Cover:
-China's economy is undergoing a significant transformation, particularly in the fields of robotics, biotechnology, and artificial intelligence, exemplified by XtalPi Holdings, a biotech firm that accelerates drug discovery through AI. Founded by MIT-trained physicists, XtalPi partners with major pharmaceutical companies and signifies a shift from China as merely a manufacturer to an innovator in developing treatments for serious diseases. Research and development spending in China has been increasing at a rate of nearly 9% annually, outpacing the USA and resulting in a substantial number of international patents and industrial robot installations. However, the economic landscape remains challenging, with contracting investments, slowing retail sales growth, a shrinking population, a struggling property market, and high debt levels. Consequently, annual economic growth is projected to remain low, between 3% and 4%, down from prior rates of 6% to 8%.
Interview:
-No Update
Tech Trader:
-During Palantir Technologies' third-quarter earnings call, CEO Alex Karp claimed their results were potentially the best ever for a software company, with a Rule of 40 score of 105, driven by 63% revenue growth and a 42% free cash flow margin. While impressive, these results were not the best in software history, nor the best recently, as evidenced by Zoom Communications' remarkable performance during early COVID-19, averaging 363% revenue growth with a Rule of 40 score averaging 413 across three quarters. Ultimately, despite initial success, Zoom struggled to maintain its position as competitors like Microsoft and Google emerged.
The Trader:
-Starbucks has announced the sale of a 60% stake in its China operations to Boyu Capital for a $4B enterprise value, establishing a joint venture. This move aims to leverage Boyu's understanding of Chinese consumers and helps Starbucks de-risk from the Chinese market while refocusing on its US business. Analysts view this transaction positively, citing historical precedence with other US brands such as McDonald's and Yum! Brands, which similarly partnered with local firms to navigate the Chinese market. This strategy has previously led to improved growth metrics for those companies.
-The Invesco S&P 500 Equal Weight ETF fell 0.8% last week, indicating more resilience among typical stocks compared to larger ones. The equal-weight index has underperformed the cap-weighted index by 7.4 percentage points in 2025 but trades at 16.7 times expected earnings, a 26% discount compared to the S&P 500's 22.6. The equal-weight index is projected to see 5% sales growth in 2026, leading to an 11% earnings growth. Despite ongoing economic challenges, including a government shutdown and weak jobs data, expectations remain high for continued earnings growth. The Financial Select Sector SPDR ETF was stable last week and trades under 16 times earnings, with banks facing positive trends from loan demand and mergers, while insurers might benefit from job growth and AI cost management improvements.
Features:
-Corning is constructing a unique solar energy plant in Michigan, its largest US operation, surpassing its Kentucky factory for iPhone glass production. This facility, producing thin silicon wafers critical for solar panels, aims to revive US manufacturing in this sector, which has been dominated by China for years. Corning's CEO, Wendell Weeks, envisions solar as a potential $2.5B business line, seeking to capture 15% of the domestic wafer market. However, solar manufacturing poses significant risks, as evidenced by the failures of US companies competing with China, especially following the elimination of solar subsidies and increased challenges for the solar industry under recent political decisions. Weeks remains optimistic yet acknowledges the challenges ahead.
-The revenue generated from tariffs has been crucial for reducing the federal deficit, which is projected to decline to 5.9% of GDP. Treasury Secretary Scott Bessent stated that reduced spending may lead to lower inflation, prompting potential interest rate cuts by the Fed. However, concerns have arisen about a Supreme Court ruling that could invalidate tariffs and jeopardize this revenue stream. While some analysts believe the ruling may overstress the situation, it could prompt the administration to pursue alternative tariffs. Nonetheless, this strategy may weaken negotiations with other countries and affect future investments in the U.S. Additionally, political challenges loom as the Senate has passed a resolution to end the emergency justifications for some tariffs, symbolizing the limits of Trump's power in Congress.
Europe:
-Breaking up with China presents challenges for Europe amid the U.S.-China trade tensions, exemplified by Nexperia, a Dutch auto microchip manufacturer acquired by the Chinese conglomerate Wingtech Technology. Nexperia produces essential microchips for modern vehicles and was heavily integrated into the Chinese supply chain. Tensions escalated when the Biden administration added Wingtech to its "entities list," requiring U.S. firms to obtain licenses for dealings. Further complicating matters, the Dutch government invoked the 1952 Availability of Goods Act to take control of Nexperia’s management, leading to claims of forced expropriation.
Emerging Markets:
-No update
Commodities:
-Breaking up with China presents challenges for Europe amid the U.S.-China trade tensions, exemplified by Nexperia, a Dutch auto microchip manufacturer acquired by the Chinese conglomerate Wingtech Technology. Nexperia produces essential microchips for modern vehicles and was heavily integrated into the Chinese supply chain. Tensions escalated when the Biden administration added Wingtech to its "entities list," requiring U.S. firms to obtain licenses for dealings. Further complicating matters, the Dutch government invoked the 1952 Availability of Goods Act to take control of Nexperia’s management, leading to claims of forced expropriation.
Streetwise:
-During the latest earnings season, US publicly traded companies have reported unexpectedly strong performance, with fourth-quarter expected earnings growth tracking at 13%, despite initial analyst forecasts dropping from 13% to 8%. Some contributing factors include lower-than-expected impact from tariffs and a weak dollar potentially boosting earnings. The focus remains on significant investments in technology by major companies, with capital expenditures for Microsoft, Amazon, Alphabet, and Meta projected to rise to $356B, outpacing the rest of the S&P 500. While earnings beats have led to slight gains, the market reacts harshly to misses, especially given the S&P 500's high valuation of 25 times earnings. Upcoming reports from major companies like Disney, Nvidia, and Walmart are also anticipated.