11/11/2024

Good Morning!

We would like to recognize our veterans of the U.S. armed forces on Veterans Day.

• Former president Donald Trump won the U.S. presidential race after taking a lead in pivotal swing states. The past week's market movements were dominated by the unprecedented reaction of investors to a new president. Large amounts had been wagered on how each candidate might affect a variety of securities. So far, the ‘Trump Trade’ has proven profitable for holders of financial stocks, energy stocks, other Trump-friendly sectors, and Bitcoin.

• The Fed announced a 25 basis point cut to its benchmark overnight borrowing rate, bringing it to 4.50-4.75 basis points. This brings the year's total rate cuts to 75 basis points. Further job reports and inflationary data will determine if there will be another cut in December.

Fed Chair Powell remained resolute that he would not leave office at the request of President-elect Trump. When asked by a reporter whether he would leave and whether the president has the authority to remove him, Powell curtly replied “No.” President-elect Trump has stated numerous times that he wants the presidency to have more influence over monetary policy. He has also expressed dislike and disapproval for the role of chairman. Historically the Fed has operated independently from the executive branch, which helps explain why America's debt is a bedrock of financial stability.

In today’s newsletter we will cover: 

• Market update and rally after Trump win

• Decline in green energy stocks 

• Deal of the week: Vouri acquisition 

• What to look out for this week

Markets 

Market Update

• Markets around the globe reacted extremely positively to Trump’s election victory, sparked by potential tax reform, deregulation, and a pro-business stance. The day following the election the Dow and S&P 500 had the biggest single day gains in over 2 years. In addition, the S&P 500 posted the largest post-election day gains in history. Here is how the individual sectors on the S&P 500 performed over the past week.

The following is an outlook for specific sectors that will be influenced by Trump's various policies.  

Energy Sector:

• "Drill, Baby, Drill" (President-elect Trump): Expanding oil and gas production by easing regulations and increasing drilling leases.

• Impact on Clean Energy: Potential rollback of subsidies for clean energy initiatives, such as electric vehicle incentives from the Inflation Reduction Act.

• Energy Prices: Aiming to lower energy costs, though this may impact profitability for energy companies.

Banking and Financial Sectors: 

• Deregulation: Anticipated easing of regulatory requirements, boosting M&A deal flow, looser SEC regulations and enforcement.

• Capital requirements: Possible reduction in cap requirements, changing how banks manage reserves.

Tech Sector:

• Antitrust: Uncertainty and concerns about size and influence of big tech firms.

Below is a 6 month chart of the volatility index (VIX). Moving into the election, many markets hedged risk. The latest drop follows the results of the election. Specifically evident in U.S. equities, the market does not like uncertainty. Now that the future president has been decided, it’s possible to better understand policies that will affect business in the U.S.

(6 month VIX chart)

Trump's pro-crypto stance has spurred increased speculation,  leading to a surge in price. Bitcoin is currently sitting at a $1.57 trillion market cap, with pricing pushing all time highs. As of noon Sunday, BTC was charging at and above the $80k price level.

(BTC 1 month chart)

Tesla’s share price surged over the course of the week following Musk’s successful alignment with Trump. Musk began to show his support following the first assassination attempt. After that he became more and more involved in Trump’s campaign. The increased share price can be attributed to the new relationship between Musk and Trump, which may lead to favorable conditions for Tesla. Conversely, policies that Trump campaigned on such as tariffs and opposition to the green energy transition have the potential to hurt the company. Despite this, shares surged 31.33% with a new market cap of $1.01 trillion.

Green Energy Stocks Suffer 

Shares in many green energy companies suffered major declines in market cap after Trump's victory was announced. Trump has sworn to break up President Biden's Inflation Reduction Act along with other green energy transition legislation. This legislation included grants and tax incentives that were beneficial to green energy companies. 

The WilderHill Clean Energy Index dropped 6.7%. These are companies whose “innovative technologies focus on clean energy, renewables, decarbonization, and efficiency.” (Wilder Hill)

Once popular green energy stocks like Plug Power and SolarEdge are being shorted by hedge funds due to high evaluations, geopolitical fracturing, decline in sentiment, and poor performance. Following suit, hedge funds have gone long on more traditional oil and gas shares, which have outperformed.

(Bloomberg)

However not all is doomed for clean energy stocks. Many analysts suspect this was a panic reaction. Many companies have clean energy mandates. Republicans will fight for continued federal incentives to protect jobs in their states which have benefited from Biden-era incentives.

Deal of the Week: Vuori Minority Stake Acquisition 

General Atlantic and Stripes, two growth-focused PE firms, led a $825 million investment in Vuori. Vuori is an athleisure brand famous for trendy high quality products that have recently grown very popular. This investment brings the company's total valuation to $5.5 billion according to General Atlantic. While no official percentage of equity was announced, at this evaluation and investment these PE firms could have purchased 15% of the company in a secondary tender, meaning existing investors were able to liquidate their shares. This acquisition is notable because these firms believe in a healthy American consumer who is willing to pay for premium products. The deal was completed on 11/10/2024.

“Vuori encapsulates everything we look for in a Stripes investment – the products are amazing and beloved by the consumer, the team is fanatical about quality and innovation, and the market for athleisure is global with durable tailwinds.” (Chris Carey, Partner at Stripes)

Peer comparison of public athleisure brands by market cap

Lululemon: $37.77 B

Under Armour: $3.97 B

What to Look Out for This Week!

Monday: Bond Markets are closed for Veterans Day 

Wednesday: CPI release

Thursday: Initial jobless claims, Fed Chair and President deliver Remarks

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We are two college students on a mission to immerse ourselves in the financial industry. We are eager to learn more and make new connections. Our goal is to share exciting and informative content that provides a broad picture of current events and offers valuable insights.

Authors: Ben Banchik, Zachary Singer

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