Cover:
-The bond market has experienced a challenging period, with rising interest rates causing the worst fixed-income returns in almost 90 years. President Donald Trump's political promises, including tariffs, tax cuts, and heavy government spending, could push interest rates higher. The US Treasury, the world's biggest borrower, has felt the pressure of higher bond yields most acutely, as the government's total debt has grown larger than the US economy. This burgeoning debt points to higher interest yields and lower bond prices in the years ahead, driven by ongoing deficits totaling 6% of gross domestic product and surging interest expense on existing and new debt. The US Treasury must decide whether to be part of the problem or part of the solution.
Interview:
-No update
Tech Trader:
-Tech leaders at the White House announced the Stargate Project, a joint venture aiming to build new artificial-intelligence data centers in the US. The project promises investments of $100B in the first year and $500B over four years. SoftBank CEO Masayoshi Son will handle financing, OpenAI CEO Sam Altman will contribute AI expertise, and Oracle executive chairman Larry Ellison will oversee the buildout. MGX, a new AI investment firm in the United Arab Emirates, will be a financing partner. Microsoft, Nvidia, and Softbank-owned Arm Holdings were named as technology partners. However, there are several unanswered questions about the project, including where the money will come from. SoftBank has $38B in cash and short-term investments, and $80B in long-term debt. MGX may shoulder much of the financial burden, but it is unclear what resources it can muster.
The Trader:
-The stock market is currently dominated by the Magnificent Seven and the Federal Reserve, with investors potentially being the winners. The S&P 500 index rose 1.8% for the week, while the Dow Jones Industrial Average and NASDAQ Composite rose 2.2% and 1.7% respectively. Apple, Microsoft, Meta Platforms, and Tesla are expected to report earnings on January 27, with Netflix's fourth-quarter numbers indicating a positive impact. However, solid growth may already be priced into the Mag 7 stocks, and investors should not chase this momentum. The Roundhill Magnificent Seven ETF is trading at 30 times earnings estimates for this year. The Fed is primed for a knockout, as it is no longer expected to cut interest rates on January 29 and investors are not pricing in high odds of an ease at the March meeting. However, many on Wall Street believe it could deliver one or two more rate cuts this year.
-Healthcare stocks have been concerned since the election over the potential impact of Robert F. Kennedy Jr.'s confirmation as President Trump's Health and Human Services secretary. RFK Jr.'s skeptical comments about vaccines have raised concerns about a potential slowdown in drug development in the life-sciences industry. He has been particularly critical of the Food and Drug Administration, causing fears that approval of new medications could take longer than usual. However, Thermo Fisher Scientific, a medical instruments and equipment giant, has seen its stock rise about 3% since early November and nearly 11% in January. The need for major healthcare companies to develop new blockbuster drugs is more important than the specter of RFK Jr., as Covid-19 vaccines and treatments are no longer as lucrative as they were in 2021.
Features:
-Guggenheim analyst Joseph Osha has cut his rating on GE Vernova to Hold from Buy and withdrew his previous $380 target for the share price. Vernova stock closed just below $438/share on Thursday, and Osha is moving to the sidelines. Despite the "easy money" gains, Osha believes that the stock's valuation is less likely to improve as rapidly as they have been improving. GE Vernova shares were up more than 200% since the spinoff, but the downgrade has had a muted initial reaction due to Wall Street's positive reaction to earnings reported earlier this week. William Blair analyst Jed Dorsheimer noted record orders for gas power and electrification technologies, suggesting that President Donald Trump's power policies should boost Vernova's gas power and nuclear businesses. The stock trades for about 26 times the earnings before interest, taxes, depreciation, and amortization expected for 2026.
-Endeavor Group, the company that owns Ultimate Fight Championship and World Wrestling Entertainment, is facing a potential takeover bid from a group of big investors. The investors may request more than the current takeover price, given a sharp rally in its most valuable asset, a majority stake in the company. Silver Lake, the tech investment firm that reached a deal to take Endeavor private in April, could boost its offer for Endeavor, led by CEO and Hollywood agent Ari Emanuel. The deal is expected to close in the current quarter. Endeavor's stock is up 0.5% at $31.06, reflecting investors' view that the offer may have to rise. The key issue is that Endeavor owns just over half of TKO Group Holdings, which owns the UFC and WWE sports entertainment businesses. Since the deal was struck in 2024, TKO Group stock has risen just over 50%, raising the value of Endeavor's stake in TKO Group by more than $5B.
Europe:
-Novo Nordisk has reported early-stage data on a new weight-loss drug, amycretin, which could potentially outperform existing obesity blockbusters. The data comes after investors dropped Novo shares in December after CagriSema fell short of expectations. The Phase 1b/2a trial of amycretin showed patients on the highest dose losing 22% of their body weight after 36 weeks. The efficacy results were 4% better than a similar period in a Phase 3 study of Eli Lilly's Zepbound, the most effective weight loss drug currently on the market. If amycretin works better than Zepbound, it could help Novo regain weight-loss market share. However, the study is relatively early-stage and Novo did not provide details on amycretin's safety and tolerability profile.
Emerging Markets:
-No update
Commodities:
-President Donald Trump has called an "energy emergency" and signed executive orders to boost oil drilling and revoke clean energy rules from the Biden administration. The policy aims to "unleashing energy dominance," urging companies to "Drill Baby Drill." However, the biggest impact of Trump's policy changes may be on fossil-fuel demand. The US government has limited control over oil drilling, unlike countries with state-owned oil firms like China and Saudi Arabia. US oil production is already at record levels, and most companies are slowing production growth to ensure efficiency. Trump wants oil companies to drill in Alaska's wilderness, but there is little appetite due to high upfront costs. The natural gas industry is also facing challenges due to too much supply forcing prices down.
-Venture Global, a global liquefied natural gas company, has launched the largest ever IPO for a US energy company in history at a value of $60B. This raises some risk to the shares but could attract an audience that doesn't usually invest in energy. The IPO is a big splash for an industry that hasn't had many in recent years, as traditional oil-and-gas companies are associated with older products that will eventually become defunct as the world shifts away from fossil fuels. Venture Global CEO Michael Sabel believes the investor base for energy has "broadened out substantially," pointing to the interest seen in both Venture Global and other companies, such as Constellation Energy, which owns nuclear power plants and has seen stock double over the past year due to excitement about using nuclear power for artificial-intelligence data centers.
Streetwise:
-Jack Hough observes that the earnings season has been surprisingly good, with companies beating Wall Street's consensus estimate around three-quarters of the time. These surprises are often due to companies and analysts managing investor expectations to beatable levels, rather than business results wowing. Over the past five years, in cases where companies beat both earnings and sales estimates, their shares rose by an average of less than 1%. This suggests that investors are not underreacting to the surprises. A study over a decade ago found that the combination of earnings surprises and immediate price jumps was a solid predictor of handsome returns over the following months. However, many companies have delivered just that, with shares gaining an average of 3.6% in response. Overall, the blended fourth-quarter growth estimate for the S&P 500 has been nudging higher due to widespread and large upside surprises, approaching 13%.