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Tech Earnings & Election Volatility – Brace for Impact

PLUS: China Removes Tariffs

TheBRRR’s Thoughts 

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Risk assets have begun to price in a Trump victory as the former president has improved in recent polls and swing state data.

Bitcoin has continued higher and is a light sneeze ($3,000, or 4%) below its all-time high last set in March at $74,000.

The S&P 500 and Nasdaq charts look similar, edging up near their respective highs as well.

These moves higher are happening despite a move higher in the dollar index, which usually serves as a headwind for risk assets.

As we step into one of the most catalyst-heavy weeks of the year, markets are on edge, and the stakes couldn’t be higher. The tech giants—Alphabet, Meta, Microsoft, Apple, and Amazon—are set to reveal their earnings in an important moment for the Nasdaq’s recent rally.

Big Tech To Report Earnings As Markets Squeeze Higher

Synopsis:

Markets are navigating a “squeeze” rally ahead of a major earnings week for tech giants, with 45% of the S&P 500 set to report and Bitcoin nearing $70,000. Investors are bracing for high volatility with macro catalysts like GDP, NFP, and the Fed’s policy meeting. Alongside a cooling in crude oil and upward bond yield trends, big tech earnings—Alphabet, Meta, Microsoft, Apple, and Amazon—are expected to set the stage for sentiment into 2025. The mix of liquidity pressures, cautious rate expectations, and geopolitical tensions adds complexity, prompting hedging in assets like Bitcoin as an inflation-resistant alternative.

The Details:

  1. Stock and Tech Sector Rally:

    • Equity Rally: A short-squeeze rally lifted stocks, led by small caps, with the Nasdaq nearly flat despite momentum. The rally was buoyed by an open buyback window for about 50% of companies, adding pressure as firms like Microsoft and Meta enter earnings this week.

    • Tech Earnings in Focus: The Nasdaq has rallied seven weeks straight, raising the stakes for tech earnings. While big tech dominates, Goldman Sachs sees mixed sentiment across subsectors: high expectations for internet and hardware but tempered outlooks for software and ad-based platforms like Google.

  2. Volatility and Macro Events:

    • Volatility Spike: Earnings-day moves are historically large, with heightened volatility signaling investor caution. As market positioning for tech giants grows cleaner, investor confidence remains shaky ahead of major earnings.

    • Bond Market and Rate Expectations: Bond yields climbed 3-4 basis points amid turbulent trading, reflecting hawkish sentiment. Lower rate-cut expectations and election-related risks are nudging investors to hedge, particularly with recent fluctuations in U.S. and European Treasury bids.

  3. Digital Assets and Bitcoin:

    • Bitcoin Surge: Nearing $70,000, Bitcoin has emerged as a hedge amid uncertain sovereign risk, drawing interest from investors looking to shelter assets as macro pressures intensify.

    • Big Tech and AI Infrastructure: Data center demand is strong, especially in AI infrastructure, with firms like Corning and Flex benefiting from increased data spending. This trend is expected to continue as 2025 approaches, with AI demand driving interest.

  4. Sector Performance and Oil Movements:

    • Energy Decline: Crude oil prices fell as Middle East tensions eased, erasing recent geopolitical premiums. Simultaneously, sovereign risk indicators for the U.S. are rising, reflecting hedging for election-related uncertainties.

    • Tech Subsector Sentiment: High P/E ratios for leading S&P 500 tech stocks suggest elevated expectations, while names like Digital Realty saw a 50% boost in AI-driven data bookings. However, valuations remain stretched, making tech-sensitive indices highly susceptible to any downside surprises.

WHY IT MATTERS:

As earnings roll in, tech giants’ guidance will be critical, particularly with liquidity concerns and stretched valuations in the sector. The earnings wave will heavily impact sentiment, especially given potential policy shifts from the Fed and election-driven volatility. With sovereign risk creeping up and reduced liquidity, investors are hedging in Bitcoin and other safe-haven assets, positioning cautiously as broader geopolitical and economic uncertainties loom.

China Eliminates Tariffs On Imports From Underdeveloped Countries

Synopsis:

China is set to eliminate all tariffs on imports from 43 of the world's least developed countries, a move that will take effect December 1. This zero-tariff policy, primarily aimed at countries in Africa and parts of Asia, is expected to significantly lower export costs for these nations and deepen China’s economic influence in the Global South. Analysts view this as a strategic step for China to strengthen trade relations with emerging markets, offering a stark contrast to the protectionist stance currently seen in the U.S. and Europe.

The Details:

  • Target Countries: Of the 43 beneficiary nations, 33 are in Africa, with others including Afghanistan, Bangladesh, Cambodia, Laos, and Myanmar in Asia, along with Yemen, Kiribati, and the Solomon Islands.

  • Scope: The tariff exemption covers all import categories from these countries, including crops, fruits, seafood, household goods, smartphones, and electric vehicles.

  • Economic Impact: The elimination of tariffs is designed to lower shipping costs to China’s vast consumer market. This makes Chinese imports more affordable and may facilitate increased Chinese exports to these nations, providing cheaper access to Chinese-made goods.

  • Strategic Aims: China aims to reinforce its influence within the Global South, a region defined by relatively undeveloped economies and often, former colonies. By enhancing trade access, China positions itself as a key ally and economic partner, likely seeking reciprocal support in international forums.

Interesting Data Points:

  • High Trade Dependency: In 2021, 25% of all merchandise exports from these least developed countries went to China, according to WTO data – the highest for any single country or trade bloc.

  • $60 Billion in Exports: Last year, exports from the 43 UN-listed countries to China surpassed $60 billion, highlighting China’s role as a primary market for these nations.

  • Historical Moves: China previously removed tariffs on 98% of products from 16 least developed countries in 2022. The December plan significantly broadens this exemption.

WHY IT MATTERS:

As China expands its economic footprint with the Global South, it gains leverage in global trade politics and strengthens ties with countries that might offer support against Western policies. For countries benefiting from this tariff elimination, China’s massive consumer market opens new economic opportunities, especially for exports that can be made cost-effective with reduced shipping expenses. For traders, the zero-tariff policy may translate to increased demand in China's market for a diverse range of imported goods, from agricultural products to consumer electronics, intensifying competition with domestic suppliers.

Key Points:

  • Zero-tariff policy for 43 countries: Applies across all import categories.

  • Strategic leverage: Enhances China's standing as a trade partner in the Global South, countering Western protectionism.

  • $60 billion in trade last year, reflecting deep economic ties with these nations.

  • Long-term impact: Positions China as a leader in free trade within emerging markets, potentially gaining diplomatic influence in return.

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Wednesday April 17 2024: We bought more Solana at $131 and added Solana’s top memecoin WIF at $2.36 on the heels of a leverage wipeout dip after the WW3 scare.

Portfolio Notes

June 12: These assets all look great for continuation higher.

We are considering moving on from Tesla as it has lagged the rest of our portfolio badly and doesn’t have an obvious catalyst. We’ll monitor and let you know if we decide to move on.


Older Notes

Wednesday, April 3, 2024: We haven’t deployed the cash yet, but are eyeing exposure to a few assets including META and PLTR.

Monday, March 11, 2024: We sold Apple this morning. The newsletter held the stock from inception a year ago for a meager 12% gain.

The company has lost its magic evident by complacent iPhone releases, lack of a coherent vision for AI integration and punitive & anti-competitive App Store policies.

We believe the stock will move in-line with the broader Nasdaq going forward.

We’ll sit on the cash for now, but plan to redeploy it quickly.

Watchlist

$META: Sleeper in AI race and ad biz is proving resilient

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The BRRR is meant for informational purposes only. It is not investment advice. Please consult with your investment, tax, or legal advisor before making any investment decisions.ll

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