News Recap • Week 43 2024

Trump now clear favorite to win the election

Donald Trump’s odds of winning the election have been trending steadily upward over the past three weeks. After being tied with Harris on Polymarket on October 5, Trump reached a 66% likelihood this week. At least according to the prediction markets.

Betters on Kalshi are only slightly less optimistic about Trump’s chance of winning, peaking at 62% and now sitting at 61% as of Saturday.

While many people have raised some reasonable doubts about the reliability of markets like these, more traditional polling sites and analysts are pointing to the same thing: Donald Trump has gained momentum over the past few weeks and is now the favorite to win the election.

Furthermore, the likelihood of a Republican sweep–i.e., winning both the presidency, Senate, and House–has gone up at an even more impressive rate. The likelihood on Polymarket was 28% on October 5 and reached 48% this week. A Republican sweep would make it significantly easier for the party to implement its policies.

Investors seem to agree that the economy and stock market can do well regardless of who’s in charge but certain sectors and markets will undoubtedly be impacted by the election result.

The ‘Trump Trade’ is characterized by favoring US nationals over companies from other countries. China in particular could take a big hit in the form of tariffs with Trump as president.

Traditional energy sources like oil, gas, and coal would do better under Trump while green energy would likely take a hit. He’s also been extremely pro-crypto whereas Democrats have been trying to kill the industry for years.

However, if Trump is already seen as the clear favorite heading into the election, much of this will already be priced in. A Harris win could thus cause some significant market swings as investors adjust to a new reality.

I remain in the camp that the election outcome is basically a coinflip and don’t position myself too heavily in favor of one candidate over the other.

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Treasury yields hit 2-month high

One of the more puzzling developments in the financial markets recently has been the rise in treasury yields. They would “normally” move in the same direction as the Fed funds rate which was recently cut by 50 basis points, but that move actually marked the absolute bottom for treasury yields.

Since then, the 2-year treasury yield has rallied from 3.5% to 4.1% this week, marking its highest level in more than 2 months. The 10-year closed at 4.24% this week, the highest since early July.

“Risk-free” yields of more than 4% offer a legitimate alternative to equities, thus putting some pressure on the stock market as investors reallocate capital.

So why are yields rising just as the Fed has kicked off a rate-cutting cycle?

Part of the answer may be that the cycle doesn’t appear to be as aggressive as some might have thought. The US economy has proven surprisingly resilient while inflation may not be completely tamed. This combination calls for fewer rate cuts than what would have been expected in a faltering economy with deflation risks.

Second, some investors are pointing to the increased odds of a Donald Trump presidency. For one, his policies are viewed as potentially more inflationary and therefore more likely to lead to higher rates and higher treasury yields.

There’s more to the story and I’d recommend this week’s episode of the All-In Podcastwhere Chamath Palihapitiya and David Sacks present their viewpoints on the situation.

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Tesla saw its best day in a decade after earnings

Tesla stole the earnings headlines this week, soaring 22% on Thursday after reporting. While revenue came in just shy of expectations, the company beat on earnings with $0.72 per share vs $0.58 expected.

Elon Musk estimated that vehicle growth will reach 20 to 30% next year due to lower-cost vehicles and autonomous driving. Analysts were expecting a total increase in deliveries of 15%.

Even after the 22% jump on Thursday, Tesla is only up 8% for the year and still far behind the Nasdaq and its Magnificent Seven peers.

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In other news

• The People’s Bank of China said it would cut its 1-year loan prime rate (LPR) by 25 bps to 3.1%. The 1-year LPR influences corporate loans and most household loans in China. The PBOC also trimmed the 5-year LPR, which serves as a benchmark for mortgage rates, to 3.6%. The cuts were expected.
• US PMI output index for October rose to 54.3 in October from 54.0 in September. Any reading above 50 indicates economic expansion.
• The US Manufacturing PMI rose to 47.8 in October from 47.3 in September, slightly beating estimates of 47.5.
• Services PMI in Germany beat expectations, coming in at 51.4 for October vs the 50.6 consensus which was also the number in September. France fared a lot worse with 48.3, lower than the 49.6 in September and 49.9 forecasted.
• Disney said that they will announce Bob Iger’s successor in early 2026. Iger’s contract runs through 2026.
• Hyundai Motor India debuted on the local stock exchange as the largest IPO ever with a valuation of $3.3 billion. Shares dropped 5% on its first day of trading.
• China and India reached an agreement to solve their border conflict. The move could improve the political and business ties between the two countries.
• Youth unemployment in China fell to 17.6% in September, down from 18.8% in August. It peaked at 21.3% in June last year.
• The International Monetary Fund trimmed its growth target for the eurozone from 0.9% to 0.8% in 2024. Meanwhile, they raised their 2024 growth forecast for the UK from 0.7% in July to 1.1% now, citing lower inflation and interest rates as the biggest boosters.
• Norway’s sovereign wealth fund, the largest in the world, reported Q3 profits of $76.3 billion. They realized a 4.4% return for the quarter, slightly less than the indexes the fund measures itself against.
• An E. coli outbreak at McDonald’s sent at least 10 people to the hospital. One tragically passed away. The news sent the stock down by 5% on Wednesday and 7.6% for the week.
• Perplexity AI, an AI-fueled search engine, is seeking to raise $500 million in a new funding round that would value the company at $9 billion.
• Waymo closed a $5.6 billion funding round to accelerate the expansion of its robotaxi service. Waymo is owned by Google parent Alphabet.
• Tokyo Metro went public on Wednesday in Japan’s largest IPO in six years, raising $2.3 billion in the process. The stock surged 45% on its first day of trading.
• US home sales for September dropped to their lowest level since 2010 with a seasonally adjusted, annualized rate of 3.84 million units. This also puts home sales on track for their worst year since 1995 for the second year in a row.
• Goldman Sachs downgraded their view on India from overweight to neutral, meaning that it no longer expects Indian stocks to outperform the market at large.
• Boeing machinists rejected a new labor proposal from the company with 64% voting against it. The deal included a 35% raise among other things.
• Apple iPhone sales declined by 0.3% in Q3 while Huawei’s rose by 42%. Vivo was the top vendor with 18.6% market share followed by Apple at 15.6% and Huawei at 15.3%.
• The Bank of Russia raised interest rates from 19% to 21%.
• The Federal Trade Commission blocked Tapestry’s proposed acquisition of Capriover some vaguely phrased concerns over higher-priced handbags. I’m honestly not sure whether to laugh, cry, or yell at these statements by Henry Liu, director of the FTC’s Bureau of Competition:
• “Today’s decision is a victory not only for the FTC, but also for consumers across the country seeking access to quality handbags at affordable prices,”
• “These bags are a product which millions of people rely on throughout their daily lives. The decision will ensure that Tapestry and Capri continue to engage in head-to-head competition to the benefit of the American public.”

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Earnings

• General Motors reported earnings before the bell on Tuesday and beat expectations for both earnings and revenue. They also raised guidance for 2024. Shares rallied almost 10% on the report.
• Starbucks posted preliminary quarterly results on Tuesday and suspended its outlook for 2025. The stock initially fell 3% when the market opened on Wednesday but climbed 4% throughout the day to close 0.9% higher.
• IBM dropped 6.2% on Thursday after falling short on Q3 revenue while delivering a small earnings beat. IBM is still up 31% for the year though.
• Boeing lost more than $6 billion in Q3, its largest since the pandemic in 2020.
• Deutsche Bank shares fell despite beating on both revenue and earnings.
• Barclays posted a 23% profit increase in Q3 and beat on both earnings and revenue. Shares rose more than 4% to a nine-year high.
• South Korean SK Hynix posted record operating profits of $5.08 billion in Q3. Quarterly revenue rose 94% year-on-year. The company’s growth is fueled by the AI boom.
• Lockheed Martin reported earnings per share of $6.80 vs $6.50 expected while falling short on revenue. Shares fell 6% on the news and more than 8% for the week but are still up by 24% for the year.
• Coca Cola presented a small revenue and earnings beat on Wednesday. Shares fell 2% on the news and was down 5% for the week.
• UPS jumped more than 5% on Thursday after delivering a better-than-expected earnings report. Shares had been up by as much as 10% in the morning though.