Cover:
-American consumers are increasingly spending on shopping, with the economy thriving. However, this spending can be detrimental to the financial health of millions of Americans. The US is expected to spend $5.28T on stores in 2024, with consumers accounting for two-thirds of the country's gross domestic product. Retailers are using affiliate links, algorithms, Buy Now buttons, and social media to fuel the urge, particularly among Gen Z and millennial shoppers. This has led to an increasing number of shoppers who burn through cash they cannot afford to spend.
Interview:
-Healthcare stocks have been struggling for several years due to policy uncertainty and the alleged killer of a top UnitedHealth Group executive. The Healthcare Select Sector SPDR ETF has returned 4.5% this year, compared to the S&P 500 index's 29% return in 2023. Asad Haider, head of the healthcare business unit at Goldman Sachs, believes that the underperformance of healthcare stocks is not due to policy uncertainty, but rather the fundamentals of the sector, with many companies experiencing negative earnings revisions this year. The pain may last for the industry and investors, as policy uncertainty has led to investors rotating out of the sector.
Tech Trader:
-SoftBank Group CEO Masayoshi Son has committed to investing $100B in the US over the next four years, focusing on artificial intelligence. The investments will create 100,000 jobs, with a focus on AI companies. The company, which has a total investment value of $136B, has a range of technology investments worldwide, but particularly in the US. The focus on AI companies complicates the goal, as they are capital-intensive and highly dependent on high-paid skilled workers. To fulfill Trump and Son's commitment, the investments would have to create 73 AI companies on the scale of OpenAI, which has raised $18B and a private-market value of $157B. Labor economist Guy Berger of the Burning Glass Institute suggests that $100B spread out over four years may not be enough to create the 100,000 jobs goal.
The Trader:
-Value stocks are more sensitive to the economy and are more likely to reflect anything that shakes confidence in the big picture than their growth counterparts. The Federal Reserve's recent hawkish stance on interest rate cuts could mean slower economic growth and weaker returns for value stocks. The Pure Value ETF trades at just 10.1 times 12-month forward earnings, well below the S&P 500's 21.6 times and the Invesco S&P 500 Pure Growth ETF's 23.8 times. A broad group of value stocks is near its lowest level versus growth in over two decades. The Pure Value ETF should grow earnings at a 17% clip next year, allowing value's profits to catch up to growth. The Pure Growth ETF should grow earnings by 17% in 2025, down from 22% this year. The market is now assuming a less dovish Federal Reserve in 2025.
-The SPDR S&P Homebuilders ETF, which has top holdings like Home Depot, Williams-Sonoma, and Johnson Controls International, experienced a drop of over 3% this week after the Federal Reserve lowered interest rates but expected fewer cuts in 2025. The selloff seems overdone, with the ETF now down 14% from its closing peak. However, home-improvement demand appears to be improving, with Evercore analyst Greg Melich pointing to his leading indicator for demand, which shows an average 1.6% year-over-year increase in actual sales dollars in the past three months. This suggests that 2025 could be a good year for home-improvement stocks.
Features:
-Trump's fight in Congress to pass a short-term budget extension and avoid a government shutdown has exposed a challenge for his agenda: his fellow Republicans. Some 38 GOP members of the House bucked Trump's demands to suspend or eliminate the debt ceiling, nearly allowing the government to shut down. An 11th-hour compromise won by Democrats will allow the government to stay open, but the debt ceiling still looms over Trump's new administration presidency. Intraparty conflict and a free radical named Elon Musk could make passage of Trump's $8T economic agenda harder. The debt ceiling will return on Jan. 2, prohibiting the US Treasury from issuing new debt to cover the spending Congress has already mandated. The inability of Congress to agree on a long-term fiscal plan has prompted two out of three major credit rating firms to downgrade US debt. By keeping the debt ceiling in place, legislators are paving the way for the government to weigh less heavily on the markets.
-A Delaware jury sided with Qualcomm in a long-running dispute with Arm, (a key customer of Qualcomm’s). The falling-out began in 2022 when Arm claimed Qualcomm violated terms of a licensing agreement with Nuvia, a company bought by Qualcomm in 2021 for $1.4B. Qualcomm countered that the technology transferred from Nuvia was covered under its own license agreement with Arm. The jury agreed, resulting in a win for Qualcomm, which now has the technology underpinning some of its most important chips for smartphones, PCs, and cars. Arm's decision may question its aggressive approach towards customers, as it has doubled prices for new technology and is reportedly planning to make its own chips for the first time. Arm's top priority has been to protect its IP and ecosystem, and it intends to seek a retrial due to the deadlock.
Europe:
-Novo Nordisk, the company behind the experimental drug CagriSema, has revealed that patients lost only 22.7% of their body weight after about a year and a half. The results of the Phase 3 trial suggest that the drug could be better than it appears, and Novo plans to ask regulators to approve the medicine. However, this rate is about the same efficacy as Zepbound, the Eli Lilly weight-loss drug already on the market. This undermining expectations for CagriSema sales, which analysts had expected would be a step up from Zepbound. Wall Street had been anticipating CagriSema sales would hit $15.6B a year by 2029, but those estimates are now very much in question. The study results were complexities, and only 57.3% of patients chose to escalate to the highest dose. Investors were also buying shares of obesity-focused biotechs, under the assumption that they would benefit from CagriSema's results. Novo plans to submit CagriSema for regulatory approval "towards the end of 2025."
Emerging Markets:
-No update this week
Commodities:
-Inflation concerns are resurfacing, causing a bullish trend for inflation hedges like gold and Bitcoin. However, investors should not overlook stocks as a simpler solution. The Federal Reserve's recent lowering of the benchmark federal-funds rate has triggered concerns on Wall Street, with economic growth remaining strong and inflation remaining high. Inflation fears are a key reason for the spike in 10-year Treasury yields. Gold and Bitcoin are known as inflation hedges due to their limited supply, which isn't directly controlled by government policymakers. However, reality doesn't always align with these hedges. Bitcoin, which was trading at nearly $105,000 before the Fed's announcement, fell sharply in its wake, and gold closed down 0.3% and 1.5%. Both assets have rallied this year, hitting record highs, but their big run-ups began long after inflation began to decrease. Gold's return for 2022 was negative 0.4%, while Bitcoin fell by a staggering 64%.
Streetwise:
-Nike, a company known for its stellar sales and stock performance, has experienced a decline in secondary pricing data, with shares plummeting from $175 to $77. The decline is attributed to the rise of sneakerhead culture, with secondary prices across all Nike-branded products falling 8% in November, compared to a 4% decline in October. Nike's Jordan brand also saw worse results. The company's first earnings call since CEO Elliott Hill returned in October saw sales tumble 8% and profit 24%. While some analysts see Nike returning to its specialism, others see the company losing market share. The company's troubles may be attributed to the success of other brands, such as Skechers.