Broadcom Joins The $1 Trillion Club

Good Afternoon. The markets are slightly down/flat for the week. Nasdaq managed to end the week slightly positive. Below are the key highlights of the week:

• The CPI inflation numbers came exactly as per market expectations, which made the 25bp rate next week almost certain. This news led markets to rally on Wednesday. The CME Marketwatch now shows a 96% probability of a 25bp rate cut next week. A reminder that the Fed uses PCE as an official gauge of the inflation targets and not the CPI, which I covered last month:

  

  Source: MorningStar

   

• The yield on the benchmark 10-year Treasury note rose sharply to 4.398% on Friday, up from 4.150% the previous week, marking the largest one-week gain since October 2023 due to the concerns of sticky inflation.

• Elon Must have crossed $450 Billion in net worth this week, thanks to soaring Tesla shares and the increased valuation of SpaceX ($350 Billion). On Oct 20th, I discussed that Elon Musk is expected to become first trillanior by 2027 (when his net worth had crossed $300 Billion). So his net worth soared by ~50% in less than two months.

• Thanks to robust AI demand, Broadcom joined the $1 Trillion market cap club this week.

• Swiss central bank did a surprise 50bp rate cut to control gains in Franc.

  

  
  

For the week:

• The S&P 500 is down 0.64%, the Nasdaq is up 0.34%, and the Dow 30 is down 1.82%.

  

  Source: Barchart

CNN's Fear & Greed Index now stands at 50 (Neutral) out of 100, down 3 points from last week. Details here

The top five trending stocks on Reddit are Nvidia, AMD, Tesla, Broadcom, and SPY. Read More

Here is a summary of this week’s key economic releases:

• The Consumer Price Index (CPI) increased by 0.3% in November, up from a 0.2% rise in October, while the core CPI maintained a steady 0.3% monthly increase. On an annual basis, CPI climbed 2.7%, slightly higher than October’s 2.6%, and core CPI rose 3.3%, matching the previous month’s pace. Read

  Below is the high-level breakdown of month-over-month changes for core categories:

  

Target Rate Probabilities for Dec 18th FOMC Meeting:

CME FedWatch * Data as of 13 Dec 2024 10:17:22 CT

Elon Musk’s Net Worth Hit ~$450 Billion: Elon Musk has become the first to reach $450 billion in net worth, as the Tesla shares jumped and SpeceX valuations hit $350 Billion. Read

ServiceTitan IPO Success: ServiceTitan shares surged 42% in their Nasdaq debut, closing at $101 after pricing its IPO at $71 per share, above the anticipated range. The cloud software provider for contractors raised approximately $625 million, achieving a market capitalization of $8.9 billion at the close. Read

MicroStrategy To Join Nasdaq 100: Microstrategy, a high-beta proxy for Bitcoin, is set to join the Nasdaq 100 index. This development could boost demand for the stock, which has surged this year in tandem with Bitcoin's price rally despite its controversial nature. Read

OpenAI vs. Elon Musk: OpenAI revealed screenshots indicating that Elon Musk advocated for a for-profit structure for the company as early as 2017. The disclosure comes after Musk sought a federal court's intervention in November to prevent OpenAI from transitioning to a fully for-profit model. Read

Potential Tiktok Ban Soon: House Committee members have urged Apple CEO Tim Cook and Alphabet CEO Sundar Pichai to prepare for compliance with a law that could effectively ban TikTok in the U.S. next month. In letters sent Friday, the lawmakers cited a U.S. Court of Appeals decision upholding a mandate for ByteDance to divest TikTok by January 19, warning that failure would obligate app stores to remove TikTok from their platforms. Read

Egg Prices Soring Again: Egg prices are poised to near record highs again, driven by reduced supply and heightened seasonal demand. The ongoing bird flu outbreak has decimated chicken populations, while holiday traditions fuel consumer purchases, though the outbreak's future trajectory remains uncertain. Read

Oracle Miss: Oracle reported second-quarter revenue growth that fell short of Wall Street expectations, reflecting intensified competition in the database and cloud services sectors. Read

Adobe Beat: Adobe's fourth-quarter results surpassed expectations, but its forecast fell short of estimates. The stock has dropped 20% year-to-date, significantly underperforming the Nasdaq's 33% gain. Read

Broadcom Beat: Broadcom reported stronger-than-expected fourth-quarter earnings, driven by a surge in artificial intelligence-related revenue, which more than tripled year-over-year. Read

Costco Beat: Costco surpassed first-quarter revenue and profit expectations, driven by its bulk and discounted offerings that resonated with budget-conscious American shoppers. The membership-only retailer benefited from early holiday-season sales growth, reinforcing its appeal amid economic uncertainty. Read

Lessons From Young Warren Buffet’s Portfolio:
On Nov. 10th, I wrote about conviction + concentration as the winning formula in investing and provided some examples, including Peter Lynch and Warren Buffet. The visual below of Warren Buffet’s portfolio highlights the same point and shows how Buffet took concentrated bets from a young age. In 1951, he had more than half his net worth in Geico, the insurer. By 1966, American Express had swollen to nearly 40% of his investment partnership’s total assets. Read

Source: WSJ

Earnings Recap:

• S&P 500:

  • 24Q3 year-over-year earnings are projected at 9.1%, rising to 11.8% when excluding the energy sector.

  • Among the 496 S&P 500 companies that have reported 24Q3 earnings, 76% exceeded analyst expectations, well above the long-term average of 66.9%.

  • The 24Q3 blended revenue growth estimate is 5.3%, increasing to 6.4% when the energy sector is excluded.
    

    In comparison with the Q2 S&P 500 earnings, there is a slight slowdown in earnings growth. Check the table below for the summary. Considering the rate cuts started in Q3, I think this minor slowdown should reverse by Q2 2025, considering the lag effect of rate cuts -

    

    Source - LSEG

• Russell 2000

  A similar comparison for the Russell 2000 shows a significant improvement in earnings growth. Rate cuts are expected to help small caps in 2025. The progress below, ahead of the full effect of rate cuts, is a good sign for cyclical and small caps in near term.

  

  Source: LSEG

  
  

Why Bitcoin Keep Going Up?:

In the Nov. 24th issue, I covered why Bitcoin is here to stay in detail. The below visual from WSJ this week highlights Bitcoin’s supply scarcity factor. Bitcoin, for sure, will remain a volatile and risky asset. However, its adoption is gaining pace. Bitcoin will go up when the liquidity is ample such as now when rate cuts have started. It will go down as history suggests in a rising rate environment, but Bitcoin is set to keep going up for the long term. Limited supply is the key factor.
Bitcoin's code enforces a strict cap of 21 million bitcoins, of which 19.8 million have been mined. The remaining supply, increasingly more complex to mine, will take over a century to complete. An estimated 1.5 million bitcoins (~$150 billion) are lost, and nearly 1 million mined by Bitcoin’s creator, Satoshi Nakamoto, have remained untouched since 2009. If Nakamoto, who vanished in 2011, has passed away, around 12% of the total bitcoin supply is permanently lost or inaccessible.

Source: WSJ, River