Cover:
-President-elect Donald Trump has promised tax breaks for everyone on his campaign list, including averting income-tax rate increases and eliminating taxes on tips and Social Security income. However, with the Republican majority in both the Senate and House, it will be nearly impossible to make good on all promises, as the revenue loss for the federal government is estimated at $9T if all proposed changes are adopted. Experts say implementing some ideas may not be feasible. The outlook for middle- and lower-income taxpayers is less certain, with Trump's win potentially leading to small improvements or even declines in after-tax income. Trump has also been discussing issuing a 60% tariff on imported Chinese goods and a 10% or 20% tariff on imports from anywhere else, which could raise a net $2.8T or $4.5T for federal coffers over 10 years.
Interview:
-American agricultural abundance has been declining, and agricultural economist Dan Basse spoke to Barron’s, expressing his concern that the decline of globalization and the economic and political rift between the US and China may put US farmers at the losing end. The split between the G-7 countries and the BRICs, which includes Brazil, Russia, India, and China, may result in differing trade patterns that disadvantage US farmers. Basse, founder of AgResource, grew up on a Wisconsin dairy and grain farm and started in the agriculture commodities business in 1979. He discusses the impact of geopolitics on US farmers, food inflation, and the future of agriculture.
Tech Trader:
-The artificial-intelligence boom, fueled by the launch of ChatGPT, has led to a spending war between Microsoft, Google, Amazon.com, Meta Platforms, and others to source chips from Nvidia and other companies. However, the competition could change as the industry faces obstacles in building larger AI models. Nvidia has been the chief beneficiary of the spending race, as its graphics-processing units (GPUs) are particularly good at carrying out multiple calculations simultaneously, significantly reducing the time required to train a model. The scaling law, which measures the size and complexity of AI models, is now facing questions. Microsoft CEO Satya Nadella has defended the topic, stating that it's good to have some skepticism and debate to motivate innovation. If AI improvement breaks down, current leaders, including Microsoft, Google, Amazon, OpenAI, and Nvidia, could face new concerns about their big spending. As a result, prominent AI figures are pushing back on scaling doubts.
The Trader:
-Healthcare stocks have been attracting investors due to concerns about the future of vaccines and weight-loss drugs. Donald Trump's nomination of Robert F. Kennedy Jr. and other healthcare skeptics has caused investors to flee the sector, prompting a close look at the stocks. The S&P 500 has seen a 5% increase in November, while healthcare stocks have fallen about 2% this month. BofA Securities' latest fund flow data report showed that clients were net buyers of equities for the third week in a row, with inflows accelerating to their highest level since September. However, healthcare ETFs were the only sector ETFs that BofA's clients were avoiding. Healthcare stocks saw their first outflows in five weeks, one of only two sectors, along with real estate, to experience net selling. The incoming Trump administration could make policy changes and potential appointees, such as Dave Weldon and RFK Jr., could be wild cards due to their rejection of scientifically accepted facts (sic). Wall Street's aversion to uncertainty may keep them out of favor in the near term. However, healthcare stocks are trading cheaply enough to start looking interesting.
-November saw the S&P 500 reach its 53rd record close of the year, with the Dow Jones Industrial also reaching its 47th record close. The S&P 500's year-to-date gain at 26.5% was the least impressive of the major indexes, with the NASDAQ Composite being the least impressive. The post-election euphoria has given way to a more pragmatic analysis of how changes in Washington may shake out, but Inauguration Day is still far enough away not to cause too much worry. For now, there seems to be little to stop a year-end Santa Claus rally. Good data marches on, with initial jobless claims falling more than expected to a seven-month low, and the Bureau of Economic Analysis's second-quarter estimate for real gross-domestic-product growth in the third quarter at 2.8% matched expectations. JP Morgan's head of global markets strategy, Dubravko Lakos-Bujas, predicts the US will remain the global growth engine with the business cycle in expansion, healthy labor market, broadening of artificial-intelligence-related capital spending, and prospect of robust capital market and deal activity.
Features:
-Applied Therapeutics' stock fell 73% to $2.33 on Friday, wiping out $730M in valuation. The biotech company received a letter from the FDA stating that the agency declined to approve a drug for treating the metabolic disorder Classic Galactosemia. The FDA cited "deficiencies in the clinical application" of the drug, which it's marketing as govorestat. Founder and CEO Shoshana Shendelman expressed disappointment with the FDA's decision and said she would work with the FDA to address the concerns raised in the letter. As of Wednesday's close, shares in Applied Therapeutics were up 135% in 2024, but Friday's losses have put them in the red for the year.
-President-elect Donald Trump is planning to raise tariffs on imports, even those from the US's closest trading partners, due to the controversial nature of such moves. The last time the US introduced sweeping taxes on imports was in 1930's Smoot-Hawley Tariff Act, which raised tariffs on thousands of goods to historically high levels. This did not help the country out of the Great Depression, as other nations retaliated and international trade was drastically reduced. The Dow Jones Industrial Average fell 40% in the year after it was passed. Markets have not responded badly to Trump's promises to levy more taxes on goods from China, Canada, and Mexico, with the Dow up more than 6% over the past month. Tariffs and protectionism were common wisdom in the past, as they were seen as damaging when trade deficits increased competition for domestic companies.
Europe:
-European markets were boosted by a surge in chip stocks, with the Stoxx 600 index jumping 0.6% in early trading. Paris' CAC 40 climbed 0.7%, easing concerns about budget infighting potentially threatening France's government. Frankfurt's Dax was up 0.7%, and London's FTSE 100 edged up 0.2%. The Biden administration is considering imposing more restrictions on semiconductor sales to China, but the measures are expected to be less harsh. Dutch chip equipment manufacturers' shares rose, with ASML up 4.1%, ASM International up 3.3%, and BE Semiconductor Industries up 4.4%. In Asia, Chinese stocks fell as investors waited for news about more stimulus for Beijing, which has struggled to restart the world's second-largest economy this year. Hong Kong's Hang Seng Index fell 1.2%, while the mainland CSI 300 was down 0.9%. Japanese equities had a better day, with the benchmark Nikkei 225 closing 0.6% higher. US stock and bond markets are closed for Thanksgiving, but futures tracking the S&P 500, NASDAQ 100, and Dow Jones Industrial Average indexes ticked up.
Emerging Markets:
-No update
Commodities:
-Over the past 15 years, oil drillers have transformed the Permian Basin in Texas and New Mexico into the most important oil basin in the world by re-engineering pipes and applying pressure and chemistry. Now, they are tapping into artificial intelligence to keep the crude flowing for decades more. AI can help oil companies extract more oil than it is equivalent to adding the output of an entire Middle Eastern nation. Over the past decade, the US pumped out 60% more oil a day with 40% fewer workers, outpacing even those of online retailers. By extracting more oil while reducing capital expenses and manpower, they are lowering the costs at which they can drill profitably. In the Permian, the "break-even" price for oil producers has fallen to $40 a barrel from over $90 in 2012, according to S&P Global Commodity Insights. AI should take that number even lower, boosting oil company margins and cash flow. For the top Permian producers—Exxon Mobil, Chevron, Diamondback Energy, EOG, and Occidental Petroleum—all of the extra cash they're generating through efficiency gains should keep their dividends secure and growing, even during oil price slumps. Some of those stocks now yield over 4%.
Streetwise:
-The recent price gains in financial markets, particularly in Tesla and Bitcoin, are threatening to undermine the company's impressive performances. Wedbush Securities analyst Dan Ives explains that President-elect Donald Trump is likely to scrap rebates and tax breaks for electric vehicles, giving Tesla a clear competitive advantage. Tesla's fast-tracked autonomous strategy, which is expected to be worth a $1T valuation alone to the Tesla story over the coming years. For Bitcoin, Trump's use of the currency to buy burgers for crypto bros at a Manhattan bar has piqued appetites, demonstrating the belief that a Donald Trump presidency and likely Republican-controlled Congress provides significant support for regulatory clarity in the US and greater crypto activity and adoption. Bitcoin has outshone Ethereum to the point where the ratio of the two prices has hit key levels of previous support.
One notable example of this valuation analysis is Peanut the Squirrel, an orphaned New York City critter that became famous on Instagram and became a symbol of government overreach. A Peanut cryptocoin has hit a market value of over $1B, highlighting the potential for significant market gains in the future.