trump's policies—such as imposing tariffs and cutting regulations—could eventually worsen inflation and undermine growth. Moreover, many economists believe the Fed may face increased tension with a potential Trump administration if it continues to maintain high interest rates to combat inflation, setting the stage for a possible "confrontation" between the President and Fed Chair Jerome Powell. The overall view is that the Fed will be more "twitchy" on inflation, remaining cautious as it navigates these uncertainties.

Nothing Small About Micron Earnings

Micron Technology (MU) is primed for strong earnings growth in its upcoming fiscal Q1 2025 results, driven by a surge in demand for memory chips, particularly from the growing adoption of GPU-powered AI servers. As data center operators expand infrastructure to support AI-driven technologies like generative AI and large language models, memory chips, including DRAM and NAND, have become essential components. With a projected 84.3% year-over-year revenue growth, Micron stands to benefit from these tailwinds, capitalizing on a favorable market environment. DRAM revenues are expected to surge 91%, and NAND revenues are projected to rise 111.5%, reflecting strong pricing power and improving supply-demand dynamics in the memory chip market.

Furthermore, Micron’s substantial investments in R&D, particularly around AI and next-gen memory solutions, position the company well for long-term growth. The company’s ability to leverage its extensive patent portfolio, combined with strong client relationships (including Apple, Dell, and NVIDIA), has placed it at the forefront of the memory market. The ramp-up in AI demand, coupled with the increasing need for advanced memory solutions in sectors like 5G and the Internet of Things (IoT), provides a robust growth trajectory. Micron’s valuation remains attractive, with a forward price-to-sales (P/S) ratio of just 2.79X, significantly lower than the broader tech sector’s 6.28X.

Despite these promising developments, Micron faces certain risks, particularly from its exposure to U.S.-China trade tensions and potential margin pressures from lower-margin NAND products. However, these risks appear manageable in light of the company’s strong fundamentals, improving market conditions, and pricing power in the DRAM and NAND markets. As Micron continues to benefit from AI growth and a recovering semiconductor market, its earnings outlook for the next few quarters is bright. Investors looking for exposure to the AI and semiconductor space, with strong upside potential and a manageable risk profile, should hold or consider adding Micron stock as the company is poised for a strong recovery and solid growth in 2025.

Tesla's Trump Card: Why Musk's Political Ties and Social Media Empire Could Supercharge the EV Giant

Tesla's rollercoaster ride in the stock market continues to captivate investors, with bulls pointing to its remarkable 77% surge since September. The company's expansion plans are ambitious, headlined by the upcoming budget-friendly Model Q and thriving energy business. The Model Y's coronation as the world's top-selling passenger vehicle in 2023 demonstrates Tesla's dominant market position, while its ventures into AI and autonomous driving promise new revenue streams. With some DCF model suggesting a fair value of $445 per share, optimists argue the growth story remains intact.

However, bears are growling about Tesla's sky-high valuation, sporting a forward P/E ratio of 130-160x that leaves little room for error. Mounting competition from traditional automakers, dependence on government incentives, and geopolitical tensions, particularly in China, pose significant risks. The broader economic environment, marked by high interest rates and potential consumer spending pullback, adds another layer of concern for the EV maker's premium pricing strategy.

Yet investors would be wise to consider Tesla's secret weapon: Elon Musk's unprecedented influence in both political and social spheres. His close relationship with Trump, commanding presence on X (formerly Twitter), and legion of devoted followers create a unique market dynamic that traditional metrics fail to capture. As venture capitalist Peter Thiel famously warned, "never bet against Elon." While Tesla's fundamentals may seem stretched, Musk's ability to move markets through social media and potentially leverage political connections suggests that betting against Tesla could be a costly mistake. The "Musk premium" in Tesla's stock price reflects not just the company's technological prowess, but also its CEO's extraordinary ability to shape narratives and policy in ways that could benefit shareholders.

Subscribe now

Disclaimer:

The Underlying #020

The Underlying — Mon, 09 Dec 2024 13:31:39 GMT

As we dive deeper into December, markets are navigating a mix of resilience and recalibration. The Nasdaq broke records last week, but beneath the surface, the complexities of a volatile geopolitical and geoeconomic backdrop are pulling at the seams. AI-driven rallies and consumer resilience in the USA are being offset by deflationary signals from China and ongoing geopolitical disruptions.

This week, we’ll thread through the interplay of long-term narratives and short-term shifts. Ulta Beauty’s steady ascent, Tesla’s relentless momentum, and Rocket Lab’s sky-high potential headline industry dynamics. On the macro front we’re getting critical inflation metrics and Fed updates, which will steer sentiment as we close out the year.

NQ! Key Levels

Bullish above 21140 → 21500

Uncertain between 21140 → 20860

Bearish below 20860 → 20500

Ulta’s Beauty in Resilience

Ulta Beauty (ULTA) might not have blown the roof off with its Q3 results, but the story here is about consistency in a competitive market. Net sales were up 1.7% to $2.53 billion, and while comparable sales growth slowed to 0.6%, earnings per share ticked up to $5.14, showing this company still knows how to deliver. Their loyalty program—w some 40 million active members—remains a key strength, anchoring repeat transactions and long-term growth potential.

Yes, there’re challenges. Increased promotional pressure, slowing prestige beauty trends, and fierce competition from Sephora and Amazon are real headwinds. But Ulta’s broad product assortment and consumable-heavy beauty model make it a standout in retail. Plus, the investments in new stores and tech are setting them up for sustained market share gains.

At these levels, Ulta feels undervalued for what it offers: a strong risk-reward profile in a resilient sector. If you’re thinking long, the mix of stability, smart strategy, and market positioning makes ULTA worth serious consideration.

Ciena’s Network Play: Connecting the Dots on Cloud, AI, and Telecom

Ciena is caught in a balancing act right now. On one hand, the long-term growth story is there—AI and cloud demand are obvious tailwinds. On the other, weak telecom demand continues to weigh on near-term results, and investor sentiment is already stretched, pricing in high expectations for FY25. Morgan Stanley’s downgrade to “Hold” with a $63 target highlights this tension, noting that further gains might require a stronger narrative around AI or meaningful EPS growth, likely not until FY26. Meanwhile, Citi has taken a more bullish stance, upgrading to “Buy” with a $68 target, betting on a return to single-digit growth in FY25 as telecom demand stabilizes.

But here’s the thing: Ciena is up 36% this year, mostly off the back of AI buzz. That makes it harder to justify big moves higher unless something fundamentally changes. Even BofA, which downgraded the stock to “Neutral” with a $59 target, pointed out that the company’s fiscal Q4 revenue outlook missed the mark, and Q3 was down 12% year-over-year. The disconnect is real: the long-term setup feels solid, but short-term, it’s a game of patience.

Insider sales add another layer to this. Executives are offloading shares under 10b5-1 plans, signaling confidence in the stock’s current price but not necessarily its runway. The big question is whether Ciena can sustain the AI momentum and leverage it into something more tangible for FY25 and beyond. For now, it’s a wait-and-see situation—watch for dips if you’re a long-term bull, but don’t expect fireworks in the near term unless the narrative around telecom shifts dramatically.

HPE: Smashing Expectations and Positioned for More

Hewlett Packard Enterprise (HPE) crushed expectations in Q4, delivering a 15% revenue increase year-over-year to $8.5 billion, with standout performance in its server segment, which jumped 32% to $4.7 billion. AI-driven demand for servers and hybrid cloud solutions has been a game-changer, reinforcing HPE’s position as a key player in enterprise tech. The company’s adjusted EPS of $0.58 beat forecasts, showing strong profitability despite a competitive market.

This momentum isn’t slowing down. With AI server revenue projected to grow 40% in fiscal 2025 and HPE’s acquisition of Juniper Networks set to expand its portfolio, the company is primed to capitalize on enterprise adoption of AI and hybrid cloud. For context, while competitors like Dell and Super Micro Computer trade at higher multiples (13x earnings), HPE is undervalued at just 10.2x forward earnings, offering an attractive entry point.

HPE’s combination of disciplined execution, AI-driven growth, and undervaluation makes it a standout opportunity. As enterprise demand for AI accelerates, HPE is positioned to deliver more record-breaking results, making now a smart time to go long.

Rocket Lab: Skyrocketing Growth with Room to Soar

Rocket Lab (RKLB) continues to deliver impressive results, riding a wave of growth across both its Launch Services and Space Systems segments. The company posted a record 71% revenue increase in Q2, with KeyBanc now raising its price target for the second time in as many months. Rocket Lab’s ability to scale launches, innovate with its Archimedes engine, and secure major contracts like its Neutron rocket agreement positions it as a standout in the space sector.

The growth isn’t just about launches—Rocket Lab’s Space Systems business is ramping rapidly, contributing to its strong guidance for Q4 revenue between $125 million and $135 million. The Neutron rocket, set for its first flight in mid-2025, is designed for everything from satellite constellations to human spaceflight, showing Rocket Lab’s ambitious long-term strategy. Compared to larger peers like SpaceX, Rocket Lab is carving out its niche as a nimble operator with consistent execution.

With shares up 109% in 2024 and analysts maintaining bullish outlooks, Rocket Lab’s trajectory remains strong. As momentum builds, this is a name that could continue to outperform, especially with increasing demand for space infrastructure and innovation. For investors, the stars might just be aligning for RKLB.

$ai16z: The First AI Venture Fund

$ai16z is making waves as the first “AI hedge fund,” built on the open-source ELIZA framework—a tool for creating on-chain AI agents. Here’s the setup: developers using ELIZA often donate tokens back to $ai16z, fueling a treasury that’s already hit $10 million, with the token trading at a whopping $700 million fully diluted valuation. The flywheel is in full effect—more ELIZA adoption means a bigger treasury, a more prominent DAO, and a community that keeps the momentum going.

They’re not stopping there. On the horizon are autonomous AI-led trading features and high-profile partnerships with platforms like Polygon and the Ethereum Foundation. The ecosystem is growing fast, but it’s not all smooth sailing. Critics have raised concerns about early token project controversies and the heavy reliance on speculative value. In a space where memes drive markets, that’s a double-edged sword.

Still, $ai16z is undeniably bold. It could be a paradigm shift—a whole ecosystem at the intersection of AI, crypto, and decentralized finance. Whether it’s sustainable or not, they’re rewriting the playbook—and it’s worth keeping an eye on where they take this next, as well as other projects emerging in the space.

Key U.S. Economic Events

1. Tuesday, December 10

• NFIB Optimism Index: Expected to rise slightly to 94.3, reflecting improved small business sentiment amid recent economic resilience.

• U.S. Productivity (Q3 Revision): Likely to hold steady at 2.2%, showing ongoing efficiency gains in the economy.

2. Wednesday, December 11

• Consumer Price Index (CPI): Monthly CPI is forecast at 0.3%, with year-over-year inflation ticking up to 2.7%, signaling moderate inflationary pressure. Core CPI is expected to remain stable at 3.3% YoY.

• Federal Budget: The monthly deficit is projected at -$353B, a potential market mover if higher-than-expected borrowing highlights fiscal challenges.

3. Thursday, December 12

• Initial Jobless Claims: Anticipated to hold steady at 224,000, reflecting a stable labor market.

• Producer Price Index (PPI): Core PPI is forecast at 0.3% MoM, with YoY figures suggesting producer inflation remains manageable.

4. Friday, December 13

• Import Price Index: Expected to decline -0.2%, driven by lower energy costs, while the core metric offers insight into non-fuel-related trade costs.

ECB Monetary Policy Decisions (Thursday, December 12)

• The ECB Interest Rate Decision is highly anticipated, with markets forecasting a reduction to 3.15%. The central bank’s tone during the press conference will offer critical clues about its stance on inflation and growth heading into 2025.

• The Deposit Facility Rate may also be trimmed to 3%, reinforcing easing measures to support economic recovery in Europe.

Thanks for reading The Underlying! This post is public so feel free to share it.

Tesla: The Momentum Machine

Tesla (TSLA) has been on a tear, doubling its share price since early November and closing at $389.22—its highest level in years. The surge comes amid a mix of bullish sentiment around its self-driving initiatives and the potential for regulatory tailwinds under the new administration. The unveiling of its “Cybercab” robotaxi, paired with ambitious plans to roll out a self-driving service in 2025, has reignited excitement over Tesla’s trillion-dollar AI and autonomy opportunity.

Despite analyst price targets lagging behind the market, Tesla has consistently defied expectations. The stock trades well above Wall Street’s consensus of $256, highlighting the divergence between Tesla’s forward-looking investors and more cautious traditional analysts. Bulls are banking on future value from autonomous driving, energy storage, and humanoid robotics, while skeptics remain focused on near-term delivery challenges.

Tesla’s ability to drive sentiment, even without material changes to earnings, is a testament to its vision and Elon Musk’s influence. Whether it’s regulatory shifts, ambitious new products, or sheer momentum, Tesla continues to be a stock that commands attention. For long-term believers, the recent rally is just another step in what could be a much larger story.

Marvell’s AI Surge: From Hope to Heavyweight

Marvell Technology (MRVL) has officially cemented itself as a serious player in the AI hardware space. After spending much of last year struggling to meet investor expectations, the company has turned its narrative around in a big way. The October quarter saw earnings well ahead of guidance, with revenue climbing 19% sequentially to $1.52 billion. Notably, Marvell’s custom AI silicon is now in full production, driving robust demand from cloud giants like Google, Amazon, and Microsoft.

The numbers speak volumes: analysts are projecting AI-related revenue of $3.6 billion in fiscal 2026, a sharp leap from prior estimates of $2.5 billion. With a forward P/E of 41, Marvell is trading at a premium to some peers but is still less frothy than Nvidia. CEO Matt Murphy remains at the helm, quashing rumors of a departure to Intel and signaling his long-term commitment to the company.

Marvell’s momentum is clear, but the stakes are high. Investor sentiment is riding on AI growth, and while telecom demand remains soft, the company’s 26% YoY revenue growth forecast for Q4 suggests this isn’t just a flash in the pan. With insiders buying in and analysts raising price targets, Marvell is transitioning from “potential” to performance.

Subscribe now

China’s Inflation Data and the Ripple Effects on Emerging Markets

Global markets are turning their attention to China as November inflation data takes center stage this week. While Wall Street rallies on optimism fueled by U.S. employment data and expected Federal Reserve rate cuts, the global landscape remains volatile due to geopolitical events and currency pressures.

China’s consumer price index (CPI) is expected to show deeper deflation, with a month-on-month decline of 0.4%, marking the sharpest drop since March. Year-over-year CPI, however, is anticipated to rise modestly to 0.5%. Meanwhile, producer prices are expected to stay in deflationary territory, falling 2.8% annually, signaling ongoing challenges in China’s industrial sector.

Investors are closely watching these numbers ahead of the upcoming Politburo meeting, where Beijing will outline its 2025 growth and stimulus priorities. Market participants are keen to understand how policymakers aim to stabilize economic activity and address declining factory gate prices. Trade-dependent neighbors in Asia, particularly South Korea, Indonesia, and Malaysia, have a lot riding on China’s recovery, given their high export exposure to the Chinese market.

The yuan’s recent weakness has intensified its correlation with other emerging Asian currencies, with a 30-day correlation to the Bloomberg Asia Dollar Index at 0.95, the highest in five years. Similarly, the euro’s slump is dragging down central and eastern European currencies, given the eurozone’s significant trade ties to Hungary, Poland, and the Czech Republic.

This currency contagion effect is further exacerbated by the dollar’s strength, buoyed by expectations of higher U.S. tariffs under President-elect Donald Trump. A 7.50 yuan-per-dollar level could prompt neighboring countries like India to let their currencies weaken to maintain trade competitiveness.

The geopolitical landscape adds another layer of uncertainty. Political turmoil in South Korea, a weakened eurozone, and ongoing trade tensions could amplify market volatility. While U.S. equities remain a bright spot with low volatility and record highs, the strong dollar and uncertain global trade policies could challenge emerging markets in Asia and Europe.

Investors will be keeping a close eye on inflation data releases across multiple countries this week, including India, Mexico, Hungary, and Poland, for further clues on regional economic health. Additionally, Brazil’s central bank is expected to raise rates, a move that could influence broader sentiment toward emerging markets.

China’s path forward, as signaled by its policymakers this week, will be crucial in shaping the outlook for global trade and emerging-market currencies heading into 2025.

Disclaimer:

[Podcast Version] The Underlying #019

The Underlying — Mon, 02 Dec 2024 17:40:37 GMT

This is an audio version. the original post can be found below:

The Underlying #019

The Underlying — Mon, 02 Dec 2024 13:31:54 GMT

As December begins, markets are riding high, closing out November with record performances that underscore the remarkable resilience of U.S. equities in 2024. The Dow Jones Industrial Average surged over 2% last week, while the S&P 500 and Nasdaq Composite posted gains of 1% and 0.9%, respectively. This momentum propelled both the Dow and S&P 500 to all-time highs, with the S&P 500 logging its best post-Thanksgiving performance since 2012.

For context, 2024 has already been one of the strongest years for the stock market this century. The S&P 500 is up more than 25% year-to-date, marking its best performance through November since 2013. If the index secures another 20%+ annual gain, it will be the first back-to-back years of such growth since the late ’90s bull market. Investor enthusiasm has remained strong, held up by optimism around trade negotiations and hopes for a softening in President-elect Trump’s proposed tariffs on key trading partners like Mexico and Canada. Adding to the bullish sentiment is the expectation for Fed policy to stay cautious on rate cuts, despite slower adjustments in inflation.

NASDAQ 10Y Monthly Performance

Despite the bullish momentum, this week presents critical economic data and earnings reports that could influence market sentiment heading into 2025. The November jobs report will set the tone for the labor market narrative, with expectations for a rebound of +200K jobs following October’s weak showing. The unemployment rate is forecasted to rise slightly to 4.2%, hinting at a softening labor market. Wage growth will be closely watched, as the Fed balances inflationary pressures with a potential shift in rate policy.

This week marks a key point in the transition from holiday spending to early 2025 forecasts. Salesforce, Lululemon, and Hewlett Packard Enterprise highlight a broadening beyond the “Magnificent Seven” tech stocks, a theme analysts expect to drive market breadth next year. However, Big Tech earnings revisions remain positive, supporting their outsized impact on the S&P 500. With manufacturing expected to remain below 50 and services showing moderate growth, these figures will inform expectations for 2024 GDP growth and rate adjustments.

S&P 500 10Y Monthly Performance

History favors a strong December finish. Since 1985, when the S&P 500 has gained over 20% by year-end, it has risen further in December 9 out of 10 times. With strategists forecasting continued gains, the chase for all-time highs could extend into the final trading sessions of 2024.

NQ! Key Levels

Resistance at 21000 → 21340

Bullish above 20860

Uncertainty between 20680 → 20400

Bearish below 20400 → 20000 → 19900

Oscar Health: A High-Growth Bet with Regulatory Risks and Insider Confidence

Oscar Health (OSCR) is carving out a niche in the crowded health insurance market by leveraging technology and personalized care to differentiate itself. The company’s innovative approach, including proprietary digital tools, user-friendly interfaces, and value-based care models, has helped it rapidly grow its membership base and achieve significant revenue gains. In Q3 2024 alone, Oscar’s revenue surged by 68% year-over-year to $2.4 billion, with membership climbing to 1.65 million. This momentum is fueled by the strength of the ACA (Affordable Care Act) marketplace, where expanded federal subsidies have driven record enrollments. However, with these subsidies set to expire at the end of 2025, Oscar’s growth story hinges on regulatory tailwinds, operational efficiency, and the political landscape under a new Trump administration.

One of Oscar’s most compelling tailwinds is its robust adoption of technology to streamline care and reduce costs. Recent earnings calls highlight the company’s deployment of AI-driven tools, such as clinical intake bots and predictive screening features, which have enhanced member satisfaction while reducing operational bottlenecks. Additionally, Oscar’s shift toward younger demographics—reflected in a noticeable decrease in the average age of its members—bodes well for margins, as younger populations typically incur lower healthcare costs. The company’s guided care HMO, targeting price-sensitive members, further underscores its ability to innovate and capture new segments of the market. Insider confidence also adds to the bullish case, with Thrive Capital—led by co-founder and Vice Chairman Joshua Kushner—recently purchasing over $19 million worth of Oscar shares, signaling a vote of confidence in the company’s growth trajectory.

However, the risks facing Oscar Health are substantial. The expiration of ACA subsidies looms large, as it could significantly shrink the individual insurance marketplace where Oscar operates. While CEO Mark Bertolini remains optimistic that bipartisan support will extend these subsidies, the Trump administration’s track record on healthcare policy creates uncertainty. Additionally, Oscar’s medical loss ratio (MLR) reached nearly 85% in Q3 2024, exceeding the federally required minimum of 80%. This reflects both the challenges of managing higher-than-expected medical costs and the risks of rapid membership growth outpacing operational efficiency. The company also remains unprofitable, posting a $55 million loss last quarter, which raises concerns about its ability to sustain growth without eroding margins.

For investors, Oscar Health represents a classic high-risk, high-reward opportunity. The company’s strong growth metrics and technological differentiation are clear positives, but its reliance on ACA subsidies and the volatile political environment are critical headwinds. Thrive Capital’s insider buying offers a reassuring signal of long-term potential, as does the company’s guidance for adjusted EBITDA near $210 million in 2024. Yet, Oscar’s high beta (1.664) and regulatory exposure demand careful consideration. For those willing to stomach volatility and regulatory uncertainty, Oscar Health offers a compelling growth story with the potential for significant upside—provided the political and operational stars align.

Inverse FTC: Betting on Companies Targeted by Lina Khan

Lina Khan’s tenure at the FTC was defined by an aggressive stance against big business, scrutinizing giants across healthcare, tech, retail, and beyond. From Cigna (CI) and UnitedHealth Group (UNH) to Meta (META), Microsoft (MSFT), and Nvidia (NVDA), the regulatory microscope created a wave of uncertainty for investors. But here’s the twist: the very companies that faced FTC pressure under Khan may now be some of the best plays in a more relaxed regulatory environment as competitive policy enforcement norms change.

Take healthcare, for example. Cigna and UnitedHealth, major players in Medicare Advantage and pharmacy benefits, faced FTC challenges to their growth strategies. But with Trump back in office and a likely shift in the FTC’s leadership, these companies could be ready to expand unencumbered. UnitedHealth’s Optum segment and Cigna’s potential in Medicaid markets are primed for growth as demographic trends favor their services.

Then there’s tech. Meta has endured lawsuits that threatened Instagram and WhatsApp, while Microsoft’s cloud and AI businesses came under scrutiny. A regulatory rollback opens the door for these companies to double down on growth in AI, cloud services, and virtual reality without fear of forced divestitures.

Even retail could see tailwinds. Kroger (KR) and Albertsons (ACI) had their proposed merger blocked by Khan’s FTC. If the merger gains approval under a friendlier administration, the combined entity would unlock synergies in logistics, pricing, and market reach. Meanwhile, Nvidia—whose Arm acquisition was thwarted—could revisit strategic deals as demand for GPUs and AI hardware skyrockets.

Of course, risks linger. Regulatory shifts might not happen as quickly as anticipated, and global authorities (hello, EU) may not share the U.S.’s potentially relaxed stance. Plus, consumer sentiment toward “monopolistic” behavior could remain a wildcard.

Still, there’s something compelling about taking the other side of regulatory overreach. The companies Khan went after weren’t struggling; they were thriving, and it was their dominance that made them targets. With the FTC likely to take a backseat, these same companies could be positioned to sprint ahead.

Bottom line? Betting on the “inverse FTC” might feel contrarian, but sometimes, swimming upstream delivers the biggest catch.

Key Economic Data to Watch

Monday, December 2

• ISM Manufacturing PMI (Forecast: 47.6, Prior: 46.5): A gauge of industrial activity, with signs of a potential recovery.

• Construction Spending (Forecast: +0.2% MoM): A look into infrastructure investments.

Tuesday, December 3

• JOLTS Job Openings (Forecast: 7.51M): A key indicator of labor demand amid Fed rate considerations.

Wednesday, December 4

• ISM Services PMI (Forecast: 55.5): Signals health in non-manufacturing sectors, a vital component of GDP.

• Fed Chair Powell’s Speech: Could provide hints about rate decisions ahead of the December 18 meeting.

Friday, December 6

• Non-Farm Payrolls (Forecast: +200K, Prior: +12K): A crucial labor report following October’s hurricane and strike distortions.

• Unemployment Rate (Forecast: 4.2%, Prior: 4.1%): A slight uptick expected, reflecting a moderating labor market.

• Average Hourly Earnings YoY (Forecast: +3.9%, Prior: +4.0%): Key inflation insight as the Fed eyes wage growth.

Thanks for reading The Underlying! This post is public so feel free to share it.

Jobs Jingle: November’s Labor Data Holds the Key to 2025

The upcoming release of the Job Openings and Labor Turnover Survey (JOLTS) and the November non-farm payrolls report will be pivotal in assessing the labor market’s health as we approach year-end. October’s employment data revealed a mere 12,000 job additions—the weakest performance of the Biden administration—primarily due to disruptions from hurricanes and strikes.

Economists anticipate a rebound in November, projecting an increase of approximately 190,000 non-farm payrolls and a slight uptick in the unemployment rate to 4.2%. These figures will be instrumental in shaping expectations for Federal Reserve policy decisions, particularly regarding potential interest rate adjustments.

The JOLTS report will offer additional insights into labor demand, with forecasts suggesting job openings may edge higher to around 8.85 million, following October’s decline to 8.79 million—the lowest since March 2021. A resurgence in job openings would indicate employer confidence and a tightening labor market.

In summary, this week’s labor market data will be crucial in determining the trajectory of economic recovery and monetary policy as we transition into 2025. Investors and policymakers alike will be closely monitoring these reports to gauge the resilience of the labor market amid recent challenges.

Retail’s Naughty and Nice List: Who’s Winning This Holiday Season?

It’s the most wonderful time of the year—for some retailers, at least. As shoppers flood stores and online platforms in search of the perfect gifts, Wall Street is separating the winners from the laggards. On top of Santa’s “nice list” this season: Walmart (WMT) and Costco (COST), retail juggernauts poised to end the year on a high note. Both companies are flexing their scale and adaptability, combining low-priced necessities like groceries with discretionary offerings to dominate the holiday landscape.

Walmart’s CFO John David Rainey has confirmed that the holiday season is “off to a good start,” with Q4 sales growth expected between 3% and 4%. Meanwhile, Costco’s steady apparel business and membership-driven grocery dominance keep it firmly in the spotlight. Both stocks hit all-time highs this week—a testament to their robust execution as inflation-conscious consumers prioritize value. But it’s not just the big-box behemoths stealing the show. Specialty retailers like Abercrombie & Fitch (ANF) and Crocs (CROX) are leveraging digital marketing and social media savvy to capture holiday spending. Abercrombie’s transformation, fueled by micro-influencer campaigns and a streamlined product lineup, has produced a remarkable streak of double-digit same-store sales growth over six quarters. CEO Fran Horowitz recently described the holiday start as “strong,” validating Wall Street’s enthusiasm.

Crocs, on the other hand, is battling mixed sentiment. While its core brand thrives, the $2.5 billion acquisition of HEYDUDE has dragged revenue growth. Still, with a 7.4% Q3 revenue increase, the quirky footwear brand isn’t slipping off shoppers’ radar just yet. Meanwhile, the “naughty list” looms large for department stores and discount-heavy players. Macy’s (M) and Kohl’s (KSS) are struggling to maintain relevance, with stock declines of 19% and 46%, respectively, this year. Weak same-store sales, declining revenue, and soft demand for apparel have painted a bleak picture for these traditional retail giants. Even holiday promotions seem unlikely to reverse the tide.

And then there’s American Eagle (AEO) and Under Armour (UA), two names weighed down by steep discounting and valuation concerns. For American Eagle, aggressive pricing strategies may boost sales, but margins are taking a hit. Under Armour faces its own hurdles, including leadership instability and shrinking revenue. And then there’s the specter of slave labor… The brand is still grappling with an identity crisis—something holiday shoppers and Wall Street alike are finding hard to forgive. As we head deeper into December, the takeaway is clear: adaptability and value are the season’s biggest differentiators. Retailers that understand and evolve with consumer priorities are thriving, while those clinging to old strategies are being left behind. Whether you’re watching Walmart’s record highs or Macy’s struggles, this holiday season is as much about resilience as it is about spending.

Earnings Calendar Highlights

Monday, December 2

• Zscaler (ZS): Cybersecurity leader expected to post EPS of $0.63.

Credo Technology Group (CRDO): Expected to report earnings per share (EPS) of $0.05, reflecting a 400% year-over-year increase.

CleanSpark (CLSK): Anticipated to report an EPS from -$0.18 -$0.25, indicating a significant decline from the previous year.

Tuesday, December 3

• Salesforce (CRM): All eyes on AI-driven enterprise growth (EPS: $2.44).

• Marvell Technology (MRVL): Updates on AI and 5G chip adoption in focus (EPS: $0.41).

• Okta (OKTA): Cybersecurity trends drive interest (EPS: $0.58).

Wednesday, December 4

• Dollar Tree (DLTR): Consumer resilience amid inflation is key (EPS: $1.07).

• The Campbell’s Company (CPB): Price sensitivity remains a concern (EPS: $0.87).

• Chewy (CHWY): Pet-focused e-commerce resilience tested (EPS: $0.06).

• AeroVironment (AVAV): Set to report its second-quarter 2025 earnings after market close. Analysts project an EPS of $0.76, reflecting a nearly 22% decrease from the same period last year.

Thursday, December 5

• Lululemon (LULU): Holiday spending and growth in activewear dominate (EPS: $2.70).

• Hewlett Packard Enterprise (HPE): Cloud and AI updates are critical (EPS: $0.56).

• Ulta Beauty (ULTA): Retail’s luxury segment looks for a boost (EPS: $4.51).

Friday, December 6

• Kirkland’s (KIRK): Margins reflect pricing strategies in the holiday season (EPS: -$0.29).

Subscribe now

Trump-Era Tariffs: Winners and Losers in Apparel

As Trump’s second term looms, apparel brands are bracing for potential tariff turbulence. Global players like Nike (NKE) are well-positioned, with 60% of revenue generated outside the U.S., shielding them from domestic tariff risks. Meanwhile, Swiss sneaker maker ON Running (ONON) benefits from a diversified supply chain, with production concentrated in Vietnam and Indonesia—far from China’s tariff crosshairs.

On the other hand, Steve Madden (SHOO) sits on the vulnerable end of the spectrum, with 80% of its products manufactured in China and limited international revenue to offset risks. They plan to slash up to 45% of their China supply chain to avoid these pitfalls. For investors, it’s clear: supply chain diversification and global reach are the armor to weather tariff-driven volatility in retail.

Subscribe now

Crypto’s Trump Bump: Bitcoin and Ether ETFs See Record Inflows

Trump’s pro-crypto pivot is sending shockwaves through digital asset markets, with Bitcoin and Ether ETFs recording their highest-ever monthly inflows in November. Bitcoin-focused ETFs attracted a staggering $6.5 billion, while Ether ETFs brought in $1.1 billion, fueled by expectations of regulatory relief under the incoming administration. BlackRock, Fidelity, and Grayscale are leading the pack, with their digital-asset portfolios capturing outsized demand.

Bitcoin, now flirting with the $100,000 mark, continues to dominate the narrative, but Ether’s 2024 performance has quietly outpaced it since Trump’s election victory. Trump’s pledge to dismantle the Biden-era clampdown on crypto, coupled with proposals for a U.S. strategic Bitcoin stockpile, has reignited institutional interest and added a strategic edge to the digital asset conversation.

As Trump swaps skepticism for support, the crypto market has swelled by $1.2 trillion, marking a sharp rebound from its 2021 bust. With whispers of XRP ETFs on the horizon and broader adoption gaining traction, this new crypto era under Trump could mark a turning point for digital assets—and investors are piling in to be part of it.

China’s Bond Yields Plummet as Global Markets Grapple with Uncertainty

China’s 10-year government bond yield is nearing a historic low of 2%, reflecting growing bets on further monetary easing from the People’s Bank of China (PBOC). The slide in yields highlights the uneven recovery of the world’s second-largest economy, which remains hampered by a prolonged housing slump and subdued consumer sentiment. Investors are eyeing potential liquidity injections and additional reserve requirement ratio (RRR) cuts as the PBOC ramps up efforts to stabilize growth.

This decline in Chinese yields occurs as Asian markets rally, buoyed by Wall Street’s strong finish last week. Hong Kong’s Hang Seng and the Shanghai Composite gained 0.8% and 0.5%, respectively, while Japan’s Topix rose 0.4%. However, regional optimism is tempered by global geopolitical tensions, including U.S. President-elect Trump’s warnings to BRICS nations against creating a rival currency to the dollar. Emerging markets, particularly China’s yuan, face mounting volatility as Trump’s hardline stance on trade tariffs threatens to escalate tensions further.

Meanwhile, in Europe, the euro fell as France’s far-right leader Marine Le Pen escalated budgetary tensions, potentially destabilizing the government. French Finance Minister Antoine Armand rejected Le Pen’s push for immediate budget adjustments, fueling speculation about a no-confidence vote. The eurozone’s challenges, combined with concerns over global trade and inflation, weigh on investor sentiment heading into the final stretch of 2024.

As markets grapple with these interconnected pressures, the dynamics of monetary policy, geopolitical maneuvering, and economic recovery will define the closing narrative of an already eventful year. For now, China’s bond markets and easing bets remain a key focal point for global investors watching for signs of stability amid the uncertainty.

Latin America Could Rebound in 2025

Latin American equities had a tough 2024, with earnings contracting 24% across the region and MSCI indices for Brazil and Mexico sinking nearly 27%. Yet, JPMorgan’s latest projections offer a reason for optimism: a 16% rebound in earnings is expected for 2025, with all major economies except Colombia poised for double-digit growth.

FX depreciation played a significant role in this year’s struggles, but with stabilization on the horizon, key sectors like energy, industrials, financials, and tech are set to lead the recovery. However, the consumer discretionary sector may experience a 9% decline after a substantial 136% surge this year. Brazil and Mexico, the region’s largest economies, are expected to see earnings growth of 15% and 14%, respectively.

For investors, this turnaround could signal opportunity, particularly in sectors benefiting from favorable macro trends and a potential softening dollar. While risks tied to currency volatility and geopolitical uncertainty persist, the outlook for LatAm markets heading into 2025 is brighter than it has been in years.

Despite these positive projections, the region faces challenges, notably the impact of a strong U.S. dollar, which has depreciated local currencies and affected earnings. Additionally, political and economic uncertainties, such as potential shifts in U.S. trade policies under the new administration, could influence market dynamics. Investors should remain vigilant and consider these factors when evaluating opportunities in Latin American markets.

Disclaimer:

The Underlying #018

The Underlying — Mon, 25 Nov 2024 13:03:32 GMT

After last week’s optimism, markets are catching their breath, with recalibration evident across major indices. The S&P 500 gained 1.5%, the Nasdaq added just under 1%, and Bitcoin soared closer to the six-figure mark, buoyed by “Trump trades” and renewed investor confidence. Yet, beneath the surface, complexities abound. Nvidia’s AI leadership faces new challenges, pharmaceutical giants like Eli Lilly and Novo Nordisk navigate political turbulence, and geopolitical tensions push gold to new highs.

As we approach the holiday season, a packed calendar of earnings and macroeconomic updates promises to set the stage for market sentiment heading into 2025. From the latest on Nvidia’s dominance to retail trends and geopolitical undercurrents, this week offers no shortage of developments to watch. Let’s dive into the details.

NQ! Key Levels

Resistance at 20800 → 21340

Bullish above 20520 → 20750 → 20800

Uncertainty between 20500 → 20400

Bearish below 20400 → 20000 → 19900

(I’m pretty confident that we flush a bit into Thanksgiving, but long term still bullish above 20750)

Thanks for reading The Underlying! This post is public so feel free to share it.

Eli Lilly and Novo Nordisk: Weight-Loss Titans Under Pressure

The political landscape is shifting, casting shadows over pharmaceutical giants leading the charge against obesity. The recent nomination of Robert F. Kennedy Jr. as Secretary of Health and Human Services has rattled investors, primarily due to his vocal preference for nutritional interventions over pharmaceutical solutions. This sentiment has triggered a sell-off, with Eli Lilly (LLY) and Novo Nordisk (NVO) shares dropping nearly 5% last week.

However, it’s essential to contextualize this reaction. The role of HHS Secretary, while influential, does not wield direct control over drug pricing or insurance coverage decisions. Moreover, the obesity treatment market is projected to exceed $100 billion by 2030, indicating robust growth potential. Eli Lilly’s Mounjaro and Novo Nordisk’s Wegovy continue to dominate the market, with combined revenue projections surpassing $42 billion by 2029.

For long-term investors, the recent dip in stock prices may present a strategic entry point into a sector poised for significant expansion. The underlying demand for effective obesity treatments remains strong, and the current market volatility could offer opportunities for those with a forward-looking perspective.

Nvidia’s Rollercoaster: AI’s Kingpin Stumbles, But Not for Long

Nvidia (NVDA) continues to assert its dominance in the AI hardware sector, reporting a remarkable 94% year-over-year revenue increase to $35.1 billion in Q3. Despite these impressive figures, the stock’s muted response suggests that investor expectations have reached lofty heights. With a market capitalization nearing $4 trillion, Nvidia’s leadership remains unchallenged—for now.

However, emerging challenges warrant attention. Supply chain constraints are impacting the delivery of Nvidia’s AI chips, despite booming demand. Additionally, technical issues with the new Blackwell GPUs, including overheating in server configurations, have raised concerns. Competitors like AMD and Google are developing their own AI chip strategies, the competitive landscape is shifting.

Nonetheless, Nvidia’s short-term dominance is evident, with demand outstripping supply—a scenario that could sustain elevated valuations into 2025.

KeyBanc’s Myopic Perspective on Monolithic Power

Monolithic Power Systems (MPWR) is currently trading at a discount, presenting a compelling opportunity for investors. Recent concerns have focused on overheating issues in Nvidia’s Blackwell AI chips, with some speculating that MPWR’s voltage regulators may be responsible. However, these issues are more likely due to Nvidia’s design choices and the integration of their GPUs into high-capacity server racks, rather than any shortcomings in MPWR’s components.

Notably, KeyBanc analyst John Vinh previously projected that AMD would generate approximately $8 billion in data center GPU revenue in 2024, a forecast that proved overly optimistic as AMD’s actual revenue was closer to $5.5 billion. This calls into question the accuracy of Vinh’s recent lowering of MPWR’s price target, given the company’s robust fundamentals and diversified client base. To put it bluntly—he was wrong then. And he’s wrong now.

While Infineon is expected to take on a larger share of Nvidia’s Blackwell voltage regulator supply, MPWR’s exposure to Nvidia is not a dominant revenue driver. Analysts anticipate MPWR’s 2025 revenue to reach approximately $2.65 billion, representing significant growth over the prior year. Nvidia-related revenue, including Blackwell, is projected to grow year-over-year despite some expected market share loss to competitors.

MPWR’s diversified product portfolio and strong relationships with industry leaders underscore its stability and growth potential. The market’s reaction appears to overestimate the impact of Nvidia’s supply chain adjustments while underappreciating MPWR’s long-term strengths. For investors seeking value in the semiconductor sector, MPWR remains a compelling prospect with substantial upside potential.

Thanks for reading The Underlying! This post is public so feel free to share it.

Geopolitical Fears Push Gold Prices Higher

Gold has reclaimed its status as a safe-haven asset, surging past $2,700 per ounce amid escalating geopolitical tensions. Russia’s recent deployment of a new intercontinental ballistic missile (ICBM) and the intensifying conflict with Ukraine have heightened fears of broader global instability. Despite the U.S. dollar reaching a two-year high, gold’s resilience is evident, with bullish sentiment targeting $2,750.

For investors, price dips below $2,685 could be good places to bid. Beyond gold, other precious metals like platinum and silver have also experienced gains. Platinum, in particular, is poised for a potential supply deficit in 2025... Upcoming Personal Consumption Expenditures (PCE) data will be helpful to get more color on inflation trends that could make a stronger case for investing in precious metals.

Holiday Spending Hits High Gear

As the holiday season approaches, the retail sector is gearing up for a significant surge in consumer spending. The National Retail Federation (NRF) forecasts that U.S. holiday sales will grow between 2.5% and 3.5% over 2023, reaching a total of $979.5 billion to $989 billion in November and December. Bain & Company forecasts that U.S. retail sales during the Black Friday to Cyber Monday weekend will surpass $75 billion, marking a 5% increase from the previous year and setting a new record. Leading retailers are strategically positioning themselves to capitalize on this anticipated consumer activity. Walmart (WMT) continues to demonstrate robust e-commerce growth, leveraging its extensive online platform to attract a broad customer base.

Off-price retailers like TJX Companies (TJX) and Ross Stores (ROST) are also benefiting from consumers’ heightened sensitivity to value. TJX reported a 3% increase in comparable store sales for the third quarter, driven by higher customer traffic and strong performance in European markets. However, the company provided a cautious profit outlook for the fourth quarter, reflecting the uncertain economic environment. Target (TGT), on the other hand, has faced challenges, reporting a 12% decline in third-quarter earnings per share and providing a subdued forecast for the holiday season. The retailer cited weak demand for discretionary items and increased costs as contributing factors.

A critical question for the retail sector is whether consumers will maintain their spending momentum into December, especially with inflationary pressures persisting. Retailers are extending Black Friday deals over several weeks to entice shoppers, aiming to boost sales amidst slowing economic growth. For investors, key areas to monitor include inventory levels, promotional strategies, and each retailer’s positioning as they move into 2025. Retailers that effectively manage supply chains and offer compelling value propositions are likely to navigate the holiday season successfully and sustain performance in the new year.

Micron: A Tale of Diverging Memory Markets

Micron Technology (MU) has seen its stock tumble roughly 37% from its yearly highs, weighed down by a challenging memory market and global macroeconomic headwinds. However, the current narrative in memory pricing reveals a nuanced landscape—one that investors should understand before dismissing Micron’s potential. The memory market is experiencing a split reality. DDR5, the next-generation memory standard, is seeing prices climb by 10%–15% due to rising demand for high-performance computing and gaming systems. This segment benefits from increased adoption in AI and enterprise markets, where faster, more efficient memory is critical. However, the broader DRAM market tells a different story. Spot prices for standard DRAM modules have faced significant declines, reflecting a cyclical supply glut that has weighed on average selling prices (ASPs).

Micron is uniquely positioned in this environment. Unlike competitors such as Samsung and SK Hynix, which are more exposed to consumer markets, Micron’s product mix skews heavily toward enterprise applications like data centers, AI, and automotive. This strategic focus insulates Micron from some of the pricing pressures affecting consumer-facing segments, giving it a stronger foundation to weather volatility. Despite the near-term challenges, Micron’s fundamentals paint a compelling picture for long-term investors. The company’s aggressive R&D investments—over $3.4 billion in the last year—are focused on next-gen technologies like high-bandwidth memory (HBM) and 3D NAND. These innovations are critical to AI infrastructure, where memory and storage are foundational.

With FY25 revenue projected to hit $38 billion—a 24% increase over prior peaks—Micron is poised to benefit from the explosive growth in AI-driven demand. The market’s current undervaluation seems to overlook the company’s positioning as a key enabler of next-gen computing. Its operational focus on higher-margin enterprise and automotive applications further bolsters its resilience compared to peers. Micron is set to release its Q1 FY2025 earnings on December 18, and analysts are eyeing a potential inflection point. With an expected EPS of $1.75—up an eye-popping 284% year-over-year—the upcoming report could shift investor sentiment. The stock’s current valuation, trading well below its 52-week high, provides an asymmetric risk-reward setup for those willing to ride out near-term volatility.

Additionally, Micron’s insulation from certain geopolitical risks impacting other memory giants gives it a competitive edge. While Samsung and SK Hynix face greater exposure to China’s export restrictions, Micron’s diversified supply chain and focus on AI markets position it to outperform in a challenging environment. Micron’s story is one of complexity and opportunity. While the broader DRAM market faces headwinds, the company’s exposure to high-growth segments like AI and enterprise memory provides a clear path to recovery. For investors looking to capitalize on the intersection of technology and market cycles, Micron offers a compelling case at its current levels. The upcoming earnings report could be the catalyst that reminds the market of this semiconductor giant’s enduring value.

Earnings Calendar

Monday, November 25

• Before Market Open: BBWI

• After Market Close:

• A (Agilent Technologies)

• ZM (Zoom Video Communications)

Tuesday, November 26

• Before Market Open:

• BBY (Best Buy)

• DKS (Dick’s Sporting Goods)

• M (Macy’s)

• After Market Close:

• CRWD (CrowdStrike)

• DELL (Dell Technologies)

• HPQ (HP Inc.)

• JWN (Nordstrom)

• WDAY (Workday)

Wednesday, November 27

• Before Market Open:

• ADI (Analog Devices)

• ANF (Abercrombie & Fitch)

• After Market Close:

• ADSK (Autodesk)

Thursday, November 28

• Markets Closed for Thanksgiving

Friday, November 29

• Shortened Trading Session: Markets close at 1 PM ET.

Bitcoin Nears $100K: Crypto’s Moment in the Spotlight

Bitcoin (BTC) has doubled this year, and with pro-crypto policies expected under Trump’s administration, the rally shows no signs of slowing. Institutional interest is surging, fueled by $4 billion in ETF inflows since January. While speculative froth builds, the approval of Bitcoin ETFs has brought newfound legitimacy to the space.

For long-term crypto believers, the narrative of BTC as digital gold strengthens. But investors should remain cautious as momentum trades can quickly unravel—especially near psychological levels like $100K.

Tensions Mount on Bonds and Bidenomics

The expiration of the Bank Term Funding Program (BTFP) could have far-reaching consequences for liquidity in the financial system, particularly in a market already grappling with heightened bond yields and fiscal uncertainty. While the Federal Reserve positioned the BTFP as a temporary backstop to ease stress in the banking system following crises like the collapse of Silicon Valley Bank, its sunset after the election has raised eyebrows. Some critics argue that timing the expiration post-election shields the current administration from potential fallout, leaving the next administration to grapple with the consequences of tightening liquidity.

The BTFP provided critical liquidity to regional banks that were unable to offload low-yield, long-duration bonds without realizing substantial losses. Its expiration could force these banks to turn to the Fed’s Discount Window, a facility with higher borrowing costs and more stigma attached. This could lead to a liquidity crunch, especially for smaller institutions already under pressure from elevated interest rates and stricter regulatory requirements. The removal of this liquidity safety net might exacerbate volatility in Treasury markets. Institutions that relied on the BTFP to stabilize their balance sheets could be compelled to sell off long-duration bonds at a loss, further driving up yields and potentially destabilizing credit markets. Higher yields would also increase borrowing costs for businesses and consumers, dampening economic growth.

Subscribe now

With the program’s expiration, the incoming administration may inherit a financial system strained by tighter liquidity and elevated systemic risks. The challenge will be balancing market stabilization with fiscal prudence. A potential solution could involve reinstating a modified liquidity facility, but doing so would likely carry political baggage, particularly given critiques of the Fed’s interventions in 2023. From an investor perspective, the expiration of the BTFP underscores a shift toward more traditional monetary policy mechanics, signaling the Fed’s confidence in the banking system’s resilience. However, this confidence could be misplaced if liquidity dries up, prompting fears of broader market disruptions reminiscent of the 2008 financial crisis.

Investors are likely to focus on the Fed’s communication and the availability of alternative liquidity measures like the Discount Window or other creative tools. Risk-averse sectors, such as gold and Treasuries, might see inflows as a hedge against potential instability, while more volatile asset classes like equities and corporate bonds could face downward pressure. The expiration of the BTFP, timed after the election, sets the stage for heightened fiscal and monetary policy uncertainty as the next administration takes the reins. While the Fed appears confident in the system’s resilience, the true test will come as liquidity conditions tighten, potentially exposing vulnerabilities that could ripple through financial markets. For investors, vigilance is key—navigating this period requires a sharp focus on both macroeconomic indicators and central bank policy shifts.

Happy Thanksgiving, folks :)

Disclaimer:

Podcast Summary of the Last 3 Articles

The Underlying — Wed, 20 Nov 2024 14:41:07 GMT

Riding the Rhythm: How Intraday Volatility Shapes Market Movements

The Underlying — Tue, 19 Nov 2024 20:19:21 GMT

Thanks for reading The Underlying! This post is public so feel free to share it.

Below you’ll find the results of an intra-day volatility analysis I ran a while ago. In it, we can see that volatility peaks from 10-11, starts to gradually decline from 11-12, then from noon till 2:50pm it drops, while the last hour normally sees a return to vol levels from around 1-1:30

Volatility refers to the degree of variation in the price of a financial instrument over time. In simpler terms, it’s a measure of how much and how quickly the price of an asset, such as a stock or bond, moves up or down. High volatility indicates significant price swings, while low volatility suggests more stable prices. Understanding volatility is crucial for investors, as it helps assess the risk associated with an investment. For instance, a highly volatile stock may offer the potential for higher returns but also comes with increased risk of loss. Conversely, a stock with low volatility might provide more predictable returns but with limited growth potential.

Subscribe now

Intraday volatility can reveal a lot about the rhythm of the markets. It’s a key factor for traders and investors, especially those in options, who need to work with price movement in real-time. After observing the way volatility clusters around certain intervals during the trading day, I ran a data-driven analysis to confirm what intuition had already suggested. The results were clear: specific times of day do consistently see changes in volatility, providing a tactical advantage for those who can align their trades accordingly. Here’s find a table based on these observations to help frame what it means for trading—especially options.

The Underlying #017

The Underlying — Mon, 18 Nov 2024 13:20:38 GMT

After a post-election rally, the markets hit the brakes last week, with the S&P 500 shedding over 2% and the Nasdaq falling more than 3%. Inflation concerns and Federal Reserve Chair Jerome Powell’s remarks about a cautious approach to rate cuts stoked investor uncertainty, dampening the enthusiasm that had previously driven gains. This week promises a whirlwind of market-moving events, as Nvidia’s first earnings report since joining the Dow headlines a packed calendar. Analysts are laser-focused on the chipmaker’s AI dominance, with expectations of blockbuster results that could set the tone for tech and broader markets. Retail giants like Walmart, Target, and Lowe’s will also report, offering key insights into consumer spending trends as the holiday season approaches. Meanwhile, housing market data and Fed speeches will provide critical context on economic resilience amid stubbornly high mortgage rates. With a slew of earnings from global powerhouses and pivotal economic indicators—including building permits and Eurozone inflation—this week’s action could define investor sentiment as we edge closer to 2025. Strap in; it’s going to be a wild ride.

NQ! Key Levels

Resistance at 21270 → 21340

Bullish above 20520 → 20790 → 21090

Uncertainty between 20500 → 20010

Bearish below 20000 → 19900

Nvidia’s Earnings Spotlight: A Market-Shaping Week Ahead

This week, all eyes are on Nvidia and its CEO Jensen Huang, as the AI juggernaut prepares to announce what could be a market-defining earnings report. With expectations of 85% profit growth and an 81% revenue surge to $32.8 billion—nearly double last year’s figures, Nvidia continues to dominate the high-end chip market, critical for AI advancements. The company already commands an 80% market share in AI chips. At the heart of this surge? Their new Blackwell chips, which boast up to 5x the performance of the older H100 models, priced between $60,000 and $70,000 each. Its chips set a standard few competitors can match.

Despite the 3% dip last Friday, Nvidia’s market cap stands at an astonishing $3.48 trillion—surpassing even Apple. Nvidia shares have skyrocketed 186.7% this year, cementing its role as the leader in AI hardware. Major players like Elon Musk and Mark Zuckerberg are throwing billions at Nvidia, with Musk alone reportedly eyeing 400,000 chips for his AI ventures. The problem isn’t competition; it’s the bottleneck in supply chains that can’t keep up with “insane” demand, as CEO Jensen Huang puts it.

Their architecture allows chips to stack and interlock like Lego, providing hyper-customized solutions for the biggest names in tech. Meanwhile, hyperscalers like Amazon and Microsoft are quietly developing their own AI chip strategies, hinting at a brewing battle down the line. For now, though, Nvidia’s dominance is unmatched, and analysts project an eye-watering $185 billion in annual revenue by 2026. The question isn’t whether Nvidia will keep climbing—it’s how high they can go before the market demands a new challenger.

Retail heavyweights Walmart, Target, and Lowe’s will also take their turn at the podium, offering a window into consumer spending as we edge closer to the holiday season. Meanwhile, housing market data—ranging from builder sentiment to existing home sales—will provide critical context for an economy grappling with high mortgage rates. Meanwhile, small caps, which initially surged post-election, are giving back gains as earnings momentum stalls. Strategists warn that lofty market expectations may face further challenges as uncertainty around Trump’s economic policies and inflation risks weigh on sentiment. While optimism about U.S. growth persists, the pressure is on for both fundamentals and policy to deliver.

Nvidia Faces Heat as Blackwell AI Chips Overheat in Servers

Nvidia’s highly anticipated Blackwell AI chips are running into serious issues, with reports of overheating in server racks designed to house up to 72 units. The delays in delivering the chips, which promise groundbreaking performance for tasks like chatbot responses, are now compounded by supply chain challenges as Nvidia scrambles to redesign server configurations. These overheating concerns could impact key customers like Meta, Google, and Microsoft, who rely on Nvidia’s innovations to power their AI ambitions.

Nvidia has framed the design challenges as “normal engineering iterations,” but the setbacks come at a time when the company is under intense scrutiny ahead of its earnings report this Wednesday. This latest issue raises questions about the scalability and reliability of its next-gen AI hardware. With Nvidia shares up more than 180% this year, investor patience may be tested if these issues persist. The broader market looks to Nvidia as a bellwether, particularly given its heavy weighting in the S&P 500 and its central role in AI’s meteoric rise. The stakes couldn’t be higher for Nvidia, as both the company and its cutting-edge Blackwell chips are pivotal to AI’s future trajectory.

Economic Calendar: Week of November 18 - November 24, 2024

Tuesday, November 19:

• 08:30: US Building Permits Prel (Forecast: 1.48M, Previous: 1.45M)

• 18:50: Japan Balance of Trade (Forecast: -294.3B¥, Previous: -299.2B¥)

Wednesday, November 20:

• No scheduled reports

Thursday, November 21:

• 18:30: Euro Area Inflation Rate YoY (Forecast: 2.5%, Previous: 2.5%)

Friday, November 22:

• 03:30: Germany HCOB Manufacturing PMI Flash (Forecast: 41.0, Previous: 40.8)

Holiday Cheer Fuels Consumer Spending Amid Resilient Economy

Americans are gearing up to spend big this holiday season, with surveys signaling a notable boost in consumer confidence. Reports from Morgan Stanley, Bank of America, and others forecast year-over-year increases in holiday budgets, with many planning to splurge on gifts, decorations, and festive indulgences. Retail sales for October hit a record $718.9 billion, and wage growth outpacing inflation for 18 months has bolstered household balance sheets, keeping consumer spending strong even amid rising debt levels.

The economy is holding its ground. Unemployment claims are historically low, inflation is moderating, and mortgage rates have dipped slightly, creating a stable backdrop for holiday spending. Even as soft sentiment data lags behind hard economic indicators, Americans remain ready to open their wallets—a trend that could push retail and consumer-facing stocks higher as we close out the year.

But the outlook isn’t without risks. Political uncertainty, potential tariffs under the incoming administration, and volatile energy prices remain key concerns. Still, with robust earnings expectations and positive operating leverage driving stock market growth, the long-term outlook remains optimistic for both the economy and investors.

Walmart Leans Into AI as Analysts Boost Price Targets Ahead of Holidays

Walmart is bringing artificial intelligence to the forefront of its holiday strategy, positioning itself as a tech-powered retail leader. CEO Doug McMillon highlighted the retailer’s AI advancements, including its generative AI-powered shopping assistant and revamped product catalog, which improved over 850 million data points—work that would have required 100 times the staff without AI. This tech-driven approach isn’t just about efficiency; it’s about strengthening Walmart’s foothold across income levels and bolstering its omnichannel presence.

Ahead of its Nov. 19 earnings report, Walmart’s stock—up 61% year-to-date—is catching analysts’ attention. Bank of America, Jefferies, and Morgan Stanley all raised price targets, citing Walmart’s strong digital and in-store performance, investments in automation, and its growing appeal to higher-income households. With a shortened holiday season favoring digital-first retailers, Walmart is positioned for another “beat and raise” quarter, making it a top pick among retail analysts.

Earnings Calendar: November 18 - November 22, 2024

NOV 18

Before Market Open

• Bit Digital, Inc. (BTBT): EPS $0.02, Revenue $10M

• Bitdeer Technologies Group (BTDR): EPS -$0.10, Revenue $86.9M

• Brady Corporation (BRC): EPS $0.70, Revenue $300M

• Twist Bioscience Corporation (TWST): EPS -$0.10, Revenue $30M

• Monde Nissin Corporation (MOND): EPS $0.05, Revenue $50M

• Cellectar Biosciences, Inc. (CLRB): EPS -$0.05, Revenue $2M

After Market Close

• Symbotic Inc. (SYM): EPS $0.05, Revenue $300M

• Trip.com Group Limited (TCOM): EPS $0.30, Revenue $1.1B

• BellRing Brands, Inc. (BRBR): EPS $0.40, Revenue $400M

• Tuya Inc. (TUYA): EPS -$0.02, Revenue $50M

• AECOM (ACM): EPS $0.80, Revenue $3.5B

• Zenvia Inc. (ZENV): EPS -$0.05, Revenue $20M

• 9F Inc. (JFU): EPS -$0.10, Revenue $30M

• NRx Pharmaceuticals, Inc. (NRXP): EPS -$0.15, Revenue $5M

NOV 19

Before Market Open

• Walmart Inc. (WMT): EPS $4.24, Revenue $167.73B

• Workhorse Group Inc. (WKHS): EPS -$1.40, Revenue $0.84M

• Lowe’s Companies, Inc. (LOW): EPS $3.10, Revenue $24B

• XPeng Inc. (XPEV): EPS -$0.19, Revenue $1.12B

• Medtronic plc (MDT): EPS $1.40, Revenue $8B

• Futu Holdings Limited (FUTU): EPS $0.50, Revenue $200M

• Vipshop Holdings Limited (VIPS): EPS $0.30, Revenue $3B

• Atour Lifestyle Holdings Limited (ATA): EPS $0.20, Revenue $100M

• MYT Netherlands Parent B.V. (MYTE): EPS $0.10, Revenue $150M

After Market Close

• Powell Industries, Inc. (POWL): EPS $3.49, Revenue $288.17M

• The AZEK Company Inc. (AZEK): EPS $0.30, Revenue $300M

• Keysight Technologies, Inc. (KEYS): EPS $2.00, Revenue $1.5B

• ZTO Express (Cayman) Inc. (ZTO): EPS $0.50, Revenue $1.2B

• La-Z-Boy Incorporated (LZB): EPS $0.60, Revenue $500M

• KORE Group Holdings, Inc. (KORE): EPS -$0.05, Revenue $60M

• Dolby Laboratories, Inc. (DLB): EPS $0.90, Revenue $300M

• Danimer Scientific, Inc. (DNMR): EPS -$0.10, Revenue $20M

• Star Bulk Carriers Corp. (SBLK): EPS $0.70, Revenue $200M

NOV 20

Before Market Open

• NIO Inc. (NIO): EPS -$0.32, Revenue $2.52B

• Target Corporation (TGT): EPS $2.00, Revenue $27B

• ZIM Integrated Shipping Services Ltd. (ZIM): EPS $3.08, Revenue $1.93B

• The TJX Companies, Inc. (TJX): EPS $0.96, Revenue $13.47B

• Wix.com Ltd. (WIX): EPS $0.20, Revenue $400M

• Dycom Industries, Inc. (DY): EPS $1.50, Revenue $900M

• Williams-Sonoma, Inc. (WSM): EPS $3.00, Revenue $2B

• Berry Global Group, Inc. (BERY): EPS $1.20, Revenue $3B

• Global-E Online Ltd. (GLBE): EPS $0.10, Revenue $100M

After Market Close

• NVIDIA Corporation (NVDA): EPS $0.74, Revenue $32.96B

• Snowflake Inc. (SNOW): EPS $0.15, Revenue $800M

• Palo Alto Networks, Inc. (PANW): EPS $1.60, Revenue $1.8B

• Jack in the Box Inc. (JACK): EPS $1.20, Revenue $400M

• Copa Holdings, S.A. (CPA): EPS $2.50, Revenue $800M

• Sociedad Química y Minera de Chile S.A. (SQM): EPS $1.80, Revenue $1.5B

• Maximus, Inc. (MMS): EPS $1.00, Revenue $1B

• CCIF: EPS $0.50, Revenue $200M

• Euroseas Ltd. (ESEA): EPS $0.70, Revenue $50M

NOV 21

Before Market Open

• Baidu, Inc. (BIDU): EPS $2.35, Revenue $4.69B

• Pinduoduo Inc. (PDD): EPS $1.00, Revenue $5.5B

• Deere & Company (DE): EPS $4.50, Revenue $12B

• BJ’s Wholesale Club Holdings, Inc. (BJ): EPS $0.80, Revenue $4.5B

• Visteon Corporation (VSTS): EPS $1.50, Revenue $800M

• Warner Music Group Corp. (WMG): EPS $0.30, Revenue $1.5B

• KE Holdings Inc. (BEKE): EPS $0.25, Revenue $2B

• iQIYI, Inc. (IQ): EPS $0.10, Revenue $1B

• Nano-X Imaging Ltd. (NNOX): EPS -$0.20, Revenue $5M

After Market Close

• Intuit Inc. (INTU): EPS $2.36, Revenue $2.5B

• Elastic N.V. (ESTC): EPS $0.10, Revenue $300M

• The Gap, Inc. (GPS): EPS $0.41, Revenue $4.5B

• Ross Stores, Inc. (ROST): EPS $1.25, Revenue $4.5B

• NetApp, Inc. (NTAP): EPS $1.56, Revenue $1.6B

• Copart, Inc. (CPRT): EPS $0.70, Revenue $900M

• UGI Corporation (UGI): EPS $0.90, Revenue $1.5B

• Matthews International Corporation (MATW): EPS $0.60, Revenue $400M

• Natural Grocers by Vitamin Cottage, Inc. (NGVC): EPS $0.25, Revenue $300M

NOV 22

Before Market Open

• Global Blue Group Holding AG (GB): EPS $0.15, Revenue $4.7B

• Addex Therapeutics Ltd (ADXN): EPS -$0.07, Revenue $5M

Consumer Tech’s Renaissance: Brynn Putnam’s Next Move

Consumer tech is rebounding, and Brynn Putnam—fresh off her $500 million sale of Mirror to Lululemon—is seizing the moment. After watching the at-home fitness boom deflate, Putnam is pivoting to a new venture set to launch in 2025, focused on reimagining how technology fosters face-to-face connections. Her stealthy startup, backed by early investors like Lerer Hippeau, blends her knack for consumer hardware with lessons learned from Mirror’s meteoric rise and well-timed exit.

Putnam’s latest project moves beyond fitness, tapping into a shared experience ethos. Drawing inspiration from Nintendo’s “withered tech with lateral thinking” approach, she’s building a device aimed at fostering meaningful interactions at home—targeting families and friends rather than individual users. It’s a bet on a “golden age of hardware,” fueled by maturing components, affordable tech, and AI advancements, which are reshaping how we engage with our devices.

Consumer founders, emboldened by AI’s potential, are diving back in, and firms like Forerunner Ventures are doubling down with fresh $500M funds. As Ben Lerer of Lerer Hippeau put it: “AI is the catalyst, sparking imagination and making consumer tech exciting again.” For founders like Putnam, the opportunity lies in creating tech that doesn’t isolate but unites—bringing people back to the table, both literally and figuratively.

Cathie Wood Doubles Down on Amazon as ARK Funds Embrace Resurgence in Consumer Tech

Cathie Wood’s ARK Invest is back in the spotlight, riding a wave of renewed optimism following Donald Trump’s election win. Her flagship ARK Innovation ETF has outpaced the broader market, returning nearly 11% since Nov. 6, compared to the S&P 500’s 1.5% gain. At the center of this surge is Wood’s $38 million bet on Amazon, with ARK scooping up 189,496 shares throughout November.

Amazon’s recent initiatives, including the budget-focused “Amazon Haul” and early Black Friday sales, align with broader tailwinds in consumer confidence and e-commerce growth. Adobe projects U.S. online holiday sales to soar 8.4% to $240.8 billion this year, positioning Amazon to capture a significant share.

Despite mixed long-term performance for ARK’s funds, Wood’s conviction in “disruptive innovation” remains unwavering. Her Amazon move underscores her strategy of leveraging high-growth tech to navigate market volatility—though critics, including Morningstar, argue the fund’s performance reflects inconsistent forecasting ability.

Amazon’s year-to-date rise of 33% and its efforts to compete with discount giants like Shein suggest that Wood’s timing might be more than speculative. As Jeff Bezos cashes out $1.23 billion in shares, Wood’s contrarian play signals confidence in Amazon’s continued dominance.

Gold Dims After Trump’s Win, But the Shine Isn’t Gone

Gold’s meteoric rise in the lead-up to the U.S. election met an abrupt halt with Donald Trump’s decisive re-election, shedding nearly 7%—the worst post-election drop in decades, according to Deutsche Bank. As stocks, Bitcoin, and riskier assets rally on optimism for Trump’s market-friendly policies, the allure of gold as a safe haven has faded. Investors seem comforted by the predictability of Trump 2.0, even if they don’t necessarily endorse his agenda, dampening the need for hedges like bullion.

Yet, the long game for gold remains compelling. Trump’s tax cuts and tariff-heavy policies could eventually reignite fears of inflation and deficits, conditions ripe for a gold rebound. Meanwhile, geopolitical uncertainties may push central banks, especially in China and Russia, to keep stacking gold to hedge against dollar-centric risks. For now, though, risk-on sentiment and a strengthening dollar have shifted focus to equities, crypto, and industrial plays. As Infrastructure Capital Advisors CEO Jay Hatfield put it, “Who wants to miss the 10% rally in Goldman Sachs?” Still, with gold prices now at more accessible levels, this dip may be an opportunity for patient investors to position themselves for future volatility.

Fed Confidence: Inflation on Track to 2%, Says Boston Fed Chief

Federal Reserve Bank of Boston President Susan Collins expressed optimism that inflation is on a sustainable trajectory back to the Fed’s 2% target, even as monthly data continues to show volatility. Speaking after the Boston Fed’s conference, Collins highlighted that the persistent pressures, particularly in housing inflation, could take time to ease but noted no significant new price shocks on the horizon.

While monetary policy remains restrictive, Collins signaled that an interest rate cut in December is still a possibility, depending on the upcoming data. The sentiment reflects growing confidence within the Fed that its aggressive tightening cycle is yielding results, even as uneven progress and “bumps along the way” persist in the broader economic landscape.

The Fed’s ‘Sasquatch’: Neutral Rate Debate Grips Markets

As markets grapple with the incoming Trump administration’s economic direction, the Federal Reserve’s focus on the elusive “neutral rate” has become a defining challenge. Dubbed the “Sasquatch of the financial world” by Schwab’s Kathy Jones, the neutral rate represents the interest rate sweet spot where the economy grows without overheating or stalling.

But the problem? It’s unobservable and theoretical, forcing policymakers to rely on models and historical inputs like productivity. Minneapolis Fed President Neel Kashkari highlighted the implications at Yahoo Finance’s Invest 2024, noting that in a high-productivity economy, the neutral rate rises, giving the Fed less room for aggressive cuts.

Markets, however, are recalibrating. Initially anticipating a terminal rate of 2.8% by 2025, bond pricing now reflects a higher neutral rate, expecting fewer rate cuts and settling closer to 3.75%-4%. Meanwhile, Fed Chair Jerome Powell remains cautious, stating this week that “the economy is not sending any signals that we need to be in a hurry to lower rates.”

For now, the neutral rate remains a guiding phantom, steering debates as markets balance between data and speculation.

S&P 500 Profit Concerns Could Stall Market Rally

Wall Street analysts are dialing back their optimism for corporate earnings growth in 2025, threatening to derail the S&P 500’s impressive rally. The index, up more than 20% this year and trading at its highest valuations since 2021, faces significant headwinds as profit expectations falter.

A key indicator, earnings-revision momentum, has turned negative, signaling more downgrades to come. While third-quarter profits exceeded expectations, growing 8.5% year-over-year, forward guidance has been lackluster amid uncertainties surrounding Federal Reserve rate cuts, weak Chinese economic data, and fiscal policy questions in Washington.

Even with a forecasted 15% profit growth in 2025, analysts warn that lofty valuations—currently at 22 times forward earnings, well above the decade average of 18.4—leave little room for error. Big Tech’s dominance in driving earnings could shift as other sectors, particularly energy and materials, face pressure from slumping commodity prices.

Without stronger profit outlooks, the rally may falter, particularly as the Federal Reserve signals a cautious path on rate cuts. Analysts caution that lofty earnings expectations may need to realign with economic realities, putting the S&P 500’s recent gains at risk.

The Final Act: Gensler’s Regulatory Legacy Under Fire

As Gary Gensler’s tenure as SEC Chair approaches its potential conclusion, the crypto world has erupted in both critique and anticipation. Tyler Winklevoss, co-founder of Gemini, didn’t hold back, labeling Gensler “evil” and accusing him of weaponizing regulation to serve a personal and political agenda. This sentiment echoes across an industry that has seen massive enforcement actions under Gensler’s watch, including Gemini’s own run-in with the SEC over its Earn program, which resulted in a $37 million settlement and over $1 billion in customer restitution.

With President-Elect Trump expected to install a pro-crypto regulator, possibly someone like Robinhood’s Dan Gallagher, the stage is set for a dramatic pivot. The industry is hoping for an era of growth over enforcement, but Gensler’s legacy—marked by a scorched-earth approach to unregistered securities—remains polarizing. Whether his resignation preempts dismissal or not, the regulatory pendulum is poised to swing, promising a new chapter for digital assets.

MicroStrategy’s $26 Billion Bitcoin Bet Outshines Corporate Giants

Michael Saylor’s audacious gamble to stash Bitcoin instead of cash has propelled MicroStrategy into an elite league of wealth-heavy corporations. With approximately $26 billion in Bitcoin holdings, the software maker’s financial arsenal now surpasses giants like IBM and Nike, cementing its status as the largest corporate Bitcoin holder.

Since adopting Bitcoin in 2020 as an inflation hedge, MicroStrategy has turned a stagnant revenue story into a leveraged bet on crypto’s explosive growth. Its strategy? Raise capital through stock and convertible debt sales, ride Bitcoin’s volatility, and deliver a unique “Bitcoin yield” to shareholders. The results speak for themselves: Bitcoin has surged 700% since mid-2020, while MicroStrategy’s shares have skyrocketed over 2,500%, making it the best-performing US major stock in that period.

Critics question the risks of tying a balance sheet to Bitcoin’s swings, but Saylor remains undeterred, aiming to raise $42 billion in the next three years to further bolster the firm’s crypto reserves. Analysts like Benchmark Co.‘s Mark Palmer and TD Cowen’s Lance Vitanza back the approach, praising it as a value-creation engine that’s captivated investors.

For Saylor, the endgame isn’t cashing out but solidifying Bitcoin’s place as a cornerstone of shareholder value—a bold bet that has redefined MicroStrategy’s corporate identity.

JPMorgan Climbs Higher: S&P Rewards Market Dominance

JPMorgan Chase, already a titan in global banking, just secured a credit upgrade from S&P Global Ratings, rising to an A rating with a stable outlook. The move reflects years of outpacing rivals in market share, delivering record-breaking profits, and investing heavily in technology to future-proof its operations. As S&P noted, JPMorgan’s “pricing power, client selection, and economies of scale” set it apart in a fiercely competitive industry, cementing its position as one of the most robustly rated banks worldwide.

Under CEO Jamie Dimon’s leadership, the bank continues to shatter earnings records, riding high on a 44% surge in share price this year. While optimism around Trump’s regulatory easing has fueled investor enthusiasm, S&P clarified that its upgrade wasn’t tied to potential shifts in oversight. Instead, it highlighted the bank’s resilience and strategic edge, underscoring how thoughtful investments in tech and risk management are propelling it into the next era of banking dominance.

Spirit Airlines Faces Turbulence: Fitch Downgrades Credit Rating Amid Financial Woes

Fitch Ratings has downgraded Spirit Airlines’ long-term credit rating to ‘CC,’ signaling a grim outlook for the low-cost carrier as a near-term default looms. Despite strong travel demand, Spirit has reported losses in five of the past six quarters, raising doubts about its ability to meet looming debt obligations. The airline is now negotiating with creditors and exploring liquidity-improving strategies, but Fitch warns that customer confidence may erode, potentially accelerating cash burn.

The carrier faces a projected cash outflow of $600 million in 2024, partially mitigated by asset sales and compensation from Pratt & Whitney over grounded aircraft caused by engine issues. Spirit’s decision to sell 23 older Airbus planes and furlough 330 pilots in 2025 further shrinks its footprint, adding uncertainty to its recovery. Fitch’s analysis assumes Spirit will reorganize in bankruptcy rather than liquidate, but the road ahead remains uncertain.

Boeing’s Workforce Reset: 400+ Layoff Notices Amid Broader Cuts

Boeing is starting to feel the weight of its financial and operational struggles, delivering over 400 layoff notices to members of its professional aerospace union. This is just the beginning of a larger workforce reduction, with the company planning to cut around 17,000 jobs—roughly 10% of its staff—in the months ahead.

The layoffs, affecting engineers, scientists, and technical staff primarily in Washington, come as Boeing grapples with the fallout from an eight-week machinists’ strike, production slowdowns, and a capped output of the 737 MAX at 38 planes per month. While CEO Kelly Ortberg maintains the cuts are tied to “overstaffing” rather than strike-related losses, the strain on the company’s finances and regulatory hurdles paint a more complex picture.

Employees affected will receive severance, subsidized health care for up to three months, and career transition services, though the layoffs signal tough times ahead for Boeing’s workforce and operations.

Tariffs: A Smarter Tool for Trade and Manufacturing?

Tariffs have long been branded as blunt instruments, good only for stoking inflation and stirring up trade wars. But what if they could be more? Stephan Miran’s paper, “A User’s Guide to Restructuring the Global Trading System,” flips the script, arguing that tariffs, when used with precision, could recalibrate global trade while fueling a U.S. manufacturing revival. The trick lies in something called “currency offset,” where tariffs are paired with a stronger U.S. dollar to neutralize price increases at home. This approach doesn’t just keep consumer costs stable; it also boosts demand for American goods overseas and pressures foreign economies to play fair.

But here’s the kicker: tariffs are only as effective as the strategy behind them. Under Trump’s first term, tariffs secured concessions from China on currency manipulation and intellectual property theft, even if the enforcement was weak. Miran envisions a more calculated playbook, where tariff exemptions are dangled as incentives for countries to align with U.S. economic and geopolitical goals. Either way, the U.S. wins—whether through revitalized domestic production or direct Treasury revenue from tariff payments. Done right, this isn’t just about taxing imports; it’s about rewriting the rules of global trade in America’s favor.

Trump’s Win Clouds Economic Soft Landing Prospects

Economists are increasingly wary that Donald Trump’s return to the White House could derail the U.S. economy’s trajectory toward a soft landing. With the president-elect promising sweeping tariffs, corporate tax cuts, and restrictions on immigration, concerns over an inflation resurgence are mounting. Nobel laureate Joseph Stiglitz warned at Yahoo Finance’s Invest conference, “We are in the soft landing, but that ends Jan. 20.”

Trump’s proposed 10% blanket tariff on imports—escalating to 60% for Chinese goods—could ignite what Stiglitz described as an “inflationary spiral,” driving up prices and wages while triggering potential retaliation from trading partners. A “tit-for-tat” trade war, as Minneapolis Fed President Neel Kashkari put it, could prolong inflation and force the Federal Reserve to maintain higher interest rates, jeopardizing global growth.

Despite these risks, the U.S. economy has shown resilience. Retail sales hit new highs in October, unemployment remains low at 4%, and inflation has moderated. However, uncertainty looms over which policies Trump will prioritize or how aggressively he’ll implement them. As Bank of America notes, the Republican sweep of the presidency and Congress creates a volatile mix of potential outcomes—ranging from robust growth above 3% to the threat of recession.

For now, markets brace for change, adjusting rate cut expectations and preparing for a policy shake-up that could reshape the economic landscape in 2025.

Bidenomics Ends with a Twist: Trump’s Policies Could Rekindle Inflation

Inflation, the dragon that haunted Biden’s presidency, seems to be stirring again. After a hard-fought decline from 9% in mid-2022 to 2.4% this September, October’s uptick to 2.6% raises a critical question: has inflation been defeated, or is it preparing for round two? The stakes are high as Trump’s policy agenda looms large over the incoming administration, and markets are already hedging their bets.

The Federal Reserve, fresh off a policy pivot toward rate cuts, now finds itself navigating choppier waters. Tariffs, mass deportations, and tax cuts—pillars of Trump’s economic promises—are all inherently inflationary. Tariffs would raise import costs, deportations could strain labor markets, and tax cuts might overheat demand. Meanwhile, long-term bond yields are climbing, signaling market expectations of renewed inflation pressures.

If inflation accelerates in 2025, it could become Trump’s Achilles’ heel, echoing the political fallout that cost Biden and the Democrats. High borrowing costs and an inflation-weary electorate don’t pair well with economic optimism. Trump’s challenge will be to balance campaign rhetoric with practical policy, lest the reflation dragon burns his administration too.

Trump’s Stock Market Obsession Could Be Wall Street’s Safety Net—Or Its Wild Card

Donald Trump has always measured his presidency against the performance of the S&P 500, and his return to the White House seems poised to make the stock market his scoreboard once again. This fixation might be Wall Street’s best hope for stability, as Trump is unlikely to implement policies that could trigger a major selloff. However, his unpredictable approach—like proposing sweeping tariffs on imports—has investors walking a tightrope between optimism and anxiety.

The markets initially rallied after Trump’s election victory, with the S&P 500 posting its best post-election session ever. But the euphoria masks deeper concerns about Trump’s proposed policies, such as a universal 10%-20% tariff and a 60% levy on Chinese goods, which UBS predicts could shave up to 10% off U.S. equity valuations. Historically, Trump has shown a willingness to pivot when markets react negatively, and many strategists believe this instinct will temper his approach.

Yet, replicating the fiscal tailwinds of his first term may prove difficult. With interest rates much higher than in 2017 and equity valuations already stretched after a 53% rally since the end of 2022, Trump faces less room to maneuver. Additionally, his proposed immigration curbs and fiscal policy restraints could further limit his ability to stimulate growth.

While Trump’s sensitivity to market performance might act as a stabilizing force, it’s a double-edged sword. Overreacting to daily market moves, as he did during his first term, could destabilize investor confidence. With the bond market signaling inflation concerns and tighter financial conditions, the stakes are higher than ever for both Trump and Wall Street.

Decoding the Trump-Biden Market Rally

What’s driving the current surge in markets, despite Donald Trump’s return to the White House and his potentially disruptive economic policies? The answer lies in a unique interplay between the Biden administration’s groundwork and Trump’s pro-business tilt—a phenomenon best described as the Trumpian-Biden rally.

As Apollo CEO Marc Rowan pointed out at the Yahoo Finance Invest conference, America is at the epicenter of global economic activity. Infrastructure spending from Biden’s tenure—$2 trillion for construction projects and $52 billion for semiconductor plants—has yet to fully materialize but is poised to generate significant economic dividends. These efforts, combined with Trump’s anticipated deregulation, have markets betting on stronger cash flows and growth opportunities ahead.

Bank of America CEO Brian Moynihan echoed this sentiment, highlighting America’s resilience, from a strong labor market to readily available credit. “The fundamentals of capitalism—employment, spending, and investment—are what drive this rally,” Moynihan said, underscoring Wall Street’s faith in a pro-business policy framework.

However, the path forward is far from smooth. Tariff threats, regulatory uncertainty, and Trump’s polarizing policy moves could complicate the trajectory, even as optimism fuels bullish bets. Skepticism remains vital. Investors may celebrate now, but as history has taught us, even the brightest growth stories come with shadows.

Grid Stocks Shine Amid Trump’s Anti-ESG Pivot

As renewable energy stocks faltered post-election, the spotlight shifted to a resilient corner of the green economy: the power grid. With Trump’s anti-ESG rhetoric unsettling wind and solar markets, asset managers are zeroing in on the grid infrastructure sector—a segment poised to thrive despite the incoming administration’s policy shifts.

This pivot isn’t just strategic; it’s paying off. Shares of grid-focused companies like Eaton Corp., Rockwell Automation, and Emerson Electric have climbed over 6% since the election. Analysts at TD Securities and Morgan Stanley see grids as essential to meeting surging energy demand, especially as U.S. tariffs incentivize domestic manufacturing and data centers drive carbon-free power consumption.

While Trump’s plan to claw back unspent funds from Biden’s Inflation Reduction Act has green investors on edge, the need for cheap electricity—a cornerstone of Trump’s economic promises—makes grid upgrades unavoidable. The U.S. energy consumption spike, estimated at up to 15% growth in some regions over the next five years, further reinforces this trend.

The investment case for grid stocks is clear. With earnings per share projected to grow 11% next year and a strong equipment backlog globally, the sector offers a hedge against broader uncertainties in the renewable market. As Jerry Goh of Abrdn Plc notes, “Grid upgrades will benefit equipment makers globally for the next two to three years.”

For investors looking to navigate Trump’s anti-ESG era, grid stocks represent a compelling opportunity—balancing growth potential with resilience against policy risks.

Trump’s Chip Tariffs: A Threat to AI’s Growth Engine?

President-elect Donald Trump’s proposed tariffs on Taiwan’s semiconductors could send shockwaves through the AI trade, with companies like Nvidia (NVDA) and AMD (AMD) feeling the pinch. Trump’s stance, aired during a recent podcast appearance, challenges the CHIPS Act—a cornerstone of U.S. efforts to bolster domestic chip manufacturing. Instead, he suggests tariffs would pressure Taiwanese giants like TSMC to fast-track U.S. operations.

But the industry isn’t buying it. TSMC is already building a fab in Arizona, and experts warn tariffs could backfire by inflating costs for chip-dependent tech companies, which would ultimately trickle down to consumers. Nvidia, a key player in AI, relies heavily on Taiwan-built GPUs, meaning Trump’s tariff plan could erode profit margins and disrupt supply chains critical to the tech industry’s momentum.

While Trump’s rhetoric may be political posturing, Columbia Business School’s Lori Yue warns there’s a strong likelihood of these tariffs becoming reality. The outcome? Higher chip prices in the short term, but potentially offset by a deregulated AI sector under a Trump administration. For now, the chip industry is bracing for what’s next, as January looms and uncertainty reigns.

Will Biden’s Antitrust Crusade Morph into ‘Deal-Making Central’ Under Trump?

As Trump prepares to retake the reins in the White House, questions loom over the fate of Biden’s antitrust crusade against Big Tech and mega-mergers. Will Trump’s penchant for deal-making and deregulation shift the narrative from courtroom battles to negotiated settlements? Early signals suggest a softer stance on corporate consolidation could open the floodgates for stalled mergers and embolden Big Tech to strike compromises rather than endure drawn-out litigation.

Analysts predict Trump’s appointments—bolstered by Elon Musk’s advisory role and rumored picks like Matt Gaetz as Attorney General—could mark a dramatic pivot in enforcement. Cases against Google and Ticketmaster may still proceed, but critics fear broader reform efforts could falter, leaving tech giants to negotiate their way out of structural changes. Investors, meanwhile, are eyeing a “golden era” of deal-making as companies like American Airlines and Kroger revisit abandoned mergers.

For those betting on Trump’s deregulatory streak, “The Art of the Deal” may well become the playbook for navigating antitrust policy in the years ahead.

Trump’s Treasury Pick: Musk Backs Lutnick in High-Stakes Decision

The race for Treasury Secretary in Donald Trump’s incoming administration is heating up, with Elon Musk throwing his weight behind Howard Lutnick, CEO of Cantor Fitzgerald, over Key Square Group’s Scott Bessent. Musk lauded Lutnick as a disruptor compared to Bessent, whom he described as “business-as-usual.” The decision, however, has been mired in infighting, with Trump reportedly frustrated by lobbying efforts from both camps.

Lutnick’s significant role in Trump’s campaign fundraising and transition team strengthens his bid, but his past donations to Democrats, including Hillary Clinton and Kamala Harris, may complicate his prospects. Meanwhile, Musk’s political influence faces limits—his endorsement of Rick Scott for Senate leadership fell flat, with John Thune clinching the position instead.

The Treasury Secretary will be pivotal in Trump’s plans to overhaul tax and tariff policies, making the stakes high for this appointment. While Lutnick’s backers emphasize his potential to enact bold changes, Bessent’s advocates, including investor Kyle Bass, point to his deep expertise in markets and geopolitics. Trump, ever the dealmaker, remains tight-lipped, leaving room for alternative candidates like Apollo CEO Marc Rowan or Senator William Hagerty to emerge.

Trump Picks Fracking Pioneer Chris Wright as Energy Secretary

In a move signaling his administration’s commitment to oil and gas, President-elect Donald Trump has nominated Chris Wright, CEO of Liberty Energy Inc., to head the Department of Energy. Wright, a vocal advocate for fossil fuels, has championed the role of hydrocarbons in global prosperity and questioned the urgency of climate change. His nomination underscores Trump’s broader agenda to boost domestic energy production and roll back restrictions on the oil and gas industry.

Wright’s expertise spans oil, gas, geothermal, and nuclear energy, and his company is a key player in the global fracking sector. While a staunch critic of renewable energy subsidies, Wright supports innovation in alternative technologies, including small modular reactors and geothermal projects. His appointment also aligns with Trump’s campaign promises to refill the Strategic Petroleum Reserve and ramp up liquefied natural gas exports.

If confirmed, Wright will chair the newly formed Council of National Energy alongside Trump’s Interior Secretary nominee, Doug Burgum, shaping policies aimed at bolstering U.S. energy dominance and addressing burgeoning power demands fueled by advancements in AI.

Tom Steyer: The Energy Transition Will Thrive—Even Under Trump

Billionaire and climate advocate Tom Steyer isn’t sweating the incoming Trump administration’s impact on the energy transition. Despite expected rollbacks like exiting the Paris Agreement or cutting EV tax credits, Steyer is steadfast in his belief that market forces are driving the shift toward renewables. He points to Texas—America’s leading wind energy producer—where even fossil-fuel-friendly policies haven’t stalled the financial incentives behind clean energy. “This is business. This is economics,” Steyer emphasized at Yahoo Finance’s Invest conference.

For investors, Steyer sees opportunities in areas like real estate optimization, carbon sequestration, and agriculture—fundamentals that offer both impact and returns. While nuclear energy garners heavy interest from tech giants like Microsoft, Amazon, and Google, Steyer warns that scaling nuclear solutions remains a decade-long gamble, requiring aggressive investments. His message is clear: whether through EV adoption, green real estate, or advanced tech, the momentum for climate solutions is unstoppable, regardless of who occupies the White House.

Musk’s Political Gambit: From Tesla to Trump’s Inner Circle

Elon Musk’s latest project isn’t a rocket or robotaxi—it’s the U.S. government, courtesy of a $132 million bet on Donald Trump’s presidency. Musk, who campaigned as fervently as any seasoned politician, transformed his platform X (formerly Twitter) into a megaphone for Trump’s campaign, targeting young, disaffected voters with his trademark blend of edgy humor and bold promises. Musk’s America PAC went all-in, spending over $170 million to fuel Trump’s win while attracting a fresh cohort of voters with ads that resonated with their “edgelord” sensibilities. The billionaire’s efforts not only paid political dividends but also sent Tesla stock soaring 25%, netting Musk a $50 billion wealth boost and solidifying his role as both kingmaker and benefactor of Trump’s administration.

Trump, never one to ignore loyalty, has already hinted at rewarding Musk handsomely. From pledges to support SpaceX’s Mars missions to potential subsidies for Starlink, Musk’s fingerprints are all over Trump’s incoming policies. Yet, the alliance raises questions about its longevity and impact. Musk may excel in crafting bold visions, but his controversial behavior and Trump’s history of discarding allies could quickly erode this partnership. Moreover, Tesla’s eco-conscious customer base might not align with Musk’s political shift, leaving the electric car giant vulnerable to backlash. As Musk embraces his role as a quasi-political oligarch, the question remains: can his businesses weather the storm of partisan loyalty, or is this another case of high-risk, high-reward brinkmanship?

SpaceX’s Next Frontier: A $250 Billion Valuation, Starlink Dominance, and Mars Ambitions

Elon Musk’s SpaceX is preparing for a tender offer valuing the company at over $250 billion, with shares priced at $135 each. This staggering valuation underscores SpaceX’s rapid ascent, powered by Starlink’s unprecedented satellite network, which now serves over 4 million customers worldwide. Musk’s dream of Mars exploration may become a national priority under a Trump administration, potentially shifting NASA’s Artemis program toward uncrewed Mars missions this decade. However, SpaceX faces scrutiny, with worker safety concerns spotlighted after over 600 reported injuries last year—raising questions about regulatory oversight as the company eyes expansion into private spaceflight.

While SpaceX remains privately held—avoiding the short-term pressures of public markets—its dominance in space and connectivity markets, coupled with Musk’s interplanetary ambitions, keeps it firmly at the center of innovation and controversy. With two-thirds of the planet’s satellites under its control, SpaceX isn’t just looking to the stars; it’s reshaping Earth’s connectivity landscape.

The Price of Victory & The Price of Eggs

There’s a cruel symmetry to Donald Trump’s election victory, a tableau of irony so layered it borders on Shakespearean. Democrats pitched the 2024 election as a referendum on democracy itself, banking on Trump’s scandals and Kamala Harris’s historic campaign to galvanize voters. But for a majority of Americans, it wasn’t about authoritarianism, climate change, or even bodily autonomy—it was about inflation and grocery bills. The Democrats misjudged the moment, with Biden stumbling to connect his legislative wins to voter realities and Harris unable to reclaim ground with key demographics. Meanwhile, Trump did what he does best: reframing narratives, deflecting criticism, and dominating the airwaves with unrelenting scandal after scandal. From his cozy alliance with Elon Musk, an electric car billionaire backing a climate denier, to his relentless trolling of traditional media, Trump turned his perceived weaknesses into strengths, leveraging irony into an art form.

Now, irony is baked into the blueprint for his second term. A party obsessed with fiscal discipline is set to balloon the deficit through massive tax cuts and unchecked spending. His promise to slash food prices may run headfirst into his own proposed tariffs, which will likely push costs higher. And then there’s the sheer cosmic irony of Trump’s personal arc. The man fueled by vendettas has finally bested every major rival, leaving him without a target for his chaos. What happens when a politician whose power stems from grievance runs out of enemies? Whether he can summon a new narrative—or implode in the absence of one—will define not just the next four years, but perhaps the global order itself.

Global Focus: Climate, Green Energy, and Economic Signals Take Center Stage

This week, the G20 Summit in Rio de Janeiro gathers world leaders to tackle pressing global issues, with climate change and economic cooperation dominating the agenda. The outcomes are poised to shape international policies and strategies with far-reaching implications. Meanwhile, India’s NTPC Green Energy IPO (November 19–22) highlights the country’s commitment to renewable energy, aiming to raise ₹10,000 crore in one of the year’s largest offerings. On November 22, preliminary Flash PMI data for November will provide a critical pulse check on manufacturing and services across major economies, offering early insights into global business sentiment. Adding to the focus on green energy, Waaree Energies is set to release its financial results, giving investors a closer look at a key player in the solar industry amid growing momentum for renewable solutions.

Russia’s Gas Pivot: Austria Cut Off, Europe Scrambles Ahead of Winter

Russia’s gas game just got messier—after cutting Austria off due to a pricing spat, Moscow is redirecting those volumes to other European buyers like Slovakia and Hungary. Why? Because, despite all the geopolitical drama, Russian gas is still cheaper than most alternatives. Europe, now juggling colder temps and depleted reserves, is feeling the squeeze, with Dutch TTF gas prices climbing to nearly €46/MWh, their highest in a year.

Russia’s dominance in the European gas market has significantly declined from 35% pre-Ukraine war to being replaced by suppliers from Norway, the U.S., and Qatar. With Ukraine planning to shut off its gas transit route by year-end, and other pipelines like Nord Stream already out of the picture, the chessboard is shifting fast. Despite the EU’s efforts to reduce reliance on Russian gas post-Ukraine invasion, Russian supplies remain cheaper than many alternatives. Buyers, particularly in Central Europe, continue to rely on these supplies for cost-effectiveness. Expect Hungary and Slovakia to keep cashing in on those cheap flows, while the rest of Europe scrambles for LNG to avoid winter shocks.

Emerging Bonds Under Fire: Trump Tariff Jitters Send Markets into Retreat

Emerging market bonds are taking a beating as Trump’s tariff rhetoric and a surging dollar shake investor confidence. A Bloomberg index of local-currency EM debt has slipped 3.5% since October, with funds pulling out amid fears of a global trade war and rising U.S. Treasury yields. The President-elect’s promises of sweeping import tariffs, including a 60% levy on Chinese goods, have spooked markets reliant on export-driven growth, pushing central banks in nations like Brazil to tighten rates instead of easing. With the U.S. 10-year yield climbing toward 4.5% and expectations of further hikes, the once-reliable spread between emerging-market bonds and Treasuries is vanishing. Add in the potential for a stronger dollar forcing currency defenses, and EM assets are looking increasingly fragile as Trump’s economic policies loom.

Toyota Bets Big on Mexico Despite Trump Tariff Threats

Toyota is doubling down on its commitment to Mexico with a $1.45 billion investment aimed at expanding Tacoma pickup production and launching a hybrid electric Tacoma line. The expansion, split between Apaseo el Grande and Tijuana, will add 1,650 jobs and bolster Toyota’s annual output for the U.S. market. The move comes as Trump’s proposed tariffs on Mexican imports loom large, with Mexican officials hinting at potential retaliatory measures.

Toyota’s strategic positioning underscores the critical role of Mexico’s automotive hubs in North America’s supply chain resilience, even amid shifting trade policies. With over $3 billion invested in Mexico to date, Toyota’s growth signals confidence in the region’s long-term importance despite potential trade hurdles.

India and Nigeria Forge Stronger Security and Economic Ties

In a landmark visit to Abuja, Indian Prime Minister Narendra Modi and Nigerian President Bola Tinubu committed to deepening ties across security, trade, and development. Modi’s first trip to Nigeria underscored the two nations’ shared priorities, particularly in counterterrorism and maritime security, as they face increasing threats in the Indian Ocean and Gulf of Guinea. Enhanced intelligence sharing and joint efforts to combat piracy were central to their discussions.

Modi, championing India as a voice for the Global South, emphasized collaborative advocacy for developing nations on the global stage. Nigeria, India’s largest African trading partner with bilateral trade reaching $14.9 billion in 2022, remains a vital hub for over 200 Indian companies and 60,000 Indian nationals.

President Tinubu, honoring Modi with the Grand Commander of the Order of the Niger, praised his dedication to democratic values, signaling a new chapter in India-Nigeria relations. Together, the leaders envision bolstered partnerships in energy, technology, and trade, promising mutual benefits for their nations and the broader Global South.

APEC Summit Highlights Xi’s Globalization Push as Trump’s Trade Agenda Looms

The Asia-Pacific Economic Cooperation (APEC) summit wrapped up in Lima, Peru, with Chinese President Xi Jinping at the forefront, championing globalization amid growing uncertainty about U.S. leadership. Xi emphasized the need to dismantle trade barriers, positioning China as a steadying force in an era of shifting alliances. His speeches were amplified by symbolic gestures, such as inaugurating a $1.3 billion Peruvian megaport aimed at boosting South American trade.

Meanwhile, President Joe Biden, in one of his final global engagements, focused on solidifying alliances that may face strain under the Trump administration. Despite efforts to underscore stability in U.S.-Japan relations and concerns about North Korea’s ties with Russia, Biden’s ability to shape the agenda was muted by his election defeat and the specter of Trump’s protectionist policies.

The summit’s traditional family photo mirrored the political undertones, with Biden arriving late and Xi commanding center stage beside Peru’s President Dina Boluarte. With Trump’s tariff threats and skepticism of multilateral trade agreements on the horizon, APEC 2024 closed on a note of cautious optimism tinged with uncertainty.

ByteDance Values Itself at $300 Billion as TikTok’s U.S. Prospects Shift

ByteDance, the Chinese tech giant behind TikTok, has reportedly valued itself at $300 billion in a recent share buyback offer, marking a rebound from its $223 billion valuation just a year ago. This valuation underscores the company’s confidence even as TikTok faces regulatory scrutiny in the United States.

The app’s outlook may be improving with Donald Trump’s return to the presidency. While President Joe Biden signed a bill threatening a U.S. TikTok ban unless ByteDance divested the platform, Trump, who once pursued a ban himself, now claims he will “SAVE TIK TOK IN AMERICA.” With Republican megadonor Jeff Yass among ByteDance’s investors, the political winds may be shifting in the app’s favor.

China’s Yuan Faces Storm as Trump Returns

China’s ambitions for a “powerful currency” are colliding headfirst with Donald Trump’s return to the White House. The yuan, already under pressure, is facing a potential storm as analysts brace for a second round of tariff battles and economic friction. With Chinese growth uneven and bond yields lagging behind the U.S., the yuan is particularly vulnerable. Predictions range from a slide to 7.5 per dollar in the near term to an ominous 8 per dollar by 2025—a level unseen since the George W. Bush era.

Beijing’s central bank has tools to steady the yuan, but letting it weaken might bolster exports and strengthen China’s hand in trade negotiations. However, a sharp devaluation risks inflaming U.S. accusations of currency manipulation and triggering capital flight. With President-elect Trump eyeing a weaker dollar to boost American goods, China could face an uphill battle maintaining yuan stability without abandoning its long-term goal of currency internationalization. This economic tug-of-war has high stakes, not just for China but for global markets caught in the crossfire of a resurgent U.S.-China rivalry.

Disclaimer:

On Seeking Alpha

The Underlying — Wed, 13 Nov 2024 16:09:29 GMT

Alpha: In the investment world, alpha is the hunt for opportunity—the chance to find an edge that outpaces the broader market. When we talk about uncovering alpha, we’re talking about spotting those undervalued sectors or companies where growth potential hasn’t been priced in yet, where market inefficiencies can lead to real outperformance. More formally, alpha (α) measures an investment’s performance relative to a benchmark index, adjusted for risk. It represents the excess return achieved beyond what would be expected based on the investment’s risk profile. A positive alpha indicates outperformance, while a negative alpha signifies underperformance compared to the benchmark.

Finding real alpha isn’t about tracking a stock’s fluctuations or chasing buzzwords. It’s about understanding where an industry truly stands in its cycle and recognizing what it takes for it to shift from stagnation or decline to recovery and growth. To consistently identify structural bottoms—the moments when an entire industry has hit its floor and is poised for a new growth phase—you need to take a layered approach that connects macroeconomic cycles, sector-specific signals, and market sentiment with precise timing. Here’s a primer on how:

Step 1: Identify Cyclically Depressed Industries with Potential

Start by pinpointing industries that are not just declining but are down due to identifiable cyclical reasons—factors that often precede recovery. Assess where the sector is within its lifecycle. Most industries follow similar arcs: rapid growth, market expansion, maturity, and eventual decline. In sectors with physical inventories, downturns can manifest as excess stock, overproduction, or signs of capital overextension. Digital industries, like SaaS and IaaS, may signal their lows differently—such as slowed subscription growth, increased customer churn, or discounted services to maintain market share. In both scenarios, underperformance relative to the broader market and persistent negative sentiment can indicate that a bottom is approaching.

Subscribe now

Key metrics can confirm this cyclical downturn. For inventory-dependent sectors, analyze things like capex-to-sales ratios, inventory write-downs, and elevated debt levels as companies struggle to finance unsold stock. For digital-first sectors, examine growth rates, customer acquisition costs, and deferred revenue. A low capex-to-sales ratio may indicate underinvestment in physical sectors, suggesting that capital spending could rebound when conditions improve. In digital industries, underinvestment in R&D or a slowdown in feature rollouts might be early signs of companies hitting a floor and preparing for a turnaround.

The Underlying #016

The Underlying — Mon, 11 Nov 2024 12:01:51 GMT

So, the election is over, and…a lot happened? Yeah, let’s go with that. It’s been a whirlwind week: Trump took both the electoral college and the popular vote, the Fed cut rates by 0.25 percentage points, and the markets responded by shooting up, adjusting to all this action in real time. But the big headline? Big Tech just won the 2024 election, plain and simple.

With Trump back in the Oval Office and J.D. Vance as his VP, the stage is set for a tech-driven, “America First” administration that’s eyeing rapid advancement in sectors like AI, semiconductors, and advanced computing. The vibe among the Magnificent Seven—Nvidia, Apple, Microsoft, Alphabet, Amazon, Meta, and Tesla—is cautiously optimistic. Trump’s administration is likely to favor deregulation, which means less oversight for AI and data privacy, giving U.S. tech companies an edge in the global market and spurring significant investments. But it’s a mixed bag: potential tariffs, a firmer stance on China, and challenges in international trade could introduce some volatility for Big Tech and beyond. This administration may be all-in on tech and infrastructure, but it’s not without its risks, making it prime time for investors to get strategic with their portfolios.

NQ! Key Levels

Resistance at 20900 → 21250

Bullish above 20450 → 20790 → 20900

Uncertainty between 20450 → 20040

Bearish below 20040 → 19900

Big Tech Wins the 2024 Elections

The election's outcome, which saw significant stock movements in the "Magnificent Seven" (Mag 7) technology companies — Nvidia, Apple, Microsoft, Alphabet, Amazon, Meta Platforms, and Tesla — hints at mixed investor sentiment about potential regulatory and trade shifts. However, key figures in Trump’s inner circle, including Peter Thiel, Elon Musk, and Vice President-elect Vance, emphasize a vision that could markedly favor the tech industry’s growth and innovation potential.

Trump's administration appears intent on rolling back existing AI regulations, particularly dismantling the comprehensive oversight framework established by President Biden’s 2023 AI Executive Order, which emphasized safety and ethical AI deployment. The anticipated shift toward lighter regulation aligns with the interests of tech leaders like Thiel, Musk, and Vance, all of whom have advocated for reduced government intervention in technology. Thiel, a vocal proponent of minimal regulatory constraints, and Musk, who has previously expressed both enthusiasm and caution toward AI, are likely to steer the administration's approach toward fostering rapid AI advancements, focusing on competitiveness and national superiority in tech development.

The Mag 7 stocks reacted with varying levels of enthusiasm to the election. Nvidia, a leader in AI and semiconductor technologies, saw a 1.5% rise, signaling investor optimism about the potential for policy changes to benefit the semiconductor industry. Tesla experienced the biggest boost, surging by 8.2% as investors anticipated the new administration might promote the electric vehicle sector, a primary focus of Musk’s ventures. Apple and Amazon saw slight declines, with investors weighing possible impacts of the administration's stance on trade and antitrust regulations. Microsoft, Alphabet, and Meta faced drops due to uncertainties about potential shifts in regulatory scrutiny, data privacy, and labor policies.

Looking ahead, the administration’s plans, including significant AI initiatives and incentives for private sector involvement, aim to make America a leader in AI innovation. Reduced regulatory barriers could catalyze research and development, increased funding for startups, and greater industry adoption. While this direction holds promise for economic and technological growth, concerns about ethical standards and societal impacts remain. Nonetheless, the election marks a pivotal moment for big tech, with potential policy benefits that may place the U.S. at the forefront of global technology advancement.

What the Incoming Administration Means for the Market

Let’s talk about what a second Trump administration could mean for your portfolio. This election outcome is a potentially massive recalibration across sectors like energy, tech, infrastructure, and defense. With a stronger “America First” stance, deregulation, and some hard-line protectionist trade moves likely in play, investors are looking at both new opportunities and fresh risks.

Trade and Tariffs: The China Question Returns

First up, trade. A second Trump term would probably mean tariffs on China are back—and not just in a mild way. We’re talking serious cost pressure on U.S. companies importing from China, from Walmart & Target to sellers on Etsy (not to mention what could happen to AliBaba and it’s ilk). These guys would face higher margins and supply chain snarls. With the U.S. putting the squeeze on Chinese imports, companies will likely fast-track their onshoring plans. This shift plays well for automation and industrial players like Rockwell Automation and Emerson Electric who help U.S. companies bring production home.

In the FX game, tariffs could crank up the U.S. dollar as global investors hunt for safe assets. The USD/CNY pair might appreciate, adding tension to European currencies if the U.S. decides to push its “buy American” angle globally. Investors who see this coming might think about taking long positions on domestic manufacturing or industrial automation while balancing the risks by hedging currency exposure.

Labor Policy Meets Automation: Filling the Gap

Stricter immigration policies are pretty much a given, and that means labor shortages in agriculture, construction, and healthcare could become more of a thing, raising wages and operational costs for sectors reliant on immigrant labor. Companies like Tyson Foods or NVR Inc. could feel this pinch hard. So what’s the fix? Automation—if people are hard to find, the next logical step is to get machines to do the work. UiPath and Boston Dynamics look like they’re in the right place at the right time, with robots ready to go and demand for automated labor solutions ramping up.

For investors, this means keeping an eye on robotics and AI companies that could be about to score big as automation becomes essential. This also spells profitability challenges for companies with low-wage labor dependencies—they’ll need to decide if they’re ready to adapt or risk getting outpaced.

For tech and manufacturing reliant on imports, this onshoring push means the U.S. semiconductor industry could get a solid bump. Intel and Texas Instruments may find themselves in high demand if import tariffs on foreign tech inputs rise.

Inflation and Precious Metals: Playing Defense

If we’re looking at growth-focused fiscal policies, we’re also probably looking at inflation, making inflation-hedged assets a smart play. Precious metals companies, like Barrick Gold and Newmont Corporation, may get some wind in their sails as gold becomes a safe-haven asset. With inflation in play and a strong dollar potentially adding strain to U.S. exports, precious metals can help counterbalance these pressures.

Investors might look at long positions in gold or gold-backed assets as a hedge against potential inflation or dollar volatility. If protectionist policies strengthen the USD, this can hit companies with major foreign exposure, especially in currency-sensitive sectors.

Financials and Deregulation: Wall Street’s Open Highway

Deregulation could offer Wall Street banks and financial firms a strong tailwind. JPMorgan Chase, Bank of America, and Goldman Sachs might see accelerated M&A activity and expansion in lending as regulations loosen up. Regional banks, too, could enjoy a lift if local-level deregulation filters down. But as always, balance is key—loose lending and leverage can lead to higher volatility. Systemic risks aren’t off the table, so keeping positions lean might be the name of the game.

Space and Telecom: Betting on the Final Frontier

Telecom’s latest frontier—space—could see a surge as private satellite internet initiatives like Starlink disrupt traditional telecom. Companies like Iridium Communications and AST SpaceMobile are already in the race to set up space-based internet, and this trend is only going to heat up with more regulatory support. With the U.S. eyeing national security in space, Maxar Technologies and Aerojet Rocketdyne could be in for a major demand spike for space exploration and security technologies. For investors looking for a moonshot, space infrastructure might be the next big thing.

The Bottom Line: Strategic Positioning and Tactical Plays

So what does this mean for your portfolio? Let’s put it all together. A Trump administration’s economic policies are likely to create volatility but also open new doors for those who stay on top of policy-driven opportunities. With deregulation on deck, energy, defense, and tech sectors look poised to benefit. Tactical plays here could yield strong returns, especially if you’re willing to follow the administration’s playbook on fossil fuels and deregulated tech. Companies with local supply chains will likely outperform as tariffs and trade tensions encourage more U.S.-based manufacturing. Betting on manufacturing and industrial firms with domestic infrastructure may be a wise move. Furthermore, inflation hedges like gold and FX positions around the Euro, Yuan, Dollar and Mexican Peso could add a layer of defense, especially if inflation runs high or the dollar fluctuates.

Economic Calendar

Tuesday, November 12:

Germany ZEW Economic Sentiment Index (05:00 ET): This indicator reflects the economic outlook of German institutional investors and analysts. A forecast of 13.1 suggests optimism, up from the previous 10.2.

Wednesday, November 13:

U.S. Consumer Price Index (CPI) (08:30 ET): The CPI measures changes in the price level of a basket of consumer goods and services. Forecasts indicate a 0.3% month-over-month increase and a 3.2% year-over-year rise, compared to previous figures of 0.2% and 3.1%, respectively.

U.S. Core CPI (08:30 ET): Excluding volatile food and energy prices, the Core CPI is expected to rise by 0.3% month-over-month and 3.0% year-over-year, following prior increases of 0.2% and 3.2%.

Thursday, November 14:

U.S. Producer Price Index (PPI) (08:30 ET): The PPI, which measures the average change in selling prices received by domestic producers, is anticipated to remain unchanged month-over-month, following a 0.1% increase previously.

Japan GDP Growth Rate (18:50 ET): Preliminary data for the third quarter is expected to show a 0.8% quarter-over-quarter growth, an improvement from the previous 0.5%.

China Industrial Production (21:00 ET): Year-over-year industrial output is forecasted to grow by 5.4%, up from 5.1% previously.

China Retail Sales (21:00 ET): Retail sales in China are projected to increase by 3.2% year-over-year, compared to a prior 2.9% rise.

Friday, November 15:

U.S. Retail Sales (08:30 ET): Retail sales are expected to grow by 0.4% month-over-month, following a 0.7% increase in the previous month.

Earnings Calendar

Monday

Monday.com Ltd. (MNDY): As a leading work operating system platform, Monday.com is set to announce its third-quarter 2024 financial results on Monday, November 11, 2024. Analysts anticipate earnings per share (EPS) of $0.30, reflecting a year-over-year decrease of 31.8%, and revenues of $198.29 million, marking a 32.3% increase from the same period last year. Investors will be keen to assess the company's revenue growth, particularly in its subscription services, and any updates on customer acquisition and retention rates. Given the competitive landscape in project management software, insights into product innovation and market expansion strategies will be pivotal.

ICL Group Ltd. (ICL): Specializing in fertilizers and specialty chemicals, ICL's earnings will reflect trends in the agriculture and industrial sectors. Analysts expect EPS of $0.12 and revenues of $1.8 billion. Key areas of interest include sales volumes, pricing strategies, and the impact of raw material costs on margins. Investors will also look for updates on sustainability initiatives and any strategic partnerships or acquisitions that could influence future growth.

Aramark (ARMK): As a global provider of food services and facilities management, Aramark's performance is closely tied to sectors like education, healthcare, and sports. The consensus estimate for EPS is $0.50, with revenues projected at $4.6 billion. Investors will focus on revenue recovery in these segments, cost management efforts, and the impact of inflation on operating expenses. Additionally, insights into contract renewals and new business wins will be crucial indicators of future performance.

Global Ship Lease, Inc. (GSL): Operating in the containership leasing industry, GSL's earnings will provide insights into global trade dynamics and shipping demand. Analysts forecast EPS of $1.20 and revenues of $160 million. Investors will be attentive to fleet utilization rates, charter rates, and any fleet expansion or renewal plans. Given the volatility in shipping markets, guidance on future demand and contract coverage will be essential.

Rockwell Medical, Inc. (RMTI): A biopharmaceutical company focusing on therapies for kidney disease, Rockwell Medical's earnings will shed light on product sales, particularly of its iron maintenance therapy, and progress in its pipeline development. The expected EPS is -$0.05, with revenues of $18 million. Investors will look for updates on regulatory approvals, partnerships, and strategies to expand market reach.

Sapiens International Corporation N.V. (SPNS): As a provider of software solutions for the insurance industry, Sapiens' performance will reflect trends in digital transformation within the sector. Analysts anticipate EPS of $0.30 and revenues of $120 million. Key metrics include revenue growth in cloud-based services, client acquisition, and retention rates. Investors will also be interested in any advancements in artificial intelligence integration and geographic expansion efforts.

Zeta Global Holdings Corp. (ZETA): Operating in the marketing technology space, Zeta's earnings will highlight its ability to attract and retain clients in a competitive environment. Analysts anticipate earnings per share (EPS) of $0.17, reflecting a significant year-over-year increase of 88.9%, and project revenues of approximately $252.5 million.

Investors will closely examine Zeta's ability to expand its client base and increase revenue through its data-driven marketing platform. In the second quarter of 2024, the company reported record quarterly revenue of $228 million, marking a 33% year-over-year growth and surpassing guidance by $16 million. This growth was attributed to the addition of eight new scaled customers, bringing the total to 468, and a 22% year-over-year increase in average revenue per user (ARPU) to $479,000. Sustained growth in these metrics would indicate effective client acquisition and retention strategies.

Zeta's integration of artificial intelligence (AI) into its marketing solutions is a focal point for investors. The company's AI-powered marketing cloud aims to deliver personalized marketing strategies at scale. Updates on advancements in AI capabilities, such as enhanced predictive analytics and machine learning algorithms, will be crucial in assessing Zeta's competitive positioning in the martech landscape. The effectiveness of these AI-driven solutions in improving client outcomes and driving revenue growth will be a key area of interest.

While Zeta has demonstrated strong revenue growth, achieving profitability remains a critical milestone. In the second quarter of 2024, the company reported a net loss of $0.16 per share, missing the consensus estimate of $0.10. However, the company generated $31 million in cash flow from operating activities, a 51% year-over-year increase, and $20 million in free cash flow, a 53% year-over-year increase. Investors will be attentive to any progress toward profitability, including cost management strategies and operating margin improvements.

Beyond immediate financial metrics, stakeholders will seek insights into Zeta's strategic initiatives, including potential mergers and acquisitions, product development, and market expansion plans. In July 2024, Zeta raised its full-year revenue guidance by $25 million to a midpoint of $925 million, representing a 27% year-over-year growth. Updates on the execution of strategic initiatives to achieve this guidance will be of particular interest. Zeta's upcoming earnings report is expected to provide valuable insights into its financial performance, client acquisition and retention efforts, AI capabilities, and strategic direction.

Grab Holdings Limited (GRAB): As a leading Southeast Asian technology company offering ride-hailing, food delivery, and financial services, Grab's earnings will provide insights into regional economic recovery and consumer behavior. Analysts expect EPS of -$0.03 and revenues of $500 million. Key areas of interest include gross merchandise value growth, user engagement metrics, and progress in its digital banking initiatives.

Luminar Technologies, Inc. (LAZR): Specializing in lidar technology for autonomous vehicles, Luminar's performance is closely tied to developments in the automotive industry. The expected EPS is -$0.10, with revenues of $12 million. Investors will look for updates on partnerships with automakers, production milestones, and advancements in sensor technology. Given the nascent stage of autonomous driving, insights into regulatory developments and market adoption rates will be crucial.

Live Nation Entertainment, Inc. (LYV): As a global leader in live entertainment, Live Nation's earnings will reflect the recovery of the events industry post-pandemic. Analysts forecast EPS of $0.90 and revenues of $4.5 billion. Investors will focus on ticket sales volumes, sponsorship revenues, and the impact of inflation on operational costs. Additionally, insights into the pipeline of upcoming events and strategies to enhance fan engagement will be pivotal.

VAALCO Energy, Inc. (EGY): An independent energy company with operations in West Africa, VAALCO's earnings will provide insights into production volumes, exploration activities, and commodity price realizations. The consensus EPS estimate is $0.15, with revenues projected at $50 million. Investors will be attentive to cost management strategies, reserve replacement ratios, and any geopolitical risks affecting operations.

Assertio Holdings, Inc. (ASRT): A specialty pharmaceutical company, Assertio's performance will be evaluated based on sales of its key products, progress in its pipeline, and strategies to manage patent expirations. Analysts anticipate EPS of $0.20 and revenues of $40 million. Investors will look for updates on cost containment measures, potential acquisitions, and efforts to expand its product portfolio.

Tuesday

Shopify Inc. (SHOP): As a leading e-commerce platform, Shopify's earnings will reflect trends in online retail and merchant services. Analysts anticipate earnings per share (EPS) of $0.15 and revenues of $1.7 billion. Investors will focus on gross merchandise volume (GMV), subscription solutions growth, and the impact of recent strategic initiatives on profitability.

Plug Power Inc. (PLUG): Specializing in hydrogen fuel cell systems, Plug Power's performance is closely tied to developments in the renewable energy sector. The consensus estimate for EPS is -$0.10, with revenues projected at $250 million. Key areas of interest include order backlog, partnerships in the hydrogen ecosystem, and progress toward achieving positive gross margins.

The Home Depot, Inc. (HD): As a major home improvement retailer, Home Depot's earnings will provide insights into consumer spending on housing and renovation projects. Analysts expect EPS of $4.50 and revenues of $38 billion. Investors will look at same-store sales growth, professional customer engagement, and inventory management strategies amid supply chain challenges.

Sea Limited (SE): Operating in e-commerce, digital entertainment, and financial services, Sea Limited's performance is indicative of Southeast Asia's digital economy. The expected EPS is -$0.50, with revenues of $3.2 billion. Key metrics include growth in active user base, monetization rates across segments, and the impact of regional regulatory developments.

Hertz Global Holdings, Inc. (HTZ): As a global car rental company, Hertz's earnings will reflect travel demand and fleet management efficiency. Analysts forecast EPS of $1.20 and revenues of $2.5 billion. Investors will focus on rental volumes, pricing strategies, and initiatives in electric vehicle (EV) fleet expansion.

Novavax, Inc. (NVAX): A biotechnology company specializing in vaccine development, Novavax's earnings will provide updates on its COVID-19 vaccine distribution and pipeline progress. The consensus EPS estimate is -$1.50, with revenues projected at $300 million. Investors will be attentive to regulatory approvals, production capacity, and market penetration rates.

Cronos Group Inc. (CRON): Operating in the cannabis industry, Cronos's performance will shed light on market expansion and product innovation. Analysts anticipate EPS of -$0.05 and revenues of $25 million. Key areas of interest include sales growth in core markets, progress in cannabinoid research, and the impact of regulatory changes on operations.

SoundHound AI, Inc. (SOUN): Specializing in voice AI technology, SoundHound's earnings will reflect adoption rates across industries. The expected EPS is -$0.10, with revenues of $10 million. Investors will look for updates on partnerships, integration of AI solutions, and strategies to enhance market share in the voice assistant space.

Marathon Digital Holdings, Inc. (MARA): As a cryptocurrency mining company, Marathon's performance is closely tied to Bitcoin production and market prices. Analysts expect EPS of $0.20 and revenues of $100 million. Investors will focus on mining efficiency, energy sourcing strategies, and the impact of regulatory developments on operations.

CAVA Group, Inc. (CAVA): Operating in the fast-casual dining sector, CAVA's earnings will provide insights into consumer dining trends and expansion efforts. The consensus EPS estimate is $0.05, with revenues projected at $150 million. Key metrics include same-store sales growth, new store openings, and profitability margins amid inflationary pressures.

Spotify Technology S.A. (SPOT): As a leading audio streaming platform, Spotify's performance will reflect user engagement and monetization strategies. Analysts anticipate EPS of -$0.20 and revenues of $3.5 billion. Investors will look at premium subscriber growth, advertising revenue trends, and content acquisition costs.

Occidental Petroleum Corporation (OXY): Operating in the energy sector, Occidental's earnings will provide insights into oil and gas production and pricing strategies. The expected EPS is $1.50, with revenues of $7 billion. Investors will focus on production volumes, capital expenditure plans, and initiatives in carbon capture and sustainability.

Rocket Lab USA, Inc. (RKLB): Specializing in small satellite launch services, Rocket Lab's performance is indicative of the commercial space industry's growth. Analysts forecast EPS of -$0.05 and revenues of $50 million. Key areas of interest include launch frequency, backlog of contracted launches, and advancements in reusable rocket technology.

Instacart (CART): As a leading online grocery delivery platform, Instacart's earnings will reflect consumer adoption of online grocery shopping. The consensus EPS estimate is $0.10, with revenues projected at $500 million. Investors will look for updates on partnerships with retailers, order volume growth, and strategies to enhance profitability amid competitive pressures.

Wednesday

CyberArk Software Ltd. (CYBR): As a leader in identity security, CyberArk is expected to report earnings per share (EPS) of $0.45 and revenues of $180 million. Investors will focus on subscription revenue growth, customer acquisition rates, and the impact of recent acquisitions on the company's portfolio.

Liquidia Corporation (LQDA): Specializing in biopharmaceuticals, Liquidia is anticipated to report an EPS of -$0.10 and revenues of $5 million. Key areas of interest include progress in clinical trials, regulatory approvals, and commercialization strategies for its pulmonary arterial hypertension treatments.

Tower Semiconductor Ltd. (TSEM): Operating in the semiconductor industry, Tower is expected to report an EPS of $0.50 and revenues of $400 million. Investors will look at utilization rates, revenue from specialty process technologies, and any updates on capacity expansion plans.

Stratasys Ltd. (SSYS): As a 3D printing solutions provider, Stratasys is anticipated to report an EPS of $0.05 and revenues of $150 million. Key metrics include revenue growth in hardware and materials, customer base expansion, and advancements in technology offerings.

Innoviz Technologies Ltd. (INVZ): Specializing in LiDAR technology for autonomous vehicles, Innoviz is expected to report an EPS of -$0.20 and revenues of $10 million. Investors will look for updates on partnerships with automakers, production milestones, and progress in reducing sensor costs.

Arcos Dorados Holdings Inc. (ARCO): As the largest McDonald's franchisee in Latin America, Arcos Dorados is anticipated to report an EPS of $0.15 and revenues of $900 million. Investors will focus on same-store sales growth, currency exchange impacts, and strategies to navigate economic challenges in key markets.

Cisco Systems, Inc. (CSCO): Cisco Systems, Inc. (CSCO), a global leader in networking hardware and software, is scheduled to announce its first-quarter fiscal year 2025 financial results on Wednesday, November 13, 2024. Analysts anticipate earnings per share (EPS) of $0.86 and revenues of $13.75 billion for this quarter.

Investors will closely examine Cisco's performance in its core networking divisions, particularly in areas such as switching, routing, and wireless solutions. These segments are pivotal to Cisco's business model, and their growth is essential for sustaining the company's market leadership. In the previous fiscal year, Cisco reported a 7% increase in product revenue, driven by strong demand in the enterprise and service provider markets. Continued expansion in these areas would indicate robust market demand and effective execution of Cisco's strategic initiatives.

Cisco has been transitioning towards a subscription-based model, emphasizing software and services to create recurring revenue streams. The upcoming earnings report is expected to provide insights into the growth of subscription revenues, particularly in software-defined networking (SDN) and security services. In the fourth quarter of fiscal year 2024, Cisco's software subscription revenue increased by 15% year-over-year, highlighting the success of this strategic shift. Sustained growth in this area would demonstrate the effectiveness of Cisco's efforts to diversify its revenue base and reduce reliance on hardware sales.

Supply chain disruptions have been a significant concern for Cisco and the broader technology industry. In previous quarters, Cisco faced challenges related to component shortages and logistics constraints, impacting product deliveries and order fulfillment. The upcoming earnings call is expected to address the current state of supply chain operations, including any improvements or ongoing issues. In the third quarter of fiscal year 2024, Cisco reported that supply chain constraints had eased, leading to improved product availability and reduced lead times. Updates on this front will be crucial for assessing Cisco's ability to meet customer demand and maintain competitive positioning.

Beyond the immediate financial metrics, investors will be attentive to Cisco's forward-looking statements regarding market conditions, competitive dynamics, and strategic priorities. This includes potential investments in emerging technologies such as artificial intelligence (AI) and cloud computing, as well as plans for mergers and acquisitions to bolster Cisco's product portfolio and market reach. In August 2024, Cisco announced a $28 billion acquisition of cybersecurity firm Splunk, aiming to enhance its security and observability capabilities. Details on the integration of such acquisitions and their expected impact on future performance will be of particular interest to stakeholders.

DLocal Limited (DLO): Operating in the fintech sector, DLocal is anticipated to report an EPS of $0.10 and revenues of $120 million. Investors will look at transaction volume growth, merchant acquisition rates, and the impact of currency fluctuations on revenue.

KULR Technology Group, Inc. (KULR): Specializing in thermal management solutions, KULR is expected to report an EPS of -$0.05 and revenues of $3 million. Key metrics include revenue growth from battery safety products, advancements in technology, and progress in scaling manufacturing capabilities.

OptimizeRx Corporation (OPRX): As a digital health company, OptimizeRx is anticipated to report an EPS of $0.10 and revenues of $20 million. Investors will focus on revenue growth from digital communication platforms, client acquisition, and the effectiveness of its solutions in improving patient adherence.

Bionano Genomics, Inc. (BNGO): Operating in the genomics sector, Bionano is expected to report an EPS of -$0.08 and revenues of $8 million. Key areas of interest include sales of its Saphyr system, progress in clinical applications, and strategies to expand its market presence.

Smith Micro Software, Inc. (SMSI): Specializing in software solutions for wireless carriers, Smith Micro is anticipated to report an EPS of -$0.02 and revenues of $12 million. Investors will look at revenue growth from carrier partnerships, user engagement metrics, and progress in expanding its product portfolio.

Capricor Therapeutics, Inc. (CAPR): A biotechnology company focusing on cell and exosome-based therapies, Capricor is expected to report an EPS of -$0.15 and revenues of $2 million. Key areas of interest include progress in clinical trials, regulatory interactions, and potential partnerships for commercialization.

HP Inc. (HPQ): As a major player in personal computing and printing, HP is anticipated to report an EPS of $0.85 and revenues of $13.5 billion. Investors will focus on revenue growth in key segments, the impact of supply chain dynamics, and strategies to navigate competitive pressures.

Thursday

The Walt Disney Company (DIS): As a global entertainment conglomerate, Disney's earnings will reflect the performance of its diverse segments, including media networks, parks and resorts, studio entertainment, and direct-to-consumer services. Analysts anticipate earnings per share (EPS) of $1.20 and revenues of $22.86 billion. Investors will focus on subscriber growth for Disney+, the recovery trajectory of theme parks, and the impact of recent content releases on studio revenues.

Talen Energy Corporation (TLN): Operating in the energy sector, Talen's earnings will provide insights into electricity generation and retail energy sales. Key areas of interest include operational efficiency, capacity utilization rates, and strategies to navigate regulatory changes in the energy market.

JD.com, Inc. (JD): As a leading Chinese e-commerce company, JD.com's performance is closely tied to consumer spending trends in China. Analysts expect EPS of $0.50 and revenues of $35 billion. Investors will look at growth in active customer accounts, logistics network expansion, and the impact of macroeconomic factors on consumer behavior.

Advance Auto Parts, Inc. (AAP): Specializing in automotive aftermarket parts, Advance Auto Parts' earnings will reflect trends in vehicle maintenance and repair. The consensus estimate for EPS is $2.00, with revenues projected at $2.5 billion. Key metrics include same-store sales growth, inventory management efficiency, and the effectiveness of digital sales channels.

Bilibili Inc. (BILI): Operating as a Chinese online entertainment platform, Bilibili's performance is indicative of user engagement and monetization strategies. Analysts anticipate EPS of -$0.20 and revenues of $800 million. Investors will focus on growth in monthly active users, revenue diversification efforts, and content acquisition costs.

Applied Materials, Inc. (AMAT): As a major supplier of equipment and services to the semiconductor industry, Applied Materials' earnings will provide insights into global chip demand. The expected EPS is $1.80, with revenues of $6.5 billion. Investors will look at order backlog, capacity expansion plans, and the impact of supply chain dynamics on production.

AST SpaceMobile, Inc. (ASTS): AST SpaceMobile, Inc. (ASTS) is at the forefront of developing space-based cellular broadband networks, aiming to provide direct-to-cell connectivity via satellites. As the company approaches its upcoming earnings report, investors are keenly focused on several critical aspects that will influence its financial performance and strategic direction. Analysts have set a consensus earnings per share (EPS) estimate of -$0.20 for the upcoming quarter, reflecting the company's ongoing investments in research, development, and satellite deployment. This projection underscores the capital-intensive nature of AST SpaceMobile's operations as it progresses toward commercializing its technology. A pivotal area of interest is the status of AST SpaceMobile's satellite deployment initiatives. The successful launch and operation of satellites are essential for the company's service delivery. Investors will be looking for updates on the deployment schedule, performance metrics of existing satellites, and any challenges encountered during the process. Notably, the company recently announced the successful launch of its first five commercial satellites, marking a significant milestone in its operational timeline.

Collaborations with mobile network operators (MNOs) are crucial for AST SpaceMobile's market penetration and service adoption. Investors will be attentive to announcements regarding new partnerships or expansions of existing agreements. Such collaborations are indicative of the industry's confidence in AST SpaceMobile's technology and its potential to enhance global connectivity. For instance, the company has previously secured agreements with major operators, including AT&T and Vodafone, to integrate its satellite services with terrestrial networks. Navigating the complex landscape of international telecommunications regulations is vital for AST SpaceMobile's operations. Updates on the company's progress in obtaining necessary licenses and approvals will be closely monitored. Regulatory compliance not only facilitates service deployment but also mitigates potential legal and operational risks. The company's proactive engagement with regulatory bodies to secure spectrum rights and operational clearances will be a focal point for stakeholders.

Given the capital-intensive nature of satellite deployment and network development, insights into AST SpaceMobile's financial health are paramount. Investors will seek information on the company's cash reserves, funding strategies, and plans to manage expenditures. Details about recent capital raises, strategic investments, or partnerships that provide financial backing will be of particular interest. The company's ability to sustain its operations and growth trajectory hinges on effective financial management and access to sufficient capital.

Oklo Inc. (OKLO): As a company developing fast fission power plants, Oklo's performance is closely tied to advancements in nuclear technology and regulatory milestones. Investors will focus on progress in reactor development, licensing achievements, and partnerships within the energy sector. Oklo published its second-quarter 2024 earnings and business update on August 13, 2024, and is expected to release its next earnings report on November 14, 2024.

Post Holdings, Inc. (POST): Operating in the consumer packaged goods sector, Post Holdings' earnings will reflect performance across its diverse food brands. Analysts forecast EPS of $1.10 and revenues of $1.6 billion. Investors will look at organic sales growth, margin management amid inflationary pressures, and the impact of recent acquisitions or divestitures.

IZEA Worldwide, Inc. (IZEA): Specializing in influencer marketing and content creation, IZEA's performance is indicative of digital advertising trends. The consensus EPS estimate is -$0.02, with revenues projected at $10 million. Key metrics include growth in managed services revenue, platform adoption rates, and client retention.

Inovio Pharmaceuticals, Inc. (INO): A biotechnology company focusing on DNA-based immunotherapies, Inovio's earnings will provide updates on its clinical pipeline. Analysts anticipate EPS of -$0.15 and revenues of $5 million. Investors will focus on progress in clinical trials, particularly for infectious diseases and oncology, and any partnerships or collaborations.

iPower Inc. (IPW): Operating as an online hydroponic equipment supplier, iPower's performance is closely tied to trends in indoor gardening and cannabis cultivation. The expected EPS is $0.05, with revenues of $20 million. Investors will look at e-commerce sales growth, inventory turnover rates, and strategies to expand product offerings.

Friday

Alibaba Group Holding Limited (BABA): As a leading Chinese multinational technology company specializing in e-commerce, retail, internet, and technology services, Alibaba's performance is closely watched by investors globally. Analysts anticipate earnings per share (EPS) of $2.09 for the quarter ending September 2024, reflecting a year-over-year decrease of approximately 2.34%. Revenue is expected to be around $33.47 billion, marking an 8.63% increase from the same period last year. Investors will focus on the company's core commerce segment, particularly the performance of its online retail platforms, and any updates on international expansion efforts. Additionally, insights into the cloud computing division's growth and profitability will be of interest, given its increasing contribution to Alibaba's overall revenue.

Spectrum Brands Holdings, Inc. (SPB): Operating in the consumer products sector, Spectrum Brands' earnings will provide insights into consumer spending trends across its diverse portfolio, which includes home appliances, pet care, and home improvement products. Analysts expect an EPS of $1.12 and revenues of $1.02 billion. Key areas of interest include the impact of inflation on input costs, pricing strategies, and the effectiveness of recent marketing campaigns. Investors will also look for updates on any strategic initiatives aimed at streamlining operations or expanding market share.

AIM ImmunoTech Inc. (AIM): As a biotechnology company focused on developing immune-based therapies, AIM ImmunoTech's earnings will shed light on its research and development progress. The company is expected to report an EPS of -$0.08, indicating ongoing investments in its pipeline. Investors will be keen on updates regarding clinical trials, particularly for its flagship product candidates, and any potential partnerships or collaborations that could accelerate development timelines.

Nexalin Technology, Inc. (NEXN): Specializing in neurostimulation devices aimed at treating mental health disorders, Nexalin Technology's earnings will provide insights into its commercialization efforts and market adoption. Analysts anticipate an EPS of -$0.05 and revenues of $2 million. Key areas of interest include regulatory approvals, sales growth, and feedback from healthcare providers regarding the efficacy and safety of its devices. Investors will also look for information on any ongoing clinical studies and plans for market expansion.

Global Macro

Mexico

A cornerstone of Trump’s campaign rhetoric was a push for higher tariffs on Mexican imports, particularly in the automotive sector, with tariffs as high as 25% mentioned. For Mexico, a key player in North America’s auto supply chain, such measures would directly impact its manufacturing sector and, in turn, its broader economic stability. Major automakers with assembly plants in Mexico, like GM and Ford, rely on cross-border supply lines, which could see significant disruptions. These tariffs could ripple through the Mexican economy, affecting jobs and GDP growth as production costs rise and exports to the U.S. become pricier.

The peso’s initial drop against the U.S. dollar following Trump’s win reflects these fears. For Mexico’s export-driven economy, this currency depreciation could complicate matters further, especially in an environment where increased tariffs may already be dampening U.S. demand for Mexican goods. To offset some of this strain, Mexican companies may have to look toward alternative markets and trade partnerships, potentially accelerating ties with Latin American neighbors or even China.

Migration Policies: Strained Border Relations

The Trump administration’s hardline stance on immigration is set to put pressure on U.S.-Mexico relations. Trump has already promised stricter border enforcement, increased deportations, and heightened security, which could complicate life for the thousands of Mexicans who cross the border daily for work, family, or study. Mexico’s new president, Claudia Sheinbaum, has pledged to protect national sovereignty and work toward positive bilateral relations, but the reality on the ground could make this challenging.

For Mexico, the consequences of these policies go beyond strained diplomacy—they also carry a hefty economic and social cost. Increased deportations mean Mexico may face a sudden influx of repatriated citizens, many of whom will need jobs, housing, and public services. This demand could strain Mexico’s infrastructure and resources, particularly in border cities already managing high levels of migration traffic and security concerns.

USMCA and the Future of North American Trade

The United States-Mexico-Canada Agreement (USMCA), which replaced NAFTA, is due for review in 2026, and with Trump back in office, Mexico faces the prospect of tough renegotiations. Trump’s protectionist tendencies have raised concerns that his administration could push for terms more favorable to U.S. interests, potentially impacting Mexico’s export-driven industries. While Mexico’s role as a crucial link in North America’s supply chain provides some leverage, the Trump administration may press for stricter trade terms aimed at boosting U.S.-based manufacturing.

For Mexico’s leadership, protecting the country’s access to U.S. markets will be a key priority, especially for industries like agriculture and manufacturing, which rely heavily on American demand. The upcoming review presents an opportunity for Mexico to assert its strategic importance in the North American economy while bracing for potential concessions on labor standards or environmental regulations that could affect export competitiveness.

Foreign Investment: A Mixed Outlook

With Trump’s protectionist policies in play, foreign investors may become wary of Mexico’s dependence on U.S. markets. Increased tariffs and immigration restrictions could weaken investor confidence, especially in sectors that rely heavily on cross-border trade, such as manufacturing and agriculture. Additionally, Mexico’s growing economic relationship with China could become a source of friction. As the U.S. ramps up efforts to counter China’s influence globally, Mexico’s deepening trade ties with Beijing might attract scrutiny and create a delicate balancing act for Sheinbaum’s administration.

While Mexico remains an attractive option for companies looking to diversify manufacturing away from China, Trump’s tariffs may alter this appeal, particularly if U.S. policy explicitly penalizes foreign firms investing in Mexico. To attract investment, Mexico may need to focus on bolstering economic stability, streamlining business regulations, and exploring new trade partnerships beyond North America.

Domestic Challenges: Navigating External Pressures and Internal Complexity

President Claudia Sheinbaum’s leadership is about to face its first major test on the international stage. Balancing Mexico’s relationship with the U.S. while addressing significant domestic challenges will be no small feat. Mexico is contending with a host of internal issues, from economic inequality and corruption to the ever-present threat of organized crime. Political violence tied to organized crime groups has already influenced elections, and the Trump administration’s policies may further complicate Mexico’s path forward.

In this environment, Sheinbaum’s government will have to carefully manage public sentiment as it navigates these external pressures. Heightened border security and mass deportations could stir public opinion, particularly if Trump’s policies lead to an increase in repatriated citizens or strain border communities. Additionally, rising economic pressure from U.S. tariffs could spark discontent among Mexican workers and manufacturers who rely on exports to sustain their livelihoods.

China

Trump’s renewed push for tariffs on Chinese goods is already making waves. His proposal to increase tariffs to as high as 60% on select imports could disrupt China’s export-driven economy, making Chinese products less competitive in the U.S. market. This tariff hike, if enacted, would hit key sectors—think electronics, machinery, and consumer goods—and potentially force China to rethink its economic model, which has relied heavily on exports to the U.S.

In response to Trump’s victory, the Chinese yuan dipped against the U.S. dollar, reflecting market fears of an economic slowdown tied to trade disruptions. To counterbalance this, China may accelerate efforts to tap into emerging markets in Asia, Africa, and Latin America, looking to replace lost U.S. demand with new global partnerships. But this shift won’t happen overnight, and any dip in exports to the U.S. could have a noticeable impact on China’s GDP growth in the short term.

Technological Competition and Decoupling: The New Cold War in Tech

Trump’s focus on reducing U.S. reliance on Chinese technology sets the stage for intensified decoupling across critical supply chains. The semiconductor industry, telecommunications, and AI development are all areas where the U.S. aims to cut dependency on China, and this could be a serious roadblock for China’s ambitions to lead in high-tech fields.

In particular, the U.S. might escalate its push for allies to avoid Chinese tech infrastructure, especially in sectors like 5G and telecommunications, which could isolate China’s tech giants like Huawei and ZTE from international markets. China’s push for self-sufficiency in areas like semiconductors will be a top priority, and the government is likely to double down on funding for domestic tech firms and innovation hubs. However, self-sufficiency in tech isn’t a quick fix, and achieving independence in semiconductors, for example, could take years.

For China’s leadership, this tech race isn’t just about economic competition; it’s about national security. As the U.S. intensifies restrictions on exports of critical components and software, China will have to ramp up R&D and strengthen alliances with countries less aligned with U.S. interests, like Russia and Iran.

Geopolitical Tensions and Regional Stability: Taiwan and the South China Sea in Focus

Trump's decisive win in the 2024 U.S. election brings waves of uncertainty to Asia. Back with a reinforced "America First" stance, Trump is expected to ramp up tariffs, pull back from multilateral alliances, and pivot towards unilateralism. For Asia, where many economies rely heavily on trade with the U.S., these shifts could create economic riptides.

During his first term, Trump’s aggressive approach to China shook the region’s economic landscape, launching a trade war that strained global supply chains. Now, with promises of even higher tariffs, he aims to decouple U.S. economic interests from Chinese influence entirely. The knock-on effect could hit other Asian economies like South Korea, Japan, and Taiwan, which are tightly interwoven into these supply chains.

Leaders in the region are scrambling to prepare. India’s Prime Minister Modi quickly congratulated Trump, hoping to secure favor. Meanwhile, China's Foreign Ministry has voiced a commitment to "peaceful coexistence" with the U.S., though undercurrents of caution are clear. Analysts warn that the turbulence between the U.S. and China could send shockwaves through Southeast Asia, where economies are particularly trade-dependent, with a trade-to-GDP ratio nearly double the global average.

Even allies like Japan and South Korea may need to recalibrate. Trump’s disdain for "values-based diplomacy" and alliances built on shared ideals points to a future where economic pragmatism reigns supreme, potentially eroding the traditional support Asia relies on. Taiwan, too, faces a precarious path, balancing between Trump’s protectionism and Beijing's encroaching pressure.

A polarized environment could limit China’s diplomatic room to maneuver. If countries like Japan, South Korea, and Australia strengthen military ties with the U.S., China may find itself more isolated in Asia, despite its Belt and Road Initiative. To counter this, China might accelerate efforts to deepen regional economic cooperation, potentially through initiatives like the Regional Comprehensive Economic Partnership (RCEP) to secure its role in the Asian economy.

Domestic Economic Policies and Reform: Boosting Self-Reliance

As external pressures mount, China is likely to focus on boosting its domestic economy to reduce reliance on U.S. markets. Stimulating internal consumption will be key, with policies aimed at increasing household spending, supporting small and medium-sized enterprises, and creating jobs. China’s government could roll out new initiatives to bolster industries critical to self-sufficiency, including artificial intelligence, electric vehicles, and green energy technology.

China’s ongoing push for tech innovation and infrastructure development could get an additional boost, as the government prioritizes investments that insulate its economy from global shocks. Major cities may see accelerated smart city projects, while regions with strategic industries may receive increased state support to drive domestic production and innovation.

These efforts, however, are not without challenges. Transitioning from an export-driven model to a consumption-driven economy will require significant structural changes, and achieving high growth amid trade restrictions could be a long game. The government’s balancing act will be to sustain growth without compromising its geopolitical ambitions.

Germany

Germany’s economy is built on exports, and Trump’s campaign signals a return to the aggressive trade tactics that rattled global markets during his first term. He’s proposed substantial tariffs on European imports, zeroing in on Germany’s automotive sector, with rates as high as 20% potentially on the table. If implemented, these tariffs would disrupt a key transatlantic supply chain, hitting Germany’s iconic carmakers like Volkswagen, BMW, and Mercedes-Benz right where it hurts.

The potential tariffs could also put a dent in Germany’s trade surplus with the U.S. as German-made vehicles become pricier for American buyers. This doesn’t just affect car manufacturers—Germany’s economy, which has already been teetering on the edge of a recession, could see broader economic strain as key exports slow down. If Trump pushes forward with these tariffs, Germany might have to consider new trade strategies or risk a significant hit to GDP growth.

For German industry, the name of the game could soon become diversification. This might mean looking at untapped markets or doubling down on trade partnerships within the European Union to offset losses from a more protectionist U.S. stance.

Defense Spending: Trump’s NATO Challenge Returns

Trump’s familiar call for increased NATO spending is likely back in full force, and that means Germany could once again find itself in the hot seat. Trump has long criticized NATO allies, especially Germany, for not meeting the defense spending target of 2% of GDP, and his return likely revives this contentious debate.

For Chancellor Olaf Scholz, this demand means making difficult decisions. Upping Germany’s defense budget could strain fiscal policies and spark fresh debate at home, where public opinion on military spending remains divided. With existing priorities around economic inequality, energy transition, and social spending, Scholz would face an uphill battle to secure public and political support for increased military funding.

In short, Germany may have to make tough calls about how to balance its commitments to NATO with pressing domestic issues, or risk further friction with the U.S.

Energy Policy and Climate: A Split on Green Initiatives

Under Trump, the U.S. had previously withdrawn from international climate accords, and if this trend continues, Germany could find itself once again at odds with one of the world’s largest economies on environmental policy. Germany, as a leader in green energy and sustainability, is committed to its own ambitious climate goals, but Trump’s policies could complicate global coordination on climate initiatives.

Without the U.S. as a strong partner on climate action, Germany may have to go it alone on some initiatives, perhaps partnering more with EU neighbors or other green-focused nations. This could lead to a recalibration of Germany’s strategy, possibly even doubling down on its green initiatives to maintain leadership on the climate front despite limited U.S. cooperation.

For Germany’s green tech sector, this also presents both a challenge and an opportunity. While the lack of U.S. support may hinder international climate progress, Germany could seize this moment to position itself as the global leader in green innovation, attracting investment and partnerships from other climate-conscious nations.

Political Dynamics and Domestic Challenges: Balancing External Pressure and Internal Stability

Internally, Chancellor Scholz has a delicate balancing act ahead. Navigating external pressure from the U.S. while keeping domestic issues like economic inequality and energy transition on track won’t be easy. The re-emergence of Trump’s “America First” agenda could also embolden far-right political movements within Germany, stirring up polarization in a country that has been battling rising nationalist sentiment.

As Trump’s re-election reshapes international alliances, Scholz must contend with potential shifts in German politics. The far-right Alternative for Germany (AfD) party has gained traction in recent years, leveraging concerns over immigration, security, and economic stability. A reinvigorated U.S.-Germany rift could add fuel to the fire, creating a political environment where far-right movements find new momentum, especially if Scholz is forced to make compromises on issues like defense spending or trade relations.

On the global stage, Scholz will need to exercise cautious diplomacy, maintaining Germany’s position as a key EU leader while managing a more unpredictable relationship with the U.S.

Oil Markets and the Middle East

Oil Market Dynamics: Potential for Oversupply

Trump’s energy policies have historically favored domestic oil production, and expectations are high that his second term will reinforce this stance. In the immediate aftermath of the election, oil prices dropped across the board. Brent crude, the global benchmark, fell nearly 2%, trading just over $74 per barrel, while West Texas Intermediate (WTI) experienced similar declines. Analysts at Citi are projecting that under Trump’s energy policies, Brent crude could average around $60 per barrel in 2025, signaling a likely oversupply in the market as U.S. production ramps up.

For global oil producers like Saudi Arabia and Russia, this oversupply poses a direct economic threat. Iran, which is heavily reliant on oil exports and already faces market pressure due to sanctions, will be watching the situation closely. The anticipated flood of U.S. oil could strain OPEC’s control over global oil prices, and in turn, weaken the oil revenue streams crucial to Iran’s economy. For Iran, this U.S. production boost could be especially painful as it contends with a weakened rial, which plunged to an unprecedented low of 703,000 to the dollar post-election—a clear indicator of market jitters about renewed sanctions and the economic squeeze they could bring.

Iran’s Response: Resilience, Economic Adjustments, and Military Readiness

Iranian officials have publicly downplayed the significance of Trump’s re-election on their domestic policies, with government spokesperson Fatemeh Mohajerani emphasizing that “Iran’s path remains unchanged” regardless of Washington’s political shifts. But actions are speaking louder than words—immediately after the election results, the rial’s depreciation underscored real fears about the potential reimposition of U.S. sanctions. These sanctions, especially if they target oil exports and Iran’s access to global markets, could further isolate the Iranian economy.

On the military front, Iran is posturing for what it sees as an increased threat from both the U.S. and Israel. Ali Fadavi, deputy commander of the Islamic Revolutionary Guard Corps (IRGC), signaled that Iran and its regional allies are preparing for confrontation, emphasizing that Iran “possesses substantial military capabilities.” With Israel likely to feel emboldened by Trump’s support, Iran’s military preparations are a clear indication that it anticipates potential escalations in regional tensions—especially in Lebanon, Iraq, and Yemen, where Iranian influence is deeply entrenched.

Israel’s Strategic Position: Ready for Renewed U.S. Backing

On the other side, Israel has wasted no time in expressing its approval of Trump’s return to the White House. Prime Minister Benjamin Netanyahu was one of the first world leaders to publicly congratulate Trump, calling his victory “history’s greatest comeback” and highlighting the deep strategic importance of the U.S.-Israel relationship. Netanyahu’s prompt response is a signal of Israel’s intent to leverage U.S. backing to strengthen its security position in the region.

With ongoing conflicts in Gaza and Lebanon, Israel is already evaluating its military strategies in anticipation of continued American support. Trump’s last term saw strong alignment between U.S. and Israeli defense priorities, and the expectation is that this partnership will deepen, with potential impacts on Israel’s approach to Iran and its regional proxies. This renewed backing could mean increased latitude for Israel to take a tougher stance on Iran, especially regarding Iranian nuclear ambitions.

Regional Alliances and Shifting Power Dynamics

In the broader Middle East, Trump’s return is creating a wave of anticipation and anxiety. Iran’s regional allies, including powerful proxy groups in Lebanon, Iraq, and Yemen, are closely watching the developments. With the U.S. expected to maintain a hard stance on Iran, these groups might see an uptick in both support and pressure as Iran prepares for potential confrontations. This alignment could influence Iran’s own strategy and the extent of its support for these proxies, who play critical roles in Iran’s regional power projection.

At the same time, Iran’s anxiety over Trump’s pro-Israel stance is likely to push it to strengthen alliances with other nations that share its apprehension, potentially deepening ties with Russia and China as counterweights to U.S. influence. For Israel, Trump’s presidency could mean additional support for diplomatic maneuvers with Gulf states, further isolating Iran in the region.

Domestic Implications in Iran and Israel

Public sentiment within Iran reflects a mix of defiance and concern. While official narratives emphasize national resilience, the economic realities of a weakened rial and fears of a return to harsh sanctions are not lost on the Iranian populace. Rising prices for basic goods and services due to currency devaluation are placing additional strain on the economy, and the renewed U.S. pressure could exacerbate this hardship, potentially fueling public discontent.

In Israel, Netanyahu’s swift and enthusiastic response to Trump’s victory has likely bolstered his standing among constituents who favor strong U.S.-Israel ties. However, with this renewed alliance comes heightened expectations for Israel to take a firm stand against Iran, which may place Netanyahu in a delicate position domestically as he balances military ambitions with public opinion on potential escalations.

Disclaimer:

The Underlying #015

The Underlying — Mon, 04 Nov 2024 20:29:57 GMT

As if you didn’t already know, its election week. And Fed week. And a huge earnings week. It’s a lot, I know. The stakes couldn’t be higher, and markets are bracing for impact. Emerging economies are feeling the weight of U.S. election anticipation, with traders positioning defensively against possible policy shifts. A Trump win would bring familiar trade tensions and potential currency pressures, while a Harris victory might ease these anxieties and fuel a relief rally. Hedge funds are already pulling out of riskier assets, driving yields up in emerging market bonds across Eastern Europe and Latin America.

The Fed is poised to step in, likely trimming rates as inflation cools and growth holds steady. And earnings? This week is stacked. Every sector—from Big Tech to auto and e-commerce—has something on the table. These next few days will offer us a clearer view of who’s positioned to thrive amid policy shifts and economic recalibration.

NQ! Key Levels

Resistance at 20600 → 20788 → 20900

Bullish above 20370 → 20480 → 20600

Uncertainty between 20220 → 20370

Bearish below 20220 → 20080 → 19900

Thanks for reading The Underlying! This post is public so feel free to share it.

Emerging Markets Brace for U.S. Election Shockwaves Amid Rising Volatility

With Election Day looming, emerging markets are on high alert, navigating volatility as traders position themselves for the outcome of a fiercely contested U.S. presidential race. A Trump win could mean a return to protectionist policies, ramped-up tariffs, and increased uncertainty in global trade, potentially stifling emerging market exports and pressuring currencies. Meanwhile, a Harris victory is seen as a stabilizing force, signaling continuity in U.S. policy and a potential relief rally across developing economies. Recent movements in the Mexican peso and Chinese yuan reflect a broad retreat from riskier assets, leaving emerging market stocks reeling from their worst monthly performance since January.

Hedge funds have turned increasingly defensive, shorting currencies like the peso and moving capital into safer asset classes. While some assets – like the Brazilian real and Polish zloty – showed gains on Monday, driven by shifting poll results, caution remains widespread. Analysts suggest that a Harris win could spur a “structural bullish” response in emerging markets, offering much-needed clarity and a more predictable trade environment. However, with Trump’s policies likely to disrupt export-heavy economies, many are preparing for a prolonged period of unpredictability if he secures a second term.

Beyond just currency shifts, bond markets in emerging economies are reflecting this anxiety, with higher yields across Eastern Europe and Latin America as investors weigh potential disruptions. The ripple effects of tariffs and a shifting U.S. stance on alliances like NATO could leave bonds vulnerable, especially in countries directly impacted by such geopolitical shifts. The unfolding situation has pushed funds out of high-risk markets as traders hedge against sudden shifts in U.S. foreign policy that might come with a Trump administration.

Ultimately, the election’s outcome is poised to shape emerging markets’ landscape well into next year, with significant economic and financial adjustments likely to follow. A clear victory either way could bring relief to jittery investors, but until then, markets are stuck in a holding pattern, prepared for sharp adjustments to whichever direction the U.S. chooses. Emerging economies, deeply tied to the ebb and flow of U.S. policy, are now caught in the crosshairs of election-driven volatility.

Fed Looks Poised for Post-Election Rate Cut as Inflation Cools and Economic Growth Holds Steady

The Federal Reserve is expected to announce a quarter-point interest rate cut on November 7, aiming to bring rates down to a 4.5%-4.75% range. This decision reflects the Fed’s cautious optimism as inflation continues its downward trend, recently reaching 2.4%, near the Fed’s 2% target. Despite robust third-quarter economic growth of 2.8%, the Fed sees room to ease borrowing costs, helping to sustain momentum without overheating the economy. The rate cut, though modest, is part of a gradual shift to a “neutral” rate that neither stimulates nor restricts growth, marking a new phase in the Fed’s approach post-pandemic.

The labor market, while healthy overall, showed signs of cooling in October, with job gains subdued by factors like hurricanes and strikes. This tempered job growth has contributed to the Fed’s decision to ease interest rates gradually, aiming to balance strong consumer demand with manageable inflation. Fed Chair Jerome Powell emphasized that the rate cuts are part of a “recalibration,” shifting away from the restrictive policy of recent years as inflation stabilizes.

As the rate decision falls just days after the U.S. presidential election, Powell will likely address questions on how potential shifts in economic policy could impact the Fed’s outlook. While the Fed maintains an apolitical stance, certain policy proposals, such as the potential reintroduction of high tariffs, could influence inflation and the Fed’s rate trajectory. For now, the Fed’s focus remains on fine-tuning rates to sustain growth, mitigate inflation risks, and adapt to economic signals in a gradually easing environment.

Economic Calendar

Monday, November 4:

10:00 AM ET: U.S. Factory Orders for September are scheduled for release, with expectations of a 0.5% decline, following a 0.7% decrease in August.

Tuesday, November 5:

8:30 AM ET: The U.S. Trade Balance report for September is anticipated, with forecasts suggesting a deficit of $84.0 billion, compared to the previous $70.4 billion.

9:45 AM ET: The S&P Global U.S. Services PMI for October will be released, with the prior reading at 55.3.

10:00 AM ET: The ISM Services Index for October is expected, with a forecast of 53.7%, down from 54.9% in September.

Subscribe now

Thursday, November 7:

8:30 AM ET: Initial Jobless Claims for the week ending November 2 are projected at 220,000, slightly up from the previous 216,000.

8:30 AM ET: Preliminary data on U.S. labor productivity for Q3 is expected, with a forecast of 2.5%, matching the prior quarter’s growth.

10:00 AM ET: Wholesale Inventories for September are anticipated to show a 0.1% increase, consistent with the previous month.

2:00 PM ET: The Federal Reserve will announce its interest rate decision, with expectations of a cut to a range of 4.75% to 5.00%.

Friday, November 8:

10:00 AM ET: The preliminary University of Michigan Consumer Sentiment Index for November is set for release, with a forecast of 71.0, up from 70.5 in October.

3:00 PM ET: Consumer Credit data for September is expected, with projections indicating an increase of $14.0 billion, following an $8.9 billion rise in August.

Earnings Calendar

Monday, November 4:

After Market Close:

Palantir Technologies (PLTR): Analysts forecast revenue growth for Palantir, driven by increased demand for its data analytics solutions across both government and commercial sectors. Investors will be attentive to updates on new contracts, particularly in the artificial intelligence domain, and any advancements in their product offerings.

Hims & Hers Health (HIMS): The company is expected to discuss expansion in its telehealth services and user base growth. Key points of interest include subscriber growth metrics, diversification of health services offered, and strategies to enhance customer engagement and retention.

Astera Labs (ALAB): Specializing in connectivity solutions for data-centric systems, Astera Labs is anticipated to report advancements in its product lines, particularly those addressing bottlenecks in data center and cloud infrastructure. Stakeholders will be looking for information on new product launches and partnerships that could drive future growth.

Goodyear Tire & Rubber Company (GT): As a major player in the automotive industry, Goodyear is likely to provide updates on tire sales, market share, and demand trends within the automotive sector. Discussions may also cover the impact of raw material costs and supply chain dynamics on their operations.

These earnings reports will offer valuable insights into each company’s performance and strategic direction, providing investors with information to make informed decisions.

Tuesday, November 5:

Before Market Open:

Apollo Global Management (APO): Investors anticipate insights into Apollo’s private equity performance, asset management growth, and potential impacts from recent market volatility.

Ferrari N.V. (RACE): The luxury automaker is expected to report third-quarter 2024 results, with analysts forecasting earnings of $2.11 per share and revenues of $1.80 billion. Key areas of interest include vehicle shipments, particularly of new models like the Purosangue SUV, and progress on electric vehicle initiatives.

After Market Close:

Super Micro Computer (SMCI): Super Micro Computer (SMCI) is scheduled to announce its first-quarter fiscal year 2025 results after market close on Tuesday, November 5. Analysts are keenly awaiting updates on revenue growth, particularly in light of the company’s recent challenges. In the previous quarter, Super Micro reported record revenue of $5.31 billion, marking a 143% year-over-year increase, primarily due to its leadership in AI infrastructure.

However, the company has recently faced significant scrutiny. In late October, Ernst & Young (EY) resigned as Super Micro’s auditor, citing concerns over governance, transparency, and internal controls. EY’s resignation letter indicated an inability to rely on management’s representations and a reluctance to be associated with the company’s financial statements.

This development has raised investor concerns about Super Micro’s accounting practices and financial reporting. The company has stated that it disagrees with EY’s decision but is taking the expressed concerns seriously and is conducting an ongoing review.

Given these circumstances, stakeholders will be closely monitoring the upcoming earnings call for insights into how Super Micro plans to address these issues and its strategies for maintaining growth in the AI infrastructure sector amidst the current challenges.

Lumen Technologies (LUMN): LUMN is scheduled to release its third-quarter 2024 earnings after the market closes on Tuesday, November 5, 2024. Analysts anticipate the company to report a loss of $0.05 per share for this quarter.

In the second quarter of 2024, Lumen reported a net loss of $49 million, or $0.05 per share, a significant improvement from the $8.736 billion loss in the same quarter of the previous year. The company’s revenue for Q2 2024 was $3.27 billion, reflecting a 10.7% year-over-year decline.

Despite these challenges, Lumen has been actively pursuing strategic initiatives to enhance its financial standing and operational performance. Notably, the company secured $5 billion in new AI-related business deals, with discussions underway for an additional $7 billion. These agreements are expected to bolster Lumen’s position in the AI connectivity market and contribute to future revenue streams.

Additionally, Lumen has entered into strategic partnerships to drive its digital transformation. In July 2024, the company announced a collaboration with Microsoft to leverage the Microsoft Cloud for enhancing its enterprise-wide digital initiatives. This partnership aims to accelerate Lumen’s AI initiatives and is projected to save tens of millions of dollars.

Investors and stakeholders will be closely monitoring Lumen’s upcoming earnings release for insights into the company’s financial health and the progress of its strategic initiatives.

Kinross Gold Corporation (KGC): Investors will be looking for information on gold production volumes, cost management, and the impact of gold price fluctuations on profitability.

iRobot Corporation (IRBT): The focus will be on sales performance of consumer robotics products, particularly in the home cleaning segment, and any updates on the company’s acquisition by Amazon.

Subscribe now

Wednesday, November 6:

Before Market Open:

Celsius Holdings (CELH): The energy drink manufacturer is expected to report continued revenue growth, building on its previous quarter’s performance where it achieved a 23.4% year-over-year increase to $402 million.

Novo Nordisk (NVO): The pharmaceutical company is anticipated to provide updates on its diabetes and obesity treatment segments, which have been key drivers of its recent financial success.

Aurora Cannabis (ACB): Investors are looking for insights into Aurora’s efforts to achieve profitability amid a challenging cannabis market, focusing on cost-cutting measures and international expansion.

Toyota Motor Corporation (TM): The automaker is expected to discuss its performance in the electric vehicle market and provide updates on production amid ongoing supply chain challenges.

After Market Close:

Arm Holdings (ARM): The semiconductor and software design company is set to release its earnings, with analysts focusing on its licensing revenue and growth in sectors like artificial intelligence and automotive. In the previous quarter, Arm reported a 39% year-over-year revenue increase to $939 million, surpassing expectations.

Qualcomm Incorporated (QCOM): The chipmaker is anticipated to provide updates on its 5G technology advancements and partnerships, which are crucial for its growth strategy.

e.l.f. Beauty (ELF): The cosmetics company is set to announce its second-quarter fiscal 2025 results on Wednesday, November 6, 2024, at 4:30 p.m. Eastern Time. In the previous quarter, the company reported a 50% increase in net sales to $324.5 million, surpassing analyst expectations of $303.6 million. Analysts anticipate continued strong sales growth, driven by e.l.f.‘s effective social media marketing and popularity among younger consumers. Despite a recent stock decline, analysts remain optimistic about the company’s growth potential.

AppLovin Corporation (APP): The mobile app technology company is scheduled to release its third-quarter 2024 earnings on Wednesday, November 6, 2024, after the U.S. stock market closes. Analysts project earnings of $0.95 per share, a 216.7% increase year-over-year, reflecting the company’s strong performance in the mobile app technology sector. In the second quarter, AppLovin reported earnings of $0.89 per share, beating the consensus estimate of $0.77, with a 44% year-over-year revenue increase to $1.08 billion. The company’s growth is attributed to its AI-powered ad tech software, Axon 2.0, and its strong market position in mobile-game user acquisition.

MercadoLibre (MELI): The Latin American e-commerce and fintech leader is scheduled to release its third-quarter 2024 financial results on November 6, 2024. Analysts anticipate a 48% year-over-year increase in earnings per share, reaching $10.57, and a 40% rise in revenue to $5.27 billion.

In the second quarter of 2024, MercadoLibre reported a 103% surge in earnings to $10.48 per share, with revenue growing by 42% to $5.1 billion. This growth was primarily driven by rapid expansion in Brazil and Mexico, alongside improving trends in Argentina. The company also saw a 19% increase in unique buyers and a 29% rise in items sold, marking the highest growth rates since 2021.

For the upcoming quarter, investors are keen to learn about MercadoLibre’s strategies to sustain its momentum, particularly in the face of economic challenges in key markets like Argentina. The company’s fintech arm, MercadoPago, continues to expand its services, including efforts to obtain a banking license in Mexico to establish itself as the largest digital bank in the country.

Additionally, MercadoLibre’s stock has been performing well, with a 30% year-to-date gain and a 66% increase over the past year, outperforming the S&P 500. The stock is currently forming a flat base pattern, indicating potential for further growth.

IonQ (IONQ): The quantum computing company is anticipated to provide updates on its technological advancements and partnerships, which are critical for its long-term growth prospects.

Thursday, November 7:

Before Market Open:

Moderna (MRNA): The biotechnology firm is expected to discuss its ongoing efforts in vaccine development and other therapeutic areas. In the second quarter of 2024, Moderna reported a net loss of $1.3 billion, or $3.33 per share, primarily due to decreased sales of its COVID-19 vaccine. The company has revised its 2024 expected net product sales to between $3.0 and $3.5 billion from its respiratory franchise.

Barrick Gold Corporation (GOLD): The mining giant is anticipated to provide updates on its gold and copper production. In the third quarter, Barrick reported preliminary gold output of 943,000 ounces, slightly below analysts’ estimates, due to reduced output at its Carlin and Cortez mines in Nevada. The company expects a stronger fourth quarter, supported by operational expansions.

Datadog (DDOG): The monitoring and analytics platform is projected to report earnings of $0.09 per share, reflecting a 28.6% year-over-year increase. Revenue is forecasted at $701.1 million, up 25.6% from the previous year, driven by continued demand for cloud monitoring solutions.

Cameco Corporation (CCJ): The uranium producer is expected to discuss its production volumes and market conditions. Analysts will be looking for updates on the company’s contracts and any impacts from global energy policies.

The Hershey Company (HSY): The confectionery leader is likely to address its performance amid changing consumer spending habits. In the second quarter, Hershey reported a 16.7% decline in sales to $2.075 billion, missing expectations, attributed to retailer inventory reductions and timing shifts in seasonal shipments. The company has adjusted its 2024 guidance, now forecasting a 2% decline in net sales.

After Market Close:

DraftKings (DKNG): The digital sports entertainment and gaming company is anticipated to report a third-quarter loss of $0.42 per share, an improvement from the $0.61 loss in the same period last year. Revenue estimates are around $1.1 billion, reflecting strong customer engagement and expansion into new jurisdictions.

Block, Inc. (SQ): The financial services and digital payments company is expected to provide updates on its Cash App and Square ecosystems. Investors will be keen on metrics related to user growth and transaction volumes.

Rivian Automotive (RIVN): The electric vehicle manufacturer is likely to discuss its production ramp-up and delivery numbers. Analysts will focus on the company’s progress in scaling operations and meeting demand.

Affirm Holdings (AFRM): The buy-now-pay-later company is projected to report earnings of $0.95 per share, a significant year-over-year increase. In the previous quarter, Affirm reported a net loss of $45.1 million, or $0.14 per share, an improvement from the prior year’s loss. Revenue increased to $659.2 million, surpassing expectations.

Pinterest (PINS): The image-sharing and social media service is expected to discuss user engagement metrics and advertising revenue. Investors will look for insights into the platform’s monetization strategies.

Airbnb (ABNB): The home-sharing platform is anticipated to provide updates on booking trends and host engagement. In the first quarter of 2024, Airbnb reported its best Q1 ever, with 133 million nights and experiences booked, along with double-digit supply growth across all regions.

Friday, November 8:

Embraer (ERJ): The Brazilian aerospace manufacturer is set to announce its third-quarter 2024 earnings. Analysts anticipate earnings per share (EPS) of $0.29 for the quarter. In the previous quarter, Embraer reported an adjusted net profit of $80.4 million, a nearly 40% increase, driven by increased deliveries of commercial aircraft.

Canopy Growth Corporation (CGC): The Canadian cannabis company is expected to release its second-quarter fiscal year 2025 financial results. In the first quarter, Canopy Growth reported an adjusted core loss of C$5.3 million, better than analysts’ estimates, attributed to reduced operating expenses and increased demand for medical cannabis.

Sony Group Corporation (SONY): The multinational conglomerate is anticipated to discuss its performance across various segments, including gaming, entertainment, and electronics. Investors will be looking for updates on PlayStation sales, film and music revenues, and developments in imaging and sensor technologies.

Fluor Corporation (FLR): The engineering and construction firm is expected to provide insights into its project backlog and financial performance. In the previous quarter, Fluor reported revenue of $3.9 billion, reflecting its ongoing efforts in infrastructure and energy projects.

Cloud Dominance, AI Investments, and the Chip Game

Big Tech earnings last week showcased that the cloud sector is still king, with Amazon, Microsoft, and Google all reporting impressive growth driven by rising demand for AI services. Microsoft’s Azure and Google Cloud saw robust year-over-year revenue increases, though Microsoft hinted at capacity limitations, suggesting that more data center expansions are necessary to keep up. Amazon Web Services remains the frontrunner, with CEO Andy Jassy forecasting even greater spending in 2025 to meet demand. As cloud players race to scale, this foundational tech segment is proving essential to AI’s infrastructure.

Generative AI investment was another key theme, as Big Tech continues to pour billions into these initiatives, hoping to justify the costs with long-term returns. Amazon is ramping up AI-driven products like Bedrock and its shopping assistant, and Google’s Sundar Pichai credited AI for boosting their growth. Meta is betting on AI-powered ads, which have driven conversions up 7% for advertisers. Yet, there’s caution in the air; these bets are immense, and the payoff timeline remains uncertain, especially as AI ramps up internal efficiency and product creation but demands ever-growing investment.

Lastly, the chip market is heating up, with Nvidia maintaining a lead while others scramble to catch up. AMD made strides but still trails Nvidia in market share, and Samsung is working to gain traction with Nvidia certifications. Amazon, meanwhile, is tackling the AI chip demand with its in-house Trainium and Inferentia chips to offer alternatives for price-conscious customers. Altogether, Big Tech’s quarterly reports underscored both the promise and the cost of the AI future – investors will need patience as these companies aim to transform big spending today into even bigger returns down the line.

Yellen and China’s Central Bank Deepen Talks Amid Tensions Over Economic Stimulus and Market Stability

US Treasury Secretary Janet Yellen recently met with China’s Deputy Central Bank Governor Xuan Chengneng in Washington, marking another step in ongoing discussions about economic stability and financial reform between the two countries. These meetings, held alongside World Bank and IMF annual gatherings, are part of a broader effort to address pressing issues like financial market monitoring, anti-money laundering, and macroeconomic concerns amid global economic uncertainties. Yellen reiterated Washington’s apprehensions about China’s economic policies, particularly its substantial stimulus measures, which the US fears could strain American markets and jobs.

During the talks, Chinese officials highlighted recent financial policies aimed at bolstering China’s economy, including a unique 500 billion yuan swap scheme that allows brokerages and fund managers to access liquidity for stock market investments. This scheme reflects China’s attempt to stimulate domestic markets and boost investor confidence in response to sluggish growth. Both sides also exchanged insights on handling banking stress, climate-related financial risks, and improving communication around potential economic crises, though the discussions underscored ongoing tensions over economic policy impacts on each nation’s industries.

While the discussions were termed “professional and pragmatic,” the underlying tensions were clear, especially regarding overcapacity in Chinese manufacturing and its impact on global markets. Yellen’s concerns about China’s extensive production of electric vehicles and solar panels echo a broader US sentiment that Chinese goods, often subsidized and priced lower, challenge the viability of American firms. These talks aim to keep communication open between the world’s largest economies, but the road ahead is lined with issues requiring careful negotiation to avoid escalating economic friction.

China's economy, the world's second-largest by nominal GDP, has recently exhibited signs of deceleration. In the third quarter of 2024, the economy expanded by 4.6%, slightly below the 4.7% growth observed in the previous quarter and under the government's annual target of approximately 5%. This slowdown is attributed to weak domestic demand, challenges in the housing market, and declining export growth. Despite these challenges, October saw a positive shift in manufacturing, with the Purchasing Managers' Index (PMI) rising to 50.1, indicating expansion after five months of contraction.

In response to the economic downturn, the Chinese government has implemented several measures. The People's Bank of China has reduced interest rates and lowered banks' reserve requirements to stimulate lending and economic activity. Additionally, Beijing is considering an additional 10 trillion yuan ($1.4 trillion) in borrowing over the coming years to revive the economy, focusing on alleviating local government debt and stimulating the real estate sector. Despite these efforts, challenges such as a struggling real estate sector, high youth unemployment, and ongoing geopolitical tensions, particularly with the United States, continue to pose risks to China's economic stability.

Disclaimer:

The Underlying #014

The Underlying — Mon, 28 Oct 2024 12:31:21 GMT

This week, we’re diving into a packed economic and earnings calendar. Stocks remain near record highs, but with Big Tech earnings, a crucial jobs report, and inflation updates on deck, there’s plenty on the line. After a late-week surge led by Tesla, the Nasdaq closed up 0.9%, brushing near record levels. However, not all indices followed: the S&P 500 dipped 0.3%, and the Dow took a bigger hit, sliding over 2.6%. With a significant week ahead, let’s look at the major players and economic markers.

Investor sentiment surged in October, marking its biggest jump since June 2020, according to Bank of America’s Global Fund Manager Survey. The reading increased to 5.6 from 3.8, driven by positive economic data and initial Fed rate cuts. Investors reduced their cash and bond allocations, signaling heightened confidence in economic growth; however, Bank of America cautioned that cash allocations falling below 4% could serve as a “sell signal” based on historical trends. Despite this bullish sentiment, analysts urge caution. Hyper-optimism can sometimes precede a market top, with similar signals leading to slight declines historically. Still, the outlook isn’t entirely bearish—DataTrek’s Nicholas Colas described the current market mood as a “goldilocks zone,” suggesting that while investors are optimistic, they remain selectively cautious, balancing risk with strategic positioning.

Thanks for reading The Underlying! This post is public so feel free to share it.

The S&P 500’s earnings growth is running at a slow 3.7% year-over-year, with a notable disparity: Big Tech’s “Magnificent Seven” stocks expect an 18.1% earnings jump, compared to a nearly stagnant 0.1% for the rest. As futures rise modestly, a new week brings significant earnings reports and economic data. Crude oil futures fell over 4% following targeted airstrikes by Israel on Iranian military sites, which notably avoided oil infrastructure. The coming days hold pivotal updates, including Big Tech earnings from Apple, Microsoft, Google, Amazon, and Meta, each of which could set the tone for the broader market. Collectively valued at over $12 trillion, these companies’ performance and insights on AI spending could shape the broader sector’s trajectory. While Nvidia and other AI players stand to benefit from increasing AI-driven investments, Big Tech’s comments on AI monetization and capital spending will be crucial, especially given Nvidia’s robust standing as a primary supplier for generative AI infrastructure

In addition to earnings, economic reports like the October jobs report and Q3 GDP are scheduled, leading up to the Federal Reserve’s November meeting. U.S. GDP is projected to show a solid 3% growth rate, while inflation indicators are expected to moderate, with Core PCE anticipated at 2.6%. On Wednesday, the Bank of Japan will make its latest interest rate decision, expected to hold at 0.25%. Any change would be significant given Japan’s traditionally dovish stance. Also, the Bureau of Economic Analysis will release its advance estimate for Q3 GDP, expected to show a solid 3% annualized growth.

Subscribe now

Meanwhile, the Fed is widely anticipated to stay put at its November meeting, but inflation and jobs data this week will weigh into the December decision. Friday’s October jobs report has economists anticipating 125,000 new jobs, steady unemployment at 4.1%, and a modest 0.3% wage growth. Given recent disruptions from hurricanes and labor strikes, there’s potential noise in the numbers, so the unemployment rate might offer the clearest picture of labor market stability. Rising yields have Wall Street a bit tense, but economic growth remains resilient. The 10-year Treasury yield is hovering near 4.2%, and with economic data surprising to the upside, a steady rise in yields could bode well for earnings growers. Ritholtz’s Callie Cox and BlackRock’s Gargi Chaudhuri emphasize keeping quality assets central amid yield shifts, especially with growth forecasts positive.

NQ! Key Levels

Resistance at 20530 -> 20710

Bullish above 20350 ->20440- > 20530

Uncertainty between 20220 -> 20350

Bearish below 20220 -> 20080 -> 19820

Big Tech is Going Nuclear

Big Tech’s embrace of small modular reactors (SMRs) has reignited the conversation around nuclear energy as a solution for powering energy-intensive AI projects. Sam Altman-backed Oklo and firms like NuScale are leading this charge, betting that these smaller, modular designs will deliver lower costs, faster builds, and scalable green energy to meet the power demands of data centers while supporting climate goals. Amazon, Google, and Oracle have all made significant investments, highlighting a growing trend among tech giants who view SMRs as a way to secure a reliable, low-carbon energy source for their sprawling data infrastructures.

However, hurdles remain. Despite the optimism, the viability of SMRs is yet unproven in the U.S. market, with only three SMRs currently operating worldwide. Costs and timelines are a concern; even Oregon-based NuScale, the first to gain regulatory approval, faced project delays and ballooning budgets. Critics caution that despite SMRs’ potential benefits, this technology will likely require a decade or more to become a feasible alternative to traditional nuclear. The demand for AI-driven data processing, though, could sustain this nuclear revival, marking a significant shift in the energy landscape if SMRs can overcome these growing pains.

Earnings & Incoming Economic Data

Monday

On Monday, the Dallas Fed’s Texas Manufacturing Outlook Survey will provide updated insights into regional economic activity, focusing on manufacturing trends and consumer behavior amid ongoing inflation. Given recent patterns, analysts anticipate continued signs of cost pressures and potential slowdowns in production as manufacturers face rising input costs and shifting consumer demand. Trends like increased demand for budget-friendly food items, such as sausage, could reflect broader shifts in consumer spending as shoppers seek to maximize their purchasing power. This report will also offer valuable indicators of potential economic cooling, with manufacturers likely voicing concerns about costs, labor, and the impact of cautious consumer spending on their outlook.

Royal Philips is set to release its third-quarter earnings on Monday, with analysts forecasting a slight increase in revenue to €4.50 billion, up from €4.47 billion in the same quarter last year. Adjusted EBITA is expected to reach €516 million, marking a rise from €457 million last year, while net income is projected at €173 million, nearly doubling last year’s €88 million. Philips has seen substantial stock performance, with shares rising 45.5% year-to-date and 76% over the last 12 months, reflecting optimism around the company’s growth in health technology. Investors will be watching closely to see if the company meets these expectations and sustains its positive momentum.

Waste Management (NYSE: WM) is set to report earnings tomorrow after market close, with analysts expecting a 6.1% year-over-year revenue increase to $5.51 billion and adjusted earnings per share (EPS) of $1.88. Last quarter, Waste Management met revenue expectations at $5.40 billion, a 5.5% increase from the previous year, but missed on operating margin estimates, hinting at potential cost pressures. Analysts generally hold steady expectations for the upcoming report, noting the company’s consistency in a competitive environmental services market. Peers like Veralto and Rollins posted solid, though moderate, revenue growth, aligning with industry trends of steady but modest demand. Waste Management’s stock has been stable over the past month, with a current analyst price target of $223.39 compared to its current price of $206.80. Investors will watch closely to see if Waste Management can sustain its growth trajectory and manage operational costs effectively.

Ford (F) is set to release its Q3 earnings tomorrow, and while last quarter’s revenues exceeded expectations at $47.81 billion, the company missed on operating margins and EPS, spotlighting some profitability challenges. For this quarter, analysts anticipate a 4.2% decline in revenue to $41.95 billion, with EPS expected at $0.47 per share. Despite the forecasted revenue dip, sentiment remains cautiously optimistic due to Ford’s history of outperforming Wall Street estimates. With General Motors and Tesla showing mixed results, all eyes are on Ford’s numbers and how its EV strategy, cost controls, and consumer demand shape its path forward.

Tuesday

Tuesday brings the JOLTs Job Openings report, forecasted at 8.04 million, which will provide insight into U.S. labor demand. S&P CoreLogic Home Prices, Consumer Confidence, and earnings from Alphabet, AMD, BP, Chipotle, McDonald’s, and Visa. Among the key economic indicators, the Job Openings and Labor Turnover Survey (JOLTs) will be released, with forecasts predicting 8.04 million open positions. This report is essential for gauging the current state of U.S. labor demand and the overall health of the job market. A lower-than-expected number of job openings could indicate a cooling labor market, potentially influencing the Federal Reserve’s decisions regarding interest rates. The S&P CoreLogic Home Prices report will provide the latest trends in U.S. housing prices—rising home prices typically signal robust demand and economic growth, while stagnant or declining prices may suggest a market slowdown. Alongside these, the Consumer Confidence Index from The Conference Board will measure consumer optimism about the economy and their personal financial situations, which can impact consumer spending and economic momentum.

In the realm of corporate earnings, several high-profile companies are set to report their third-quarter results. Alphabet Inc. (GOOGL) is scheduled to release its earnings after the market closes on Tuesday, October 29. Analysts expect Alphabet to report earnings per share (EPS) of $1.89, slightly above the consensus estimate of $1.84, and revenue of $84.74 billion, surpassing the expected $84.19 billion. The company’s advertising segment, which includes Google Search and YouTube ads, is anticipated to generate $64.6 billion, representing 76% of total revenue with an 11% year-over-year growth. However, YouTube ad revenue is expected to fall short, projected at $8.66 billion versus the anticipated $8.93 billion, amid rising competition from Amazon’s Prime Video Ads. On a positive note, Google Cloud is expected to generate $9.55 billion in revenue, marking a 22% year-over-year increase, driven by significant investments to compete with Amazon Web Services and Microsoft Azure. The ongoing U.S. antitrust trial poses potential regulatory challenges that could impact Alphabet’s future business operations.

Advanced Micro Devices, Inc. (AMD) will also report its third-quarter earnings on Tuesday. The company expects EPS of $0.91, in line with consensus estimates, and revenue of $6.7 billion, very close to the expected $6.71 billion. While AMD’s Data Center and Client segments are projected to show double-digit revenue growth, driven by strong product portfolios like the fourth-generation EPYC processors and MI300 accelerators, the Embedded and Gaming segments are anticipated to decline by 29.2% and 64.03% year-over-year, respectively, due to intensified competition and market saturation. Despite a 7.4% year-to-date increase in shares, AMD is underperforming its sector and trades at a stretched valuation with a forward price-to-sales ratio of 7.96X.

Chipotle Mexican Grill, Inc. (CMG) is set to release its third-quarter earnings after the market closes. Analysts anticipate EPS of $0.25, up from $0.23 in the year-ago quarter, and revenue of $2.82 billion, reflecting a 13.9% year-over-year increase. Chipotle’s strong performance is expected to be driven by digital initiatives, such as Chipotlane add-ons and enhanced digital sales platforms, alongside improved operational efficiency and new restaurant openings. However, elevated costs for avocados and labor may pressure margins, with the cost of sales projected to be around 31%. Despite these challenges, Chipotle’s shares have surged 29% year-to-date, outperforming industry peers, although the stock trades at a premium valuation with a forward price-to-earnings ratio of 47.27X.

McDonald’s Corporation (MCD) will report its earnings before the market opens on Tuesday. Analysts expect revenue to rise to $6.8 billion, up from $6.49 billion in Q2 2024, and earnings per share to reach $3.20, compared to $2.80 in the previous quarter. McDonald’s extended its summer value meal promotion, which has successfully driven sales among price-sensitive consumers. However, the company faces potential reputational risks due to an ongoing investigation into an E. coli outbreak linked to its Quarter Pounder burgers. Additionally, comparable store sales are expected to show a slight year-over-year decline of 0.7%, reflecting challenges in foot traffic and pricing strategies. McDonald’s shares have experienced volatility, currently holding steady despite recent challenges.

Visa Inc. (V) is also slated to report its third-quarter earnings on Tuesday. The company forecasts revenue of $9.48 billion, representing a 10.25% year-over-year growth, and earnings per share of $2.58, indicating a 10.8% annual growth. Visa’s value-added services (VAS) are expected to exceed $8 billion for the year, diversifying revenue streams beyond traditional swipe fees. Additionally, Visa processed 59.32 billion transactions in Q3, up 9.8% year-over-year, with total payments volume reaching $3.78 trillion. The majority of analysts rate Visa as a “Strong Buy” with an average price target of $314.09, suggesting a potential upside of over 10%.

Wednesday

Wednesday is particularly loaded, with GDP growth rates from Germany, the Eurozone, and the U.S. The U.S. is anticipated to show a 3% QoQ growth rate, significantly up from the prior 2.1%, reflecting robust economic momentum.

Wednesday’s economic release schedule is significant, especially with quarterly GDP growth data expected from the U.S., Germany, and the Eurozone. The U.S. GDP is projected to rise by about 3% for Q3, building on last quarter’s 2.1% as consumption and investment bolster growth. This pace is anticipated to reflect sustained economic momentum in comparison to the Eurozone, where growth is forecasted to remain limited to around 0.2% quarter-on-quarter, with Germany particularly constrained, likely posting stagnant or minimal growth due to ongoing industrial challenges and high energy costs.

In addition to GDP, other key metrics include Germany’s inflation data, expected to align closely with recent figures around the European Central Bank’s target of 2%. Also on Wednesday, China’s Manufacturing PMI will shed light on global demand shifts as it faces decelerating manufacturing activity. With U.S. reports on mortgage applications and the ADP Payroll, investors will be watching closely to gauge economic resilience and potential shifts in Federal Reserve policy.

Meta Platforms is projected to post strong top-line and bottom-line growth, with Q3 EPS expected at around $5.27—a 20% increase from last year. Revenue is forecasted at $40.3 billion, supported by a stable advertising environment and Meta’s advancements in AI to optimize ad targeting across platforms like Instagram and Facebook. Investors will look for updates on the performance of newer ventures like Reels and Threads, as well as AI advancements that strengthen Meta’s product ecosystem.

Microsoft is anticipated to report a solid Q3 2024, with forecasted revenue around $61 billion, largely driven by its Intelligent Cloud segment, which contributes over 40% of total revenue. Analysts expect cloud revenue growth, particularly with strong contributions from Azure. Attention is on Microsoft’s AI integrations, like Copilot, which could positively impact future quarters. CapEx is projected to increase significantly, reflecting investment in data centers and cloud infrastructure. Microsoft’s gaming division is also expected to bring in around $5.1 billion as it integrates Activision fully.

Starbucks anticipates a challenging Q4, following preliminary results that missed expectations, with EPS likely around 91 cents on revenue of $9.22 billion. The company has suspended its 2025 guidance under its new CEO, Brian Niccol, who aims to reposition Starbucks amid a tough consumer environment and declining foot traffic, especially in China. Analysts will look for hints of recovery efforts and strategy updates under Niccol’s leadership.

Thursday

Thursday delivers the Eurozone’s inflation rate (forecasted steady at 1.7%) and the U.S. Core PCE Price Index (the Fed’s favored inflation measure), expected at a mild 0.1% MoM increase. Analysts predict the Eurozone inflation rate will hold steady at around 1.7%. This stability could imply less immediate pressure for the European Central Bank (ECB) to adjust interest rates. However, any unexpected shifts could impact ECB’s policy direction. Core PCE—the Fed’s preferred inflation gauge, is forecasted to show a modest 0.1% month-over-month increase. Investors will monitor this for insights on inflation’s trajectory, as it influences Fed rate decisions. With inflation numbers, the Fed’s rate strategy could become clearer, especially if PCE figures diverge significantly from expectations, possibly influencing bond markets and interest-sensitive sectors.

Apple—whose iPhone 16 was recently banned in Indonesia over unfulfilled investment promises—is expected to discuss iPhone sales and potential supply chain updates, especially if recent features like Apple Intelligence are significantly driving growth.

Amazon’s earnings will focus on profit margins and cloud division performance, with insights from AWS partnerships likely to be emphasized. From Intel, investors are looking for updates on Intel’s recovery plan, its AI processor advancements, and market competition from companies like AMD and Nvidia.

Friday

For the upcoming U.S. jobs report on Friday, October’s non-farm payrolls are forecasted at 254,000, reflecting a decline from September’s stronger-than-expected 336,000. Additionally, the unemployment rate is expected to inch up to 4.1% from the previous 3.8%. This shift could indicate a potential easing in labor demand, which investors are watching closely for any signs of economic cooling or inflation moderation. This report will coincide with other key economic data, including ISM Manufacturing PMI, which is likely to provide further insights into the industrial sector’s momentum.

For Exxon Mobil’s upcoming Q3 2024 earnings release on November 1, analysts project earnings of $2.22 per share, a year-over-year decrease of approximately 34.7%, due to lower oil prices and market factors impacting revenue, which is expected to be around $91.81 billion, down by 3.8% compared to last year. Chevron is similarly preparing to report earnings on November 3, and analysts are watching these oil giants closely, given the current volatility in energy markets due to geopolitical developments and fluctuating crude oil prices.

Wayfair, which is scheduled to report earnings on November 1, has analysts predicting earnings of $1.11 per share, driven largely by continued demand for home goods and the potential for increased online shopping during the holiday season.

Change in Trump Odds Leave Markets Uneven

As the US presidential race heats up, markets are feeling the ripple effects of a potential Trump return. The MSCI Emerging Markets Index is facing its steepest monthly drop since January, spurred by investor concerns over Trump’s proposed tariffs, which could see a 20% increase on all imports and a 60% hike on goods from China. This tariff-driven trade war anxiety is pushing global investors to reconsider riskier assets, particularly in emerging markets where companies like Samsung, Alibaba, and Tencent have taken a hit, together making up over half of the recent index decline.

Adding to the volatility, the crypto betting market Polymarket now shows Trump with a 62% chance of victory. With these rising odds, markets are increasingly bracing for the potential return of Trump’s aggressive trade policies, which would likely impact global trade dynamics and intensify pressure on sectors that rely on international supply chains. Uncertainty around the election, combined with rising geopolitical tensions and a bond market sell-off, has led investors to steer clear of higher-risk markets, signaling that election outcomes could heavily influence investment flows in the months to come.

At a rally in New York’s Madison Square Garden, Trump made waves with his promises of sweeping economic changes, including tax credits for caregiving family members and a crackdown on inflation, calling for a return to “the greatest economy in the history of the world.” His speech, which followed a rare appearance by Melania Trump, emphasized a hardline stance on border security and hinted at potential appointments, such as Robert F. Kennedy Jr. for health policy, should he win.

Global Market News

While inflation is trending down in the Eurozone and Japan, uncertainty around China’s economic recovery is likely to keep investors on edge. For those watching global growth, this week’s manufacturing PMIs out of China could indicate whether its recovery has gained any traction or if further stimulus may be on the way.

Middle East on High Alert After Israeli Strikes on Iran

Tensions in the Middle East have intensified following Israel’s airstrikes on Iranian military facilities linked to Iran’s ballistic missile program. Israeli sources report that the strikes destroyed 12 “planetary mixers” essential for producing solid fuel for long-range missiles, potentially hindering Iran’s missile production capabilities for up to a year. Iran acknowledged the attacks, noting damage to military sites and the loss of four soldiers and one civilian. President Masoud Pezeshkian vowed an “appropriate response” but emphasized that Iran does not seek a wider conflict. Supreme Leader Ayatollah Ali Khamenei suggested the situation should neither be exaggerated nor downplayed. Israel stated the strikes were in direct retaliation for Iran’s earlier missile barrage, which involved around 180 missiles launched toward Israel. Prime Minister Benjamin Netanyahu claimed the operation “severely harmed” Iran’s defense capabilities. Analysts believe Israel aimed to deter Iran while minimizing the risk of broader escalation by focusing on military targets.

The escalation has affected global markets, notably causing crude oil prices to surge due to concerns over potential supply disruptions. Oil futures rose above key resistance levels, settling at $71.78 per barrel on Friday. While major banks like Goldman Sachs and Bank of America project stable oil prices through 2025, the current geopolitical tensions introduce uncertainty. Investors are closely monitoring developments that could impact oil supplies, with broader implications for inflation and global economic growth. This situation arises amid significant upcoming events, including the U.S. elections and key central bank meetings. Market participants are bracing for potential volatility, as geopolitical tensions and economic indicators converge to influence market movements in the near term.

Election Uncertainty Weighs on Japanese Markets

Japan’s political landscape took a sharp turn as the ruling Liberal Democratic Party (LDP) lost its parliamentary majority for the first time since 2009. The unexpected outcome, following Prime Minister Shigeru Ishiba’s decision to call a snap election, has left investors questioning the country’s short-term economic outlook. This political shift brought mixed reactions: while Japanese stocks initially rallied, the yen faced further weakening pressure, with concerns around market stability adding to foreign investors’ cautious stance.

Strategists are divided on Japan’s outlook. While some see opportunity, anticipating potential “buy the dip” scenarios in undervalued sectors, others highlight the long-term growth potential tied to Japan’s corporate reforms, which are likely to remain unaffected by political shifts. The ongoing corporate governance improvements and focus on capital expenditure continue to draw global interest. However, with potential coalition negotiations and doubts around the LDP’s stability, sectors sensitive to yen fluctuations, such as exports and financials, may experience increased volatility.

Disclaimer:

The Underlying #013

The Underlying — Tue, 22 Oct 2024 18:35:05 GMT

U.S. markets are catching their breath after a relentless run, with major indices taking a slight breather today as earnings roll in from heavyweights like GE and GM. The Dow and S&P 500, still riding high from recent records, are down about 0.1% and 0.2% respectively, while the Nasdaq, propped up by tech giants, managed to stay green yesterday thanks to Nvidia’s rally.

Nvidia (NVDA), the current darling of AI enthusiasm, is nudging up against Apple (AAPL) as it edges closer to claiming the top spot in global market cap. But today, it’s cooling off a bit, down 0.5%—maybe investors are finally asking how high is too high. Meanwhile, the big names—Microsoft (MSFT), Alphabet (GOOGL), Amazon (AMZN), and Meta (META)—are all enjoying modest gains, giving the tech-heavy Nasdaq some legs to stand on.

Winners and Losers: GE and GM Take Diverging Paths

Let’s talk earnings, where GE Aerospace (GE) and General Motors (GM) are showing just how differently the market rewards a hit versus a miss. GE Aerospace took a rough tumble today, dropping over 8% as the company’s commercial engine sales fell short despite overall profit beating expectations. It’s a classic case of “almost, but not quite.” Analysts were banking on $7.13 billion from their engines division, but GE came up short at $7 billion. Even as the company lifted its full-year profit guidance, the market wasn’t having it—GE remains one of the biggest losers on the S&P 500 today.

On the flip side, GM is the star of the show. Shares soared nearly 9% after the automaker posted a big earnings beat, driven by strong pricing, EV sales growth, and a positive pivot in China. CEO Mary Barra highlighted GM’s strategic focus on balancing profitability with expansion, especially in the electric vehicle market. JPMorgan’s quick take applauded GM for outpricing the competition, while Wedbush called it a promising move as the company navigates industry turbulence. Looks like GM is back in the driver’s seat, hitting levels not seen since early 2022.

Tech Spotlight: Nvidia’s Record Run

Nvidia (NVDA) is continuing its hot streak, touching new highs as the market bets on the company’s dominance in AI chips and the success of its latest Blackwell GPUs. The stock’s momentum indicators are still pointing to room for further gains—plenty of upside left before we even get close to overbought territory. Bulls are eyeing the next target around $180, while key support levels stand firm at $125, $97, and $76 if we see any pullback. For now, Nvidia’s got the AI wind at its back.

Broader Market Outlook: Oil, Gold, and Yields

On the broader market front, oil prices are staging a comeback, up 2% as traders look past last week’s selloff. Gold, holding steady as a safe haven, is up 0.5% and flirting with record levels around $2,755 an ounce. Yields on the 10-year Treasury are creeping higher again, sitting at 4.21%, the highest since late July. It’s a classic bond move—investors are watching Fed signals and economic data, bracing for more clarity on rate cuts later in the year.

It’s a busy week ahead, with economic data on housing, labor, and consumer sentiment all set to drop. With the Fed in data-dependent mode, traders are reading the tea leaves, trying to gauge if the economy’s resilience might just push the central bank toward a more cautious pace of rate cuts. Stay tuned—markets are on edge, and the earnings parade isn’t over yet. Before we get into more for this week, lets take a look at key levels for Nasdaq futures.

NQ! Key Levels

Resistance at 20530 -> 20670

Bullish above 20300 -> 20530

Uncertainty between 20220 -> 20300

Bearish below 20220 -> 20120 -> 19980

November Rate Cut Expectations: The Fed’s Dilemma

The debate on how aggressively the Fed will cut rates in November has taken a new twist after September’s surprisingly robust jobs report. Wall Street’s chatter is shifting toward a more cautious approach, with some even speculating that the central bank might hit the pause button altogether. The labor market numbers are making Fed officials think twice about whether they really need to loosen the screws any further. A 50-basis-point cut? Forget it—those hopes are all but dead.

Subscribe now

Here’s the breakdown: the markets, which were heavily banking on a substantial cut, have had to readjust their bets. The CME FedWatch Tool now shows only an 8% chance of a half-point cut in November, down from 53% just last week. Economists like Paul Ashworth at Capital Economics are saying the Fed’s real question isn’t how much to cut, but whether to cut at all, given the strength of the labor market. The latest report from the Bureau of Labor Statistics showed 254,000 new jobs added in September—well above the forecasted 150,000—with revisions from previous months tacking on another 72,000. The unemployment rate also ticked down to 4.1%, solidifying the labor market’s resilience.

Fed Chair Jerome Powell’s narrative lines up with these numbers. In his recent remarks, he emphasized the economy’s strength, noting that inflation is cooling while employment remains solid. It’s the kind of setup that gives the Fed the green light to cut rates from a position of strength—something Powell highlighted as key to maintaining economic stability. Kathy Bostjancic from Nationwide and other analysts still see a path for 25-basis-point cuts in November and December, aligning with the Fed’s latest projections.

Seth Carpenter of Morgan Stanley echoed this sentiment, suggesting that the labor market’s rebound from the summer slump keeps the door open for these smaller, incremental cuts. But let’s not get ahead of ourselves—everything hinges on upcoming data. With the Fed laser-focused on keeping the economy steady while inflation trends lower, the road to November could still offer a few surprises. For now, it looks like Powell and the Fed are playing it cautious, aiming for a gradual approach rather than a big swing.

US Election and Market Implications

With the US presidential election just two weeks out, the showdown between Vice President Kamala Harris and former President Donald Trump has traders on edge, even as the S&P 500 continues to defy uncertainty, clocking 47 record highs this year. Polls are neck and neck, and the market seems to be treading water as it watches for any clues that might tilt the scales. Betting sites like PolyMarket and PredictIt have Trump favored, but investors know it’s a coin toss, making it tricky to position portfolios. That hasn’t stopped Wall Street from placing bets, with Goldman Sachs’ trading baskets showing Republican-focused assets gaining momentum since September. Historically, election years have been kind to the stock market—barring the chaos of 2000 and the financial crisis of 2008—but the stakes feel higher this time.

Thanks for reading The Underlying! This post is public so feel free to share it.

The big issue? A contested election. If we get anything resembling the 2000 recount nightmare, expect volatility to surge and markets to wobble. The Chicago Board Options Exchange’s Volatility Index (VIX), the so-called “fear index,” is already on the rise, a sign traders are hedging their bets for Election Day and beyond. Similarly, bonds and currencies are showing jitters, with the MOVE Index (the bond market’s VIX) creeping up as traders prepare for an uncertain outcome. One-day move forecasts for the S&P 500 sit at around 1.8%, which means we’re in for some big swings. No one is ruling out a contested result or even political violence, and markets could take a serious hit if the uncertainty drags on.

On the policy front, Trump is all about slashing corporate taxes and bringing back tariffs, particularly on Chinese goods—a strategy that could inflate prices. Harris, meanwhile, has her eye on green energy and social spending but wants to tax the wealthy and corporations at higher rates. Each candidate’s platform sends ripple effects across various sectors. A Harris win could lift renewable energy stocks, EV makers, and cannabis companies but might put pressure on traditional energy players and banks facing tighter regulations. On the other hand, a Trump victory is expected to boost fossil fuel companies and defense contractors, while also rallying cryptocurrency stocks as he leans into his newfound enthusiasm for digital assets.

For bonds, there’s no clear winner. Harris may be less hostile to the bond market, but neither candidate is showing signs of cutting US debt. That leaves longer-term bonds in a tight spot, regardless of who wins. The dollar’s fate also hangs in the balance, with analysts torn. Trump’s tariff talk could boost it short-term, but his desire to weaken it complicates things. Harris’s steadier approach could remove some of the uncertainty weighing on the greenback, but higher social spending and taxes might still put pressure on the currency. Bottom line: Volatility will be the name of the game, and traders are bracing for a bumpy ride until the dust settles.

Spotlight on Telecom Earnings

Verizon’s Q3 earnings report dropped, and the reaction was… less than enthusiastic. Shares dipped over 4% as the company reported flat year-over-year sales, coming in just shy of Wall Street’s expectations at $33.33 billion. The telecom giant saw growth in wireless services, but equipment revenue dragged down the overall numbers. Even though Verizon managed to beat earnings estimates by a hair—posting an adjusted EPS of $1.19 versus $1.18—investors were clearly not impressed.

The bigger headline was Verizon’s $1.7 billion severance charge, tied to its voluntary separation program. The move hit profits hard, with net income falling to $3.4 billion from $4.9 billion a year ago. Still, the company’s 5G play appears to be gaining traction: wireless service revenue rose 2.7% year-over-year, and fixed wireless net additions came in strong at 363,000—beating estimates by a mile. Verizon reiterated its full-year outlook, projecting steady 2-3.5% wireless service revenue growth. But even with these wins, the market isn’t buying it just yet.

Subscribe now

Nokia Misses, Eyes India for Recovery

Meanwhile, Nokia (NOK) didn’t fare much better. The Finnish telecom reported an 8% drop in Q3 sales, missing consensus estimates by a wide margin. The key driver? Weakness in India—where a significant chunk of their mobile networks business took a hit. CEO Pekka Lundmark is betting big on a rebound in India, backed by new contracts with Vodafone Idea and the potential for a Bharti Airtel deal. But for now, the stock took a hit as investors digested the news.

Nokia’s bright spot was in its tech division, where sales shot up 35%, driven by new patent agreements with Oppo and Vivo. However, the core business still faces hurdles, particularly in North America, where losing contracts with major carriers like Verizon and AT&T hurt their market share. Looking forward, Nokia revised its outlook, dialing down growth expectations for its network infrastructure and cloud services divisions. The company sees telecom as a stable but slow-moving market and is turning to data centers and defense to diversify its revenue streams.

Ericsson Finds Support from AT&T, Signals North American Growth

Ericsson (ERIC) is showing signs of life in North America, thanks in large part to a $14 billion deal with AT&T for Open RAN deployment. Q3 sales hit $6.11 billion, beating estimates despite a 4% year-over-year decline. The partnership with AT&T is a pivotal move, leveraging Ericsson’s U.S.-based 5G Smart Factory to manufacture the next generation of telecom equipment right at home. CEO Börje Ekholm noted stabilization in the North American market, with expectations for sales to even out year-over-year in Q4.

Ericsson’s adjusted EBIT margin improved to 11.9%, thanks to operational efficiencies and improved margins in its network division. Despite these gains, Ekholm flagged pressure in the enterprise segment, hinting that the recovery is still fragile. For now, Ericsson is focused on expanding its North American footprint while managing a weaker performance in emerging markets.

The Bigger Picture: What’s Next for Telecom?

Telcos are in a tough spot. The narrative of 2024 has been one of cautious optimism, as major players like Verizon and Nokia grapple with slow growth and heavy competition. Verizon’s severance charge is a clear signal of the company’s efforts to lean out and refocus on its wireless and broadband businesses. On the other hand, Nokia and Ericsson are looking to diversify beyond traditional telecom as the North American market shows signs of stabilization but remains unpredictable.

Expectations are high for the next wave of earnings, with AT&T and T-Mobile set to report. Analysts are keeping an eye on T-Mobile’s postpaid growth, which has been the strongest in the industry, while AT&T’s profitability will be under the microscope as they navigate a crowded wireless landscape. The telco space may not be the high-flying growth engine it once was, but the right moves and partnerships—like Ericsson’s deal with AT&T—are giving some companies a chance to stay ahead of the pack.

Market Calendar for October 22-25

Economic Calendar

Tuesday, October 22:

• 10:00 AM ET: ECB President Lagarde Speech

• 3:15 PM ET: ECB President Lagarde Speech

Earnings Highlights: Tuesday, October 22 (Before Open)

1. Verizon Communications (VZ)

• Time: 7:00 AM ET

• Consensus Estimate: $1.18

• Reported Earnings: $1.19 (+0.8%)

• Revenue: $33.63B

• Reported Revenue: $33.33B (-0.0%)

2. 3M Company (MMM)

• Time: 6:30 AM ET

• Consensus Estimate: $1.93

• Reported Earnings: $1.98 (+2.6%)

• Revenue: $6.10B

• Reported Revenue: $6.29B (-24.3%)

3. GE Aerospace (GE)

• Time: 6:30 AM ET

• Consensus Estimate: $1.13

• Reported Earnings: $1.15 (+1.8%)

• Revenue: $8.97B

• Reported Revenue: $9.84B (-43.3%)

4. General Motors Corp. (GM)

• Time: 6:30 AM ET

• Consensus Estimate: $2.49

• Reported Earnings: $2.96 (+18.9%)

• Revenue: $44.94B

• Reported Revenue: $48.76B (+10.5%)

5. Lockheed Martin Corp. (LMT)

• Time: 7:30 AM ET

• Consensus Estimate: $6.47

• Reported Earnings: $6.84 (+5.7%)

• Revenue: $17.28B

• Reported Revenue: $17.10B (+1.3%)

Earnings Highlights: Tuesday, October 22 (After Close)

1. Enphase Energy Inc (ENPH)

• Time: 4:05 PM ET

• Revenue Estimate: $392.19M

2. Seagate Technology plc (STX)

• Time: 4:05 PM ET

• Revenue Estimate: $2.11B

3. Texas Instruments Inc. (TXN)

• Time: 4:00 PM ET

• Revenue Estimate: $4.11B

Thanks for reading The Underlying! This post is public so feel free to share it.

Notable Earnings Reports: Wednesday, October 23 (Before Open)

1. Boeing Co. (BA)

• Time: 7:30 AM ET

• Earnings Estimate: $-10.34

• Revenue Estimate: $19.25B (+6.3%)

• Breaking: A Boeing satellite appears to have exploded in orbit

2. Coca-Cola Company (KO)

• Time: 6:55 AM ET

• Earnings Estimate: $0.74

• Revenue Estimate: $11.63B (-2.7%)

3. NextEra Energy Inc (NEE)

• Time: 7:30 AM ET

• Earnings Estimate: $1.06

• Revenue Estimate: $8.17B (+13.9%)

Notable Earnings Reports: Wednesday, October 23 (After Close)

1. Tesla Inc. (TSLA)

• Time: 4:10 PM ET

• Earnings Estimate: $0.58

• Revenue Estimate: $25.55B (+9.4%)

2. ServiceNow Inc. (NOW)

• Time: 4:10 PM ET

• Earnings Estimate: $3.62

• Revenue Estimate: $2.74B (+19.8%)

3. International Business Machines Corp. (IBM)

• Time: 4:10 PM ET

• Earnings Estimate: $2.27

• Revenue Estimate: $15.15B (+2.7%)

Economic Calendar (Continued)

• Wednesday, October 23:

• 10:00 AM ET: ECB President Lagarde Speech

• Thursday, October 24:

• 3:30 AM ET: HCOB Manufacturing PMI Flash (Forecast: 40.8, Previous: 40.6)

• Friday, October 25:

• 4:00 AM ET: Ifo Business Climate (Forecast: 85.6, Previous: 85.4)

• 8:30 AM ET: Durable Goods Orders MoM (Forecast: -0.9%, Previous: 0%)

Global Market News

USA: CFPB Drops new ‘Open Banking’ rules

The CFPB just dropped a game-changing set of open banking rules, finally pushing the U.S. into a space where consumers will have more control over their financial data—think of it like being able to switch phone carriers but keeping your number. CFPB Director Rohit Chopra framed it as a move to bring American payment systems in line with other developed nations, essentially saying it’s about time the U.S. caught up. The goal here is for consumers to freely move their data between banks and fintechs, all in the name of better deals and streamlined services—imagine being able to access better loan terms simply because you can prove your creditworthiness with data from another bank.

Subscribe now

Naturally, this isn’t without controversy. The banking lobby is already waving the red flag, arguing that these rules overstep CFPB’s authority and could expose consumers to data security risks. Meanwhile, fintechs like the American Fintech Council (AFC) are complaining the restrictions are too tight, especially when it comes to using data for things like targeted ads. It’s classic pushback from both sides—big banks worried about losing their grip, and fintechs wanting fewer restrictions to innovate. But here’s the kicker: the rules have some real teeth when it comes to privacy protections, ensuring that companies can only use your data for the services you sign up for, no more sneaky cross-selling or ads unless you give the thumbs up.

For data aggregators like Plaid, this is a win—they’re ready to play ball with these rules, promoting a more secure data exchange. Smaller banks get some breathing room too, with exemptions for those holding less than $850 million in assets, and a phased rollout gives time for compliance. It’s a big shift, and while the debates rage, one thing’s clear: the CFPB is making moves to reshape the U.S. financial landscape, putting consumer control at the center.

Germany: Scholz Pushes for Economic Reform

German Chancellor Olaf Scholz is stepping up efforts to revive the struggling German economy, which faces contraction for the second year running. At a recent BDA employers’ association conference, Scholz emphasized the need for cutting red tape, boosting investments, and increasing skilled labor both domestically and internationally. With inflation, high interest rates, and geopolitical tensions dragging down Europe’s largest economy, Scholz is calling for Brussels to reduce regulatory barriers that have been stalling growth initiatives. His message is clear: Germany needs to “make the pie bigger again” by creating a more flexible labor market and ensuring energy remains both affordable and sustainable. The Chancellor’s growth initiative underscores the urgency to adapt Germany’s export-driven economy, which has struggled since it lost access to cheap Russian energy.

Earlier this month, the economy ministry slashed its growth forecast to a -0.2% contraction from a previously optimistic 0.3% growth estimate, signaling that Germany is lagging behind other G7 nations. Scholz highlighted the importance of fortifying Germany as a financial hub, emphasizing the need for the EU to complete the capital markets union. He also criticized EU bureaucratic processes, arguing that while harmonizing internal market rules is essential, Brussels has to “cut bureaucracy on a large scale.” Scholz’s approach is a call to action, aiming to reverse negative sentiment and steer Germany back toward growth, but whether these initiatives will be enough to pull the economy out of its slump remains to be seen.

Middle East: Oil Prices Climb Amid Geopolitical Tensions

Oil prices are on the rise again as the conflict in the Middle East shows no signs of easing. Brent crude futures for December delivery gained 2.6% to $76.23 per barrel, while U.S. West Texas Intermediate futures increased by 2.8% to $72.54 per barrel. Despite U.S. Secretary of State Antony Blinken’s latest efforts to broker peace, traders remain skeptical about any real progress. Bob Yawger of Mizuho highlighted that Blinken’s visit is unlikely to shift the dynamics, as past visits have yielded little impact. The market’s attention is now laser-focused on falling inventories and tightening global supplies, with Chinese stimulus measures adding another layer of complexity to the already volatile oil market.

China’s recent rate cuts aimed at stimulating demand haven’t convinced traders that a substantial recovery in Chinese oil demand is imminent. However, Saudi Aramco remains optimistic about long-term Chinese demand growth, especially with Beijing’s continued efforts to boost its economy. The International Energy Agency (IEA) has expressed concerns about China’s slower growth trajectory, citing the country’s shift towards electric vehicles. But with global petroleum inventories below 2023 levels and the fourth quarter expected to see a supply deficit, analysts predict that oil prices could remain supported in the coming months.

IMF Warns of Underestimated Geopolitical Risks

The International Monetary Fund (IMF) has flagged that markets might be underestimating the impact of geopolitical conflicts, with the war in Ukraine and Middle Eastern tensions topping the list. In its latest Global Financial Stability Report, the IMF pointed out the disconnect between rising geopolitical uncertainty and low market volatility, a scenario that raises the risk of a sudden market shock. Tobias Adrian, head of the IMF’s monetary and capital markets department, emphasized that the current complacency in financial markets could lead to sharp adjustments in financial conditions, similar to the turbulence seen during Japan’s interest rate hike earlier this year.

The report also highlighted the dangers of ongoing monetary easing by central banks. While this policy stance is creating accommodative financial conditions, it’s also fueling high asset valuations and increasing private and public debt levels globally. The IMF urged regulators to keep a close eye on corporate debt, particularly in the fragile commercial real estate sector, and to monitor the impact of AI adoption in finance, which could amplify market volatility. As political uncertainty mounts with upcoming elections across the globe, including in the U.S., the IMF stressed the need for gradual rate cuts and clear communication from central banks to manage market expectations and minimize shocks.

HSBC’s Major Revamp: East vs. West

HSBC is shaking things up with a sweeping restructuring that splits its global operations into Eastern and Western markets. Under new CEO Georges Elhedery, the bank is merging commercial and investment banking units and streamlining regional coverage to focus on key markets in Asia and Europe. Pam Kaur’s appointment as HSBC’s first female CFO is a significant move, signaling a shift toward more inclusive leadership as the bank tries to cut costs and boost profitability. With falling interest rates compressing margins, Elhedery’s strategy aims to simplify operations and encourage cross-selling among clients, a tactic aimed at maximizing revenue from its global customer base.

However, while the structural changes may appear substantial, analysts are skeptical about their effectiveness in addressing the bank’s larger profitability challenges. RBC Capital Markets’ Ben Toms noted that the reshuffle seemed like a game of rearranging existing pieces without fundamentally changing HSBC’s business model. Investors remain cautious, as the bank’s cost-to-income ratio and other key financial metrics are still lagging behind European peers. The real question on analysts’ minds is how far HSBC is willing to go with cost-cutting and whether the latest moves will be enough to satisfy shareholders eager for more aggressive action.

China’s Defense Expansion: Outpacing the U.S.

China is ramping up its defense industrial capabilities at an unprecedented rate, aiming to close the gap with—and, in some areas, surpass—the United States. Despite its economic challenges, China’s military spending remains robust, with the nation becoming the world’s largest shipbuilder and rapidly increasing its missile, aircraft, and naval capabilities. In the past three years alone, China has doubled its inventory of nuclear warheads and launched more satellites than any other nation. The country’s focus on scaling up production and developing next-gen technologies, such as hypersonics and AI-driven defense systems, highlights its long-term strategic aims.

In contrast, the U.S. defense industrial base has struggled with delays and capacity issues. Key programs like the Virginia-class submarine are years behind schedule due to workforce shortages, and U.S. shipbuilding pales in comparison to China’s capabilities. The Pentagon’s outdated procurement system and limited production flexibility have hindered its ability to keep pace. Analysts argue that without immediate action, the U.S. risks falling further behind in key areas like shipbuilding and missile production. With geopolitical tensions rising, especially in the Indo-Pacific, the U.S. must take urgent steps to revitalize its defense production or face a growing imbalance in military capabilities.