(Andrew Caballero Reynolds/Getty Images)

The markets saw the debate too

Here’s their verdict.

6/28/24 2:22PM

It’s always a bit dangerous to try to ascribe specific reasons for any particular market move. But it seems pretty obvious that the shockwaves from Thursday’s US presidential debate are emanating through financial markets on Friday.

Popular opinion suggests that the debate had a decisive winner: Donald Trump.

Just look at how Goldman Sachs’ themed basket of stocks that should do well under a Trump administration is doing today compared to a similar basket of stocks that should benefit from a Democratic White House. It’s outperforming by more than 3 percentage points, the most this year.

On PredictIt, the odds of Trump winning the 2024 presidential election rose from 54% before the debate to as high as 64% during the event.

“President Biden and his team now have much more work to do to win re-election than Trump,” writes Kim Wallace, head of Washington Policy Research at 22V Research. “Biden flubbed softball opportunities from questioners and Trump, shocking Democrats and likely many non-Democrats as well.”

Here’s some of what we’re seeing in markets.

Solar sell-off

The most glaring stock-market reaction seems to be in shares of companies that would benefit from policies associated with Democratic priorities. Solar firms like Maxeon Solar Technologies, Sunnova Energy and First Solarare getting creamed as traders seem to be pricing in higher odds of Trump 2.0.

End of Obamacare?

Likewise, health-insurance companies that’ve built large businesses around the Affordable Care Act’s insurance plan exchanges are also suffering Friday. Oscar Health, HCA Healthcare and Tenet Healthcareare all taking it on the chin.

Prisons, private education, and coal companies romp

Conversely, companies investors think will do well under a Republican administration surged on Friday; foremost among them were private prison companies GEO Group, and CoreCivic (formerly Corrections Corporation of America), as well as private education firms such as Grand Canyon Education, and private college operator Laureate Education. Finally, coal companies Peabody Energy and Arch Resources had very good days, as some price in roll backs of climate-related Biden administration initiatives.

GSE reform back on the agenda

During his term, Trump backed attempts to privatize the government-sponsored entities Fannie Mae and Freddie Mac. Shares of both are up roughly double digits on Friday.

RIP, Fed independence?

Perhaps the most notable reaction of the day isn’t in the stock market, but rather in the market for US Treasury bonds. Despite really good news on the inflation front — the Fed’s key measure of inflation dropped more than expected to its lowest level since March 2021 — longer-term Treasury bonds tumbled, pushing yields, which move in the opposite direction, sharply higher.

Since long-term bonds typically rise when inflation comes down, this is a bit odd. It seems, at least to me, that some people are pricing in the long-term effect of a second Trump term on the “full faith and credit” of the United States.

Trump allies’ reported plans to fiddle with the Fed’s traditional independence from direct political control would explain some of that move. Efforts, typically by quasi-or-outright dictatorial governments, to control monetary policy usually works out horribly both for investors in those country’s bonds and for the country itself, as surges of serious inflation — see Turkish, Hungarian or Russian inflation rates in recent years — follows from printing money for political reasons.

Of course there are varying explanations for the move in US Treasury yields. The inflation data, though positive, was well telegraphed before its release and in line with economists’ expectations.

And the market could also be pricing in the potential for better growth thanks to more fiscal stimulus in the event of a united Republican government, or higher inflation because of Trump’s tariffs.

Speaking of Russia

One can’t help notice that the ruble — which really isn’t traded on markets much anymore — and Russian stocks were up slightly on the day. Hard to say why, though Trump’s friendliness toward the Kremlin could translate into easing the sanctions the world imposed on Russia for invading and occupying eastern Ukraine, or a potential end to the conflict — as Trump promised would happen if he wins the election, even before his term begins.

Currency confusion

But of course not everything in markets can be perfectly congruent. The most common Wall Street prognostication is that a Trump presidency would lead to a stronger US dollar (primarily because of the risk of tariffs). But the greenback is slightly lower on the day, as judged by the Dollar Spot Index, and lower against every G10 currency besides the Norwegian krone.

Nia Warfield, Luke Kawa

Megacap tech and the AI trade power US stocks to fresh records

The S&P 500 rose 0.5%, the Nasdaq 100 was up 0.8%, and the Russell 2000 advanced 0.3% on Monday.

Matt Phillips

Analysts on hard drives: “Supply remains tight”

Bank of America analysts bumped up price targets for hard disk drive (HDD) industry leaders — and S&P 500 top stocks — Seagate Technology Holdings and Western Digital as surging AI data center demand for these low-cost, long-term data storage devices continues to ramp up. They wrote:

“We raise our calendar year hard disk drive exabyte shipment forecast to 1,602 exabytes (+28% y/y) from 1,575 exabytes (+26% y/y) and see room for further upside as demand continues to outpace supply. Despite double digit percentage increases in total capacity... from STX & WDC so far during C25, HDD industry supply remains tight.”

BofA boosted its price target for Seagate from $170 a share to $215, slightly above where the stock is trading on Monday. The analysts also increased their stock price target on Western Digital from $100 to $123, implying a roughly 20% premium to where its share were trading Monday afternoon shortly before 2 p.m. ET.

Besides being an influential market driver this year, demand for hard disk data storage also reflects the vast amounts of data that the boom in AI is expected to generate. (A single exabyte is the equivalent of 1 billion gigabytes.)

As a result, hard drive makers like Seagate and Western are focusing on the next generation of high-capacity data storage gizmos that pack more data bits. These devices are also more profitable than traditional disk drives, which has helped to boost the profitability of the industry, BofA analysts said.

“As HDD demand continues to outpace supply, STX & WDC have seen profitability metrics hit all-time highs,” they wrote.

Those profitability metrics could help explain why the stocks have suddenly caught the fancy of traders.

“We estimate that STX & WDC can get above 42-43% corp gross margin levels exiting [calendar year 2028],” they wrote. “But if pricing is stronger than expected or if manufacturing efficiencies lower COGS, we believe margins could go even higher. Key risks include pause in hyperscaler capex (low probability) and tariffs.”

Max Knoblauch

Alaska Air declines as it warns its profit will be dinged by fuel costs, weather, and air traffic control problems

Seattle-based Alaska Air is trading lower Monday afternoon after the airline warned investors that its third-quarter profits will likely come in on the low end of its prior outlook.

When Alaska Air reported its second-quarter results in July, the airline said it expected third-quarter earnings to land between $1 and $1.40 per share. As of early Monday, analysts polled by FactSet estimated $1.35.

A host of issues are behind the company’s expectations of a dent to earnings. ALK said it’s projecting fuel costs to climb to between $2.50 and $2.55 per gallon, up from its previous estimate of $2.45, due to West Coast refinery disruptions. Weather and air traffic control issues “led to increased costs from overtime, premium pay and passenger compensation,” Alaska said.

With Monday afternoon’s move, ALK shares are down about 8% year to date.

Matt Phillips

Intel cuts expense forecast, sees best gain in weeks

Intel shares jumped after the partially nationalized US chip giant snipped its forecast for operating expenses this year to $16.8 billion from $17 billion after finalizing the divestiture of 51% of its stake in its Altera programmable chip unit to private equity firm Silver Lake.

Shortly after 12 p.m. ET the stock was up 4%, Intel’s best gain since August 22, when the Trump administration announced the extraordinary step of having the federal government take a 10% ownership stake in the private chip company.

Intel trims full-year expense outlook following Altera stake sale

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David Crowther8h