Cover Story:
-President Donald Trump's tariff regime, which prioritizes US manufacturing and upends globalization, has sparked a stampede on Wall Street. However, the heartland region, which includes Alabama, Arkansas, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Michigan, Minnesota, Mississippi, Missouri, Nebraska, North Dakota, Ohio, Oklahoma, South Dakota, Tennessee, Texas, and Wisconsin, is more resilient than it has been in decades. The region's resilience will be crucial to cope with the near-term pain of a global trade war. The Trump administration's cuts to federal spending and restrictive immigration policies also threaten to slow the heartland's progress. However, the region's transformation could have surprising staying power, as business and civic leaders have done groundbreaking work to attract investment and nurture diverse industries. The region's gains may be more durable than they appear, even in the face of impending changes aimed at restoring American manufacturing.
Interview:
No update
Tech Trader:
-Tech executives have criticized the consequences of diversity, equity, and inclusion policies (DEI) as their businesses have resisted diversity initiatives. Meta Platforms CEO Mark Zuckerberg stated that corporate culture had been "neutered," and multiple tech companies, including Meta, removed diversity data from their annual disclosures. DEI gained attention a decade ago when many firms started publishing annual reports on hiring people from diverse backgrounds while promoting fair treatment for all groups in the workplace. Barron's analyzed proxy statements from the 30 largest tech companies in the S&P 500 and compared them with the same filings from a decade ago. Four of the 30 largest tech companies' CEOs are women, with three having held their positions for over a decade and none added in the last five years.
The Trader:
-Chewy's stock has seen an 11% drop to $33.29 since the stock market opened on February 19. However, the company has held up better than the S&P 500 index, which has dropped 12% since its all-time high. Chewy's fourth-quarter sales of $3.25B grew 7% year over year, beating expectations of $3.19B. The growth was partly due to the company reporting 20.5M customers, a couple million above the expected total. Average sales per customer also grew, and the company beat earnings forecasts for the 16th time in the past 20 quarters. Management's guidance was lacking, with concerns about a slowdown in pet acquisition. Morgan Stanley analyst Nathan Feather sees sales exceeding expectations again, as new pet-owning households have stabilized but still grow below the long-term trend.
-The stock market is experiencing a decline, with utility stocks experiencing losses of 11% this year due to concerns about the economic damage caused by President Donald Trump's tariffs. The Utilities Select Sector SPDR ETF has been dragged down by 1.3%, but they tend to hold up better than most stocks during a decline. Investors are paying lower price/earnings multiples across the board, including for utilities. The drop in P/Es leaves utilities trading cheaply, with the ETF trading at about 17 times the aggregate earnings that analysts covering its companies expect for 2025. Analysts expect the group's earnings to grow just over 7% every year for the next three years. Driving growth is the fact that these companies are creating new, clean energy plants faster than they're retiring older ones. As their asset bases rise, their earnings grow too, as they're allowed to earn a certain rate of return on their investments by the states they operate in. Utility companies often lift the rates they charge customers to bring their earnings higher, and American Electric Power is cheaper and has growth ahead.
Features:
-Novo Nordisk's shares have fallen 58% from their June 2024 peak due to tariff troubles, competition from US rival Eli Lilly, and a decline in interest in weight-loss drugs. Goldman Sachs has reduced its total addressable market for obesity drugs by 2030 to $95B, causing investors to be nervous. Novo has already lost its crown as Europe's most valuable company, falling behind German software maker SAP and luxury goods maker LVMH Moët Hennessy Louis Vuitton. Eli Lilly's GLP-1 weight-loss drugs have led to greater weight loss than Novo's new treatments. Trump's tariff policy is causing uncertainty for Novo and its home country, with an unwinding of global trade impacting the company and its 16 production sites worldwide. Without Novo Nordisk, Denmark would likely face a recession, impacting its spending budget, interest rates, housing prices, and mortgages.
-The conflict over a proposed 124-mile natural-gas pipeline from Pennsylvania to upstate New York is shaping up to be one of the most consequential energy battles in the early days of the Trump administration. The Constitution Pipeline, which would run from the gas-rich Marcellus shale fields of Pennsylvania to population-dense regions of the Northeast, could be the physical manifestation of this idea, pumping fossil fuels into a region that had vowed to phase them out. President Donald Trump has directed Attorney General Pam Bondi to halt enforcement of state climate-change laws that she deems unconstitutional and take legal action against state and local policies that "discriminate" against energy producers from other states. The pipeline could be the physical manifestation of this idea, pumping fossil fuels into a region that had vowed to phase them out.
European Trader:
-Novartis, a European pharmaceutical giant, has announced plans to spend $23B to expand its US-based production, ensuring 100% of its key medicines for US patients are made in the country. The company, one of Europe's largest drugmakers, will invest billions to boost production and research and development in the US over the next five years. It will expand current manufacturing and create seven new facilities, creating thousands of American jobs. Novartis will also establish a new research hub in San Diego to tap into the best minds in America. The news comes as Trump announced a major tariff on pharmaceuticals is imminent. Pharma has been exempt from the Trump administration's sweeping tariffs announced on April 2. Novartis' American depository receipts rose 1.9% to $105.34 in premarket trading, while its Swiss-listed shares rose 1.5% in Europe.
Emerging Markets:
-No update
Commodities:
-Trump administration officials are considering an aid package to help American farmers cope with potential damage from the latest tariff fight. However, these aid packages may not be enough to protect farmers from the impacts of the trade war. The aid package might primarily benefit larger farms, leaving smaller players in the lurch, as seen during the 2018 trade war. One-time aid cannot offset the long-term loss of market share to competing countries like Brazil. American farmers will have to find new buyers, which would likely bring higher costs of contracting and delivering products. Last week, Trump unveiled 10% tariffs on all imports, and much higher rates for some nations. China and other countries have announced countermeasures, many of which target US agricultural exports. China has already imposed 10% to 15% tariffs on $21B worth of U.S. agricultural imports in March. The European Union has also approved its first set of retaliatory measures, imposing tariffs on €21B ($23B) of US goods, targeting agricultural products from almonds to soybeans.
Streetwise:
-Wall Street firms often issue price targets in sets of three: bull, bear, and base cases. The main complaint about price tri-targets is that bearish outcomes often lack in grisly imagination. JP Morgan's global strategy team puts the bear case for the S&P 500 index at 4000 by year's end, based on underlying earnings per share of $250 next year and a forward price/earnings ratio of 16. This scenario, published two days before the White House announced a temporary pause for its new schedule of punishing worldwide tariffs, assumes that trade upheaval results in only minimal earnings growth from last year's $240 level. A drop to 4000 would be painful, true enough, but it would still mark a nine-year doubling, hardly the equivalent of being dropped into an active volcano or strangled with bedsheets. Negligible earnings growth over two years would be disappointing relative to the 27% growth implied by the current consensus estimate.