"It is not the strongest of the species that survive,
nor the most intelligent,
but the one most responsive to change."
Charles Darwin
I write about a wide gamut of subjects, but one key take-away for readers of our Insights over the past few years has most certainly been that major shifts in geopolitics are going to matter to markets. The election of Donald Trump made that point, but by the end, his election wasn’t much of a surprise, which is why it’s so interesting that last week’s major market moves look to me like the beginning of a move, not the end of the whole process.
The Republican sweep of the presidency, the House of Representatives, and the Senate is a pretty meaningful hat trick. While Republicans scored one in 2016, that first Trump administration was just so downright chaotic, what with the deep divide among Republicans over what ‘Trumpism’ and MAGA actually meant. I don’t think that’s the case this time, though-- this second Trump administration strikes me as likely to be staffed with a talent pool that knows how pretty much all of the levers of power work, both domestically and internationally.
As for the stock market, so far, so good, but by virtue of this Republican sweep, many things could change very significantly very quickly. For example, Mexican cartels are likely to stuff their fentanyl pipeline prior to Trump’s promised Naval blockade, and Chinese exporters will probably similarly try to flood the US with goods in their effort to front-run any new US tariffs.
We have discussed the possibility that a sweep by either party wouldn’t necessarily be great for the stock market. It would certainly be great over the near-term if China’s economy lifts on a surge in cheap exports while we enjoy the (short-lived?) benefits of the Fed’s lowered interest rates. …But that just takes us back to hyper-inflation.
Trump’s tariff plans thus far appear to favor an approach that gives global firms a couple of years to build factories in the US in order to avoid sanctions, thereby reducing most of their direct inflation impact while getting all of the domestic capex and supply-side benefits. Samsung and Taiwan Semi have both indicated that this is what they intend to do, yet the economic models that I’ve seen regarding tariffs don’t seem to reflect my own personal optimism for such arrangements.
It's also being widely reported that 'maximum pressure' against Tehran is back on, as reported in the Wall Street Journal on Friday: "President-elect Donald Trump plans to drastically increase sanctions on Iran and throttle its oil sales as part of an aggressive strategy to undercut Tehran’s support of violent Mideast proxies and its nuclear program, according to people briefed on his early plans." If such a plan were successful... I’d be bullish.
And I am bullish, just maybe not with the same kind of conviction people have been telling me that they expected from me based on this election result.
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OK, so one investing theme that has been absolutely lit ever since we wrote to you about positioning for the Trump Trade back in the beginning of July is about anything related to AI data center construction. Once “stodgy” stocks are stodgy no more.
Here’s a look at the components of an AI data center and which companies provide them:
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