Alistair Berg
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Stocks rally and bonds plunge as with new economic agenda ahead. (0:15) Tesla is a winner as other EV makers fall. (2:39) Tech stocks bullish and renewable energy dives. (3:01)
This is an abridged transcript of the podcast.
Our top story so far. Stocks are racing higher and bonds are tumbling as the Trump trade goes into full gear.
The major averages are up significantly. The Dow (DJI) is in the lead, up nearly 3%. The S&P (SP500) and Nasdaq (COMP.IND) are up nearly 2%.
Tony Pasquariello, head of hedge fund coverage at Goldman Sachs, says the trading crowd walked into today with light risk and a good reservoir of profit and loss, so he expects “folks will play the cards that just turned over at face value.”
The “whole world didn’t adjust their risk overnight,” he added. “I’d be inclined to press on the prevailing trends that follow from these results. This argues for a broad set of reflation trades that play on pro-cyclical policies and high US nominal GDP growth.”
The dollar (DXY) is up nearly 2% and is close to notching its best one-day gain since March 2020. Bitcoin (BTC-USD) is also on the march higher, topping $74,000.
In the bond market, Treasury yields are up sharply as the FOMC starts its two-day rate meeting. Expectations are still a near certainty of a quarter-point rate cut on Thursday. But the odds of a similar cut in December have fallen below 70% as traders gauge the impact of imminent tariffs.
Looking further out, fewer cuts are priced in for 2025, with traders now betting on a terminal rate for that year of 3.75%, just 1 full percentage point from current levels, reached by June.
The benchmark 10-year yield (US10Y) is up 15 basis points to 4.43%. It’s now up more than 70 basis points since the Fed started its easing cycle in September by cutting 50 basis points. The 2-year yield (US2Y) is up 7 basis points to 4.26%.
Pantheon macroeconomist Samuel Tombs said. “The scope for tax cuts and a much larger budget deficit in 2026 remains unclear given that the race to control the House is finely balanced, but we can now be almost certain that tariffs on imports will be imposed next year.”
“For now, we assume that a 10% tariff will be applied to all imports, boosting the core PCE deflator by about 0.8pp, though the range of potential outcomes is very wide. This would leave core inflation close to 3% by the end of next year, essentially unchanged from 2.7% in September.”
“The risks are skewed to the upside, given… Trump has threatened a 20% tariff on all imports except those from China, which would be hit by a 60% tariff. In this scenario, the core PCE deflator likely would be boosted by about 2.0pp,” he added.
Looking at stocks seeing a direct post-election impact, Tesla (TSLA) is rallying sharply as Elon Musk spends election night with Trump. But overall, electric vehicle stocks are breaking lower.
Chinese EV stocks led the declines in the sector, with NIO (NIO), XPeng (XPEV), and Li Auto (LI) all declining. The threat of EV rebates and tax incentives being pulled back added pressure to Rivian Automotive (RIVN) and Lucid Group (LCID).
Wedbush analyst Dan Ives says: “We expect a very robust bullish market reaction this morning… with Big Tech and Tesla front and center.”
“China tariffs and a harsher stance on Beijing from Trump will need to play out over the coming year for its impact on the supply chain/chips and Big Tech. That said, we would expect a strong AI focus out of the gates from Trump for US Big Tech players, Khan out at the FTC, and Musk’s big bet on Trump being a home run for Tesla.”
Renewables stocks are taking on the chin, with First Solar (FSLR), Enphase Energy (ENPH), Sunrun (RUN), and SolarEdge Technologies (SEDG) all seeing declines of 10% or more.
And big banks like Bank of America (BAC), JPMorgan Chase (JPM), Citi (C), Wells Fargo (WFC), Goldman Sachs (GS), and Morgan Stanley (MS) are rallying.
Barclays says: “We think broad deregulation, including in energy and financial services, will likely be a tailwind to growth. Increased energy production could marginally offset the increase in headline inflation from tariffs and fiscal easing.”
Moving away from the election, Super Micro Computer (SMCI) is plunging again, shedding another quarter of its value. Shares are now around $20, near where they were in mid-2023, right before the AI rally started.
Super Micro issued preliminary results late Tuesday, saying it expects to earn between $0.75 and $0.76 per share on an adjusted basis, with revenue between $5.9 billion and $6 billion, below its previous guidance of $6 billion to $7 billion. Analysts had expected the company to earn $0.74 per share on $6.79 billion in revenue.
Seeking Alpha analyst Marc Gerstein said he is not comforted by the fact that the special committee found no evidence of fraud or misconduct.
“The purpose of an auditor is to spare investors the burden of trusting only insiders. Given the resignation of SMCI’s auditors, I absolutely cannot trust the word of the internal board committee,” he said.
And in the Wall Street Research Corner, we go back to the election.
Deutsche Bank points out that it’s the first time the incumbent party has lost the White House three elections in a row since the 1800s. But the trend of incumbent instability is more global.
Strategist Jim Reid said, along with Democrats in the U.S., “incumbents have also lost ground in the UK, France, India, Japan, and South Africa as well this year.”
“Voters in general have become much more willing to change their vote from election to election,” he added. “A smaller share of the electorate votes the same way all the time, meaning it’s easier to see big swings from one election to the next, as there’s now more swing voters up for grabs.”
“Overall, it feels like voters have ignored the extremely generous handouts after Covid, and instead focused on the costs of these in the aftermath. The top cost likely being inflation, and although it’s fallen back now, voters experience this on a cumulative basis, rather than a 12-month basis as economists often analyze,” he said.
“The interesting question is whether this trend will continue. The fact that this is the first time in over 120 years that the US incumbent party has lost three times in a row might hint at a more structural problem where politicians are unable to deliver against expectations in a world of lower growth and fairly regular shocks.”
Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
