11/18/2024

Good Morning!

!!Geopolitics Geopolitics!! 

A global economy that has already been undergoing major transitions in trade and partnerships is continuing to rapidly unfold. Markets this week for the most part reacted to domestic policy changes, for example regarding tax cuts and decreased regulation. However as Trump begins to form a foreign policy agenda his choices could have sweeping effects in the markets. Investors don't yet know what to make of much of his foreign policy, including: proposed “60% tariffs on all Chinese goods,” an unusual relationship with Putin whose conflict in Ukraine is poised to grow with the introduction of North Korean troops, and decreased support for European alliances whose defense depends on U.S. support. 

In the coming weeks Trump will announce key points that will shape his policy. For example Senator Marco Rubio's nomination for Secretary of State is a potential peek into Trump's foreign policy. Rubio is known to take a confrontational stance toward U.S. rivals such as China and Iran. Rather than attempt to predict political changes, we emphasize attention to the volatility of geopolitics, because that is key to maintaining foresight over financial markets.

In the wake of Trump's victory certain sectors saw large changes in valuation due to his intended policies. However, the market's movements could have been attributed partially to rapid reactionary speculation in response to the election results. Since hitting 6000 right after the election, the S&P has declined 2.1%.

Graph of the S&P 500 since Trump’s re-election (Bloomberg)

Fed Chair Powell: “The economy is not sending any signals that we need to be in a hurry to lower rates.” 

• The Fed’s fight against inflation is not over. Core CPI is 3.2% YoY. Home prices account for nearly half of the increase as treasury yields have risen in reaction to Trump's victory, making mortgages more expensive.

• Markets continue to price in a 60% chance of a 25 basis point cut this December.

• Jobs reports and inflationary data will remain highly relevant as investors require strong data to justify incredible market growth.  

In today’s newsletter we will cover: 

• Market update

• Palantir

• Money markets remain at record highs

• What to look out for this week

Markets 

Market Update

• The U.S. equity market held relatively stable until the second half of the week, leading to a 2.08% decline in the S&P 500. 

• Bitcoin and the crypto market overall continue to see gains following the election. Since then BTC has risen 31% and is hovering around an all time high of $90k. In addition, the market capitalization of the entire crypto market is close to reaching $3 trillion.

• Nvidia is set to release earnings this week, which will have market participants watching very closely. They are the largest company in the world in terms of market cap, however their earnings are not quite there. This means the company must continue to grow at a high rate to keep its spot. 

(PLTR) Update

Palantir recently announced that they are switching exchanges from NYSE to the Nasdaq. The hope is to bring in more tech driven investment, potentially boosting their share price. In addition, the company was added to the S&P 500 back in September. 

Palantir is a software based company “that empowers organizations to effectively integrate their data, decisions, and operations at scale.” Their software is used by some of the leading commercial institutions and governments of the world.

On the financial front the company has seen large gains over the past year, trades at high multiples, and posted strong earnings last week for Q3.

(PLTR 1 Yr Chart)

(PLTR 5 Day Chart)

Earnings

Back on November 4th the company posted strong Q3 earnings, beating analyst expectations. In response the share price increased by 23% over the next trading day.

U.S. money market funds reach $7 trillion!

Money market funds invest in short term debt and cash equivalents that have low risk and are typically equivalent to the Fed's fund rate. Interest rates that rose to historical highs made these funds extremely popular. However with 75 basis points cuts this year the average yield of the top 100 money funds is 4.51% .

(Bloomberg)

• These cash equivalents could be deposited at banks, however the low yields they offer are not competitive. This is a potential disruption to the banking sector as deposits become more competitive.

• The size of inflows in these funds could prove to be an alternative form of market sentiment. Why are investors opting to put their money in cash equivalents and not seeking high yields in the markets? Perhaps they believe evaluations are too high, for example a PE (LTM) of 30. These are questions that should be posed when seeing inflows of this size.

What to Look Out for This Week!

Wednesday key earnings:

Nvidia, TJX Companies, Palo Alto Networks, Target

Thursday: Initial jobless claims

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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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