The S&P 500 and other indexes shot up over 5% in reaction to the resounding Trump victory, but then stocks proceeded to lose about half of those gains as of last Friday’s close. There is no doubt that an early “January effect” began on November 6th with many stocks melting up. As usual, however, stocks need to “back and fill” to digest their gains, but we are now entering the seasonally strongest time of year, as late November and Thanksgiving week launch the happiest time of year, when consumers are most upbeat.
Naturally, the prospects of Trump 2.0 are getting many investors excited, especially since it looks like the Republicans will keep their slim control of the House, so we won’t likely see any endless investigations and impeachment hearings, like Trump faced in his first term. Due to his decisive win by 86 electoral votes and 2.7 million popular votes, Trump improved his edge in every state (vs. 2020), with California giving him his biggest improvement in percentage terms. It seems Trump has a mandate for change, so he is likely to implement pro-business initiatives to stimulate economic growth, like “drill baby, drill.”
Here are the most important market news items and what this news means:
- The big news this week is expected to be Nvidia’s earnings on Wednesday. What I find most amazing is that Nvidia’s explosive sales and earnings growth has been largely fueled by its H100 Core GPUs. But starting in the fourth quarter, Nvidia’s new Blackwell GB200 GPU will dominate its sales for the next couple of years. Since Nvidia spent approximately $2 billion developing the Blackwell GPU, it has no competitors, and as it develops even more powerful GPU successors to Blackwell, I do not expect any competitor to crack Nvidia’s monopoly on generative AI. Beyond this decade, Nvidia plans to utilize quantum computing to speed up generative AI after its GPUs hit their physical limits, so Nvidia has a quantum cloud simulator now up and running to make an orderly transition.
- Super Micro Computer has gotten its “mojo” back and has been resurging after the company squashed some uncertainty that’s been hanging over the stock for a few months now. In my opinion, Super Micro Computer’s biggest problem seems to be centered around its massive order backlog, which may take more than four years to fulfill. That’s what’s caused these allegations about the company’s accounting practices and, specifically, how it books its sales. With a new auditor selected, Super Micro Computer also stated that it should be able to complete its annual 10-K filing for its fiscal year 2024, as well as file its 10-Q reports for the first quarter of fiscal year 2025 in a timely manner. Super Micro Computer also submitted a compliance plan with the NASDAQ. If the plan is accepted, Super Micro Computer will avoid being delisted and have a new deadline to submit its 10-K and 10-Q reports to maintain its listing.
- Super Micro Computer continues to dominate liquid-cooled AI chips in data centers, which are becoming faster and faster all the time. So, the company’s server solutions remain in strong demand, and Super Micro Computer even revealed recently that it shipped a record 100,000 GPUs in the most recent quarter. Super Micro Computer’s preliminary outlook still represents 186.4% to 191.3% year-over-year sales growth and 120.6% to 123.5% year-over-year earnings growth.
- Due to the anticipation of robust economic growth under Trump 2.0, the U.S. dollar remains very strong, plus Treasury bond yields have risen substantially. As a result, the Fed has acknowledged that it may be re-evaluating key interest rate cuts. Although if the job market remains soft in the November payroll report, the Fed is still anticipated to cut key interest rates 0.25% at its December Federal Open Market Committee (FOMC) meeting, further rate cuts in 2025 remain questionable. A new “dot plot” survey of FOMC members will reveal just how many if any, key interest rate cuts we can anticipate in 2025.
- A new report from the Cleveland Fed said that it may take until mid-2026 for rental costs to moderate. As a result, the shelter cost component (Owners’ Equivalent Rent) may remain elevated and keep the Consumer Price Index elevated. This report may end up in the Beige Book survey and convince the Fed to stop cutting key interest rates once the Fed stimulates the labor market with its key interest rate conflicts.
- The trade deficit with the European Union (EU) surged 8.9% in September to $13.18 billion, according to Eurostat. All the talk about tariffs hurting the U.S. is largely emanating from Europe since Germany is in a recession and the EU is “scared” that if they do not cut their tariffs to U.S. levels, then Trump 2.0 may raise tariffs to EU levels. European Central Bank President Christine Lagarde, who was openly hostile to Donald Trump before he was elected President, has been leading the anti-tariff crusade despite the fact that the EU imposes larger tariffs than the U.S.
- What Donald Trump wants to do is merely level the playing field with new tariffs if other countries have higher tariffs (e.g., the EU) or unfair government subsidies (e.g., China). Since most of the world has taken advantage of the U.S. and relies on exports to the U.S. to boost their respective economies, they are scared that Trump 2.0 levels the playing field. The most difficult country to deal with is expected to be Mexico since under NAFTA (North American Free Trade Agreement), the U.S. is not supposed to put tariffs on goods imported from Monterrey and other big industrial centers in Mexico. Since the trade between Mexico and the U.S. is so large, this will be a much more delicate situation to negotiate. Furthermore, since the U.S. needs cooperation with Mexico on border security and fighting the influence of cartels, Mexico may prove to be the Trump Administration’s biggest challenge.
- Compared to the rest of the world, the U.S. has an inherent advantage. First, the U.S. is both food and energy independent. Second, our 50 states effectively act as economic laboratories and compete with each other, which creates a naturally entrepreneurial environment where prosperity rises. Third, the U.S. has better demographics than other countries, so while China, Europe, Japan, and other countries’ populations shrink, the U.S. still has “household formation” due to many pro-family states as well as the fact that the U.S. is better at assimilating immigrants than other countries. I should add that although immigration was a contentious election issue, I suspect that most of the immigrants who are working will be allowed to stay.
- Donald Trump’s “drill baby drill” pledge is expected to have profound consequences. First, the efforts to restrict LNG exports and prohibit drilling on federal land is effectively over. The nominee for the Secretary of the Department of Energy, Chris Wright, is a fracking expert, so the production of both crude oil and natural gas is expected to steadily rise. As a result, natural gas is expected to be tapped to double the utility grid to fuel rising electricity demand for AI data centers as well as electric vehicles. President-elect Trump pledged to cut the price of gasoline in half, which will be tough, but if energy prices remain low, it will put more money in consumers’ pockets and boost spending.
- The G-20 meeting is underway in Brazil this week. Lame duck Chancellor Olaf Scholz is reportedly providing other world leaders with the details of his conversation with Vladimir Putin. Most world leaders welcome an end to the Russia/Ukraine conflict. Other lame-duck world leaders are President Biden as well as Canadian Prime Minister Justin Trudeau, who is deeply unpopular and expected to lose in the next election in October 2025. Many world leaders are expected to push back on President-elect Donald Trump on tariffs and climate issues, but when it comes to ending the Russia/Ukraine conflict, most world leaders, including Chinese President Xi, will be welcoming a Trump Administration.
In summary, change is coming. The big economic change is for Trump 2.0 to help the manufacturing sector break out of a 2+ year recession, which will potentially help boost GDP growth to a 4% annual pace. The next change is to get a “peace dividend” by achieving an expanded Abraham Accord (an alliance with Israel and Saudi Arabia to deter Iran), plus end the fighting between Russia and Ukraine. If Donald Trump can achieve peace around the world, 5% annual GDP growth is possible.
