Trail 147 — The Trump Trade
Markets Update by Aashish Singh
Business Update by Sylvia Lo
Financial markets are fascinating. They are constantly evolving, they follow no predetermined path and much like humans, their behaviour at times is completely irrational. Every day their movements are thoroughly analysed, yet their next steps are a complete mystery. They follow a random walk and therein lies their beauty. Each week I briefly recap a few stories that captured my interest.
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The Trump trade was put on this week as Trump was confirmed as the official Republican nominee for the 2024 presidential race amidst unanimous support and much fanfare, while the Biden campaign hits new lows. But a Trump trade, is very different for everyone. Just like he has polarised the US electorate, there are opposite market outcomes on his policy decisions. His post-election plans on lowering rates and tax cuts will drive the economy hotter pushing inflation higher, which will paradoxically require higher interest rates. This realisation led to an uptick in yields as expectations of lower rates cooled for treasury investors. Two-year yields climbed six basis points to 4.51%, while 10-year yields were up to about 4.24%.
Meanwhile after driving the rally in US stocks for most of the year, Big Tech slumped significantly this week. Investors rotated out from tech to riskier, lagging parts of the market which ironically meant equity investors are pricing lower rates. Trade wars around limiting chip supply and concerns that AI may be an overblown hype also contributed to Nvidia dropping 8.8% this week. The broader S&P 500 was meanwhile down 2.3%, settling just above the 5,500 handles. Cross asset volatility finally had a breath of new life, just as predicted. The S&P 500’s volatility measure- VIX, was up 6.6% at almost 17, still below its long-run average of around 20. Dollar (DXY) advanced 0.5% this week supported by the rising US yields and safe haven demand. And over in crypto world, a strong rally post Trump assassination got another leg up on Friday with bitcoin notching its highest price in a month, while the world grappled with a major IT outage disrupting airlines, healthcare, and corporations around the world.
With each asset class pricing the outcomes of a Trump win differently, to me, a proper Trump trade is simply a long volatility play. We are going to see a lot more choppiness and sharp price movements, not just in the run up to the election but also beyond. Next week we have Big Tech earnings, and any negative surprises will only further this trend.
Great Rotation
On Wall Street, big trades that have held sway for years are getting reshuffled as the monetary and political backdrop shifts.
Now traders are hastily rushing to the options exchanges, paying up to protect — or juice — their portfolios after a turbulent week in the world’s largest stock market.
China’s Economic Growth
China’s growth unexpectedly slowed to the worst pace in five quarters as faltering consumer spending undermined an export boom, putting pressure on policymakers to step up support at a twice-a-decade economic meeting this week.
Gross domestic product expanded 4.7% in the second quarter from the same period a year earlier, weaker than all except one of 28 estimates in a Bloomberg survey of economists. Retail sales rose at the slowest monthly pace since December 2022, showing a flurry of government efforts to juice confidence have done little to reinvigorate the Chinese consumer.
Bitcoin Hits One-Month High
Bitcoin surpassed $67,000 for the first time in more than a month, reviving speculation that the largest cryptocurrency,
may soon make another run at record highs amid optimism that a second Trump presidency will be beneficial for digital assets. The surge of almost 6% to $67,434 on Friday by the crypto market’s bellwether helped to lift the fortunes of smaller tokens such as Solana, Dogecoin and Avalanche, which were all up more than 3%. Bitcoin reached an all-time high of almost $74,000 in March amid optimism over demand for US exchange-traded funds that had been allowed to hold the token directly for the first time.
In The World of Business
This week, a faulty CrowdStrike software update caused widespread disruptions in business and travel, prompting cybersecurity warnings about phishing scams and highlighting vulnerabilities in digital infrastructure.
Netflix exceeded analyst expectations with significant subscriber growth, increased revenue, and strategic innovations including password sharing crackdowns, ad-supported tiers, and engaging live events.
Bark Air’s new dog-first charter airline, offering premium cross-country and international flights for dogs with extensive amenities and concierge services, has seen strong demand and plans for rapid expansion.
Global Fallout
The digital world was thrown into chaos on Friday as a faulty software update from cyber security firm CrowdStrike led to widespread business and travel disruptions, presenting a golden opportunity for malicious actors to exploit the situation. In a stern warning, CrowdStrike CEO George Kurtz and global cyber security agencies cautioned businesses and individuals against phishing schemes where attackers pose as CrowdStrike employees or tech specialists. Kurtz emphasised the need for vigilance and verification when engaging with representatives.
Microsoft reported that 8.5 million devices running Windows were impacted by the update, highlighting the interconnected nature of the global tech ecosystem. The travel industry, particularly airlines, bore the brunt, with over 2,000 flight cancellations on Saturday alone, down from 5,100 on Friday. Delta Air Lines and United Airlines were hit hardest, especially at major hubs like Hartsfield–Jackson Atlanta International Airport. Healthcare systems faced clinic closures and disrupted patient care, but many have started to recover. This incident raises significant questions about quality control in cyber security and the resilience of digital infrastructure, urging a reassessment of dependency on critical software providers.
Netflix Still Growing
Netflix has once again exceeded Wall Street’s lofty expectations, driven by an impressive range of strategic moves and a growing global subscriber base that nears 300 million. The streaming giant added 8 million new subscribers in the latest quarter, nearly doubling the 4.9 million expected by analysts, despite forecasting a slight dip from the first quarter’s 9.5 million new users. This growth was fuelled by a crackdown on password sharing, the introduction of an ad-supported tier, and engaging live events like The Roast of Tom Brady.
Key markets like the UK and India also played a significant role, with popular series such as “Baby Reindeer” and “Heeramandi: The Diamond Bazaar” driving viewership and revenue. Financially, Netflix reported a 17% increase in quarterly revenue to $9.5 billion and a 44% rise in net profits to $2.15 billion, with earnings per share at $4.88, surpassing the expected $4.73. The company also highlighted a 27% profit margin for the quarter, up five percentage points from the previous year. As Netflix continues to expand its content offerings and crack down on password sharing, its strategic focus on original programming and live events is expected to drive further growth and maintain its competitive edge in the streaming market.
Bark Air
Bark Air, launched by the popular dog treat-and-toy subscription company Bark, has introduced a unique charter airline service specifically designed for dogs, offering cross-country flights from New York City to Los Angeles and London. The service priorities canine comfort with amenities like calming pheromones, soothing music, and calming jackets, and employs a concierge service to ensure each dog’s needs are met. Initial fares range from $6,000 to $8,000 per one-way flight, with the company aiming to lower prices as demand increases and more routes are added. The positive market response has led to plans for rapid expansion to destinations such as Texas, Colorado, Florida, Brazil, and Paris.
Bark Air’s innovative dog-first approach sets it apart from traditional airlines, addressing the challenges of pet travel and tapping into a niche market with high demand for premium pet services. The airline’s ability to provide a seamless, stress-free experience for dogs and their owners is a significant competitive advantage, with the potential to disrupt the pet travel industry. The success of Bark Air’s initial flights and the strong customer interest indicate a promising future, positioning the company for substantial growth and market influence in the specialised pet travel sector.
Until next week.
