Weekly Pulse #20: July 15th – 21st

The Biden Bombshock: Implications Across Asset Classes

The unexpected news that President Biden has dropped out of the 2024 race sent shockwaves through global markets this week. Though politically impactful, the development’s significance for investors centers on potential shifts in areas like regulation, monetary policy, and fiscal spending.

This article will analyze the market moves and outlooks across various asset classes in the wake of this bombshell Biden announcement.

Predictive Power of Betting Markets

While surprising to many, predictors like Polymarket had for weeks been signaling a heightened probability of Biden bowing out. Betting markets carry an intellectual stigma, but they frequently surface astute probabilities ahead of mainstream discourse.

By aggregating the views of disparate expert participants, platforms like Polymarket can convey valuable insights. The recent accuracy surrounding Biden perhaps validates their utility as predictive tools.

Implications for Crypto Regulation

Biden and leading Democrats like Senator Elizabeth Warren have advocated strict cryptocurrency regulation, even suggesting potentials for outright bans. With Biden exiting and Trump the Republican frontrunner, the regulatory environment could turn more crypto-friendly given Trump’s past sympathy toward Bitcoin.
A Trump win, which prediction markets now view as more likely, could propel further crypto adoption. In addition, Trump has discussed reductions to the corporate tax rate, which could spur business investments – potentially including moves into the crypto economy.

Kamala Harris Takes the Democratic Torch

As the Democratic Party pivots from the Biden era, Senator Kamala Harris has consolidated establishment support and now holds an 80% chance of securing the nomination per betting markets.

With the Biden campaign’s $240 million war chest contingent on Harris remaining on the presidential ticket, her nomination appears financially and politically logical for Democratic leadership. This lifeline underscores the party brass circling the wagons around Harris amid a turbulent transition.

Cryptocurrency Price Action

Bitcoin, Ethereum, and crypto markets generally reacted strongly to the mounting probability of a Trump presidency. Bitcoin punched through its 100-day and 200-day moving averages, supported by bullish momentum likely related to favorable Trump regulatory outcomes.

Bitcoin now approaches its all-time high which would constitute a key technical breakout. With industry leaders like Michael Saylor declaring the long-term crypto thesis intact, assets across the crypto complex stand poised to benefit.

Larry Fink Potentially as Treasury Secretary

In a eyebrow-raising development, reports this week revealed Trump is strongly considering BlackRock CEO Larry Fink for Treasury Secretary. Such an appointment would insert a vocal Bitcoin advocate into a senior economic policy role.
While Fink’s selection could spark concerns around “Wall Street coziness”, his largely productive relationship with Trump makes such a high-profile appointment plausible. In addition, Fink’s expertise across bond markets, banking, and macroeconomic dynamics position him as a strong pick for the role.

Investor Takeaways

The Biden announcement will help shape the 2024 election, with investors now repositioning across asset classes for variability in outcomes under a second Trump term.

For crypto in particular, expected policy and regulatory tailwinds could unleash animal spirits that propel digital assets to fresh all-time highs. Equities may also get a structural boost from Trump’s typical pro-business orientation.
Of course risks around inflation, energy prices, and fiscal deficits remain under any administration. But with Biden now on the sidelines, market participants enjoy clearer visibility into the 2024 policy landscape as the general election draws closer.

Earnings Season Kicks Into Overdrive

A frenzied earnings week saw nearly 20% of S&P 500 market capitalization reporting Q2 results. Major names like Tesla, Alphabet, and Visa headlined the deluge of reports that largely beat expectations. Firming economic data and dovish Fed commentary also buoyed sentiment.
Strong earnings and guidance allayed some recession fears, though next week brings another heavy slate of reports that will test recent optimism.

Mixed Results Across Other Sectors

Beyond tech, reports painted a mixed picture of consumer health. Starbucks topped expectations but noted economic uncertainty weighing on store traffic. Southwest Airlines posted a narrow earnings beat but observed softer bookings that could signal demand erosion.

On the upside, Ford reported standout results, trouncing analyst estimates on earnings per share and revenue. While recession chatter continues against the backdrop of a tightening Fed, consumers still appear generally resilient.

Economic Data Hints At Soft Landing Potential

A lighter economic calendar kept focus squarely on earnings, though upbeat housing data and consumer sentiment numbers did surface. Durable goods orders also beat expectations, rising 2% in June versus the 1.2% projected.
Perhaps most promisingly, the Atlanta Fed GDPNow tracker ticked up to 2.1% for Q2 from 1.6% last week. The estimate will firm up on Thursday with the initial GDP print. But budding signs of resilience, alongside the strong corporate reports, seeded more soft landing narratives.

Eyes Turn To Next Week

With nearly half the S&P 500 now having reported, attentions turn to another batch of prominent earnings releases in the week ahead. Highlights include Caterpillar, Pfizer, Kraft Heinz, Airbnb, Uber, and PayPal among dozens of other names across sectors.

Reports so far indicate consumers still spending despite inflation, while enterprises exhibit lingering demand for tech solutions even against the gloomy macro backdrop.

Sustained earnings strength could quiet recessionary warnings, though any emerging cracks in the armor will resurface growth fears – especially as the Fed continues rate hikes aimed at decelerating the economy.
Lithium/EV Battery Tech (LIT) – Down 4% on growth stock weakness

Biden Exit Sparks Opening Volatility

As anticipated, Biden’s withdrawal announcement sparked immediate volatility at Monday’s open. The volatility persisted through early trading as participants reacted. However indexes ultimately closed 1% higher in a relief rally – potentially pricing in perceived Trump-related tailwinds.

Big Tech Earnings Recap

Large cap technology companies broadly exceeded Q2 projections this week. However, worse-than-expected guidance from Apple, Meta, and semiconductor equipment makers like ASML introduced shades of gray among the general beat rates.

The guidance caution could indicate softening enterprise and consumer demand ahead. But tech giants still delivered overall resilient results this earnings season. Their essential and digital-native business models seem poised to weather economic turbulence.

Consumer Spending Remains Robust

Amazon Prime Day catalyzed $14.2 billion in consumer spending last week, up 11% versus last year’s event. Surging participation from small business sellers also highlights broader economic health.
Meanwhile American Express posted standout earnings Friday, with cardmember spending spiking across travel, dining, and entertainment. Consumers still appear willing and able to engage the recovering service economy despite inflation.

CrowdStrike Outage Reverberates

A defect in a CrowdStrike software update triggered widespread cybersecurity impacts late last week, affecting critical infrastructure like airports and banks. While likely an honest mistake, the ripple effects spotlight the risks of over-centralization in cloud security architectures.

The CrowdStrike share selloff exemplified this. Meanwhile, decentralized security platforms like WGMI and RUNE gained as the incident emphasized the value of reduced trust assumptions underpinning much emerging tech.

LOOKING AHEAD: Events to Watch

Paris Olympics Preview

As the Paris Olympics commence next week, stocks leveraged to the viewer experience should see engagement upticks. Media names like Comcast (broadcasting via NBC), Roku, and fuboTV appear primed to ride anticipated rating spikes over the two-week event.

Meanwhile sportswear giants Nike and lululemon should amplify marketing activations around sponsored Olympic athletes. The events also represent retail and hospitality opportunities given their international visibility and tourism draw.

Big Tech Earnings Continue

Google parent Alphabet surprised positively this week, but tech earnings stretch on with Apple and Microsoft on deck Thursday. Their reports will bring final clarity on big tech’s Q2 strength just as investors reassess growth outlooks amid rising rates and inflation.

Eyes will center on forward-looking guidance as the Federal Reserve pushes to deliberately weaken aggregate demand. The earnings results will either validate or assuage fears oftightening-induced slowdowns across personal and enterprise tech spending.

Tesla Financials In Focus

Tesla earnings land this Wednesday after an eventful several weeks for the world’s highest-profile electric vehicle manufacturer. June quarter deliveries impressed, but then Tesla slashed prices in China to boost lagging sales. And cybersecurity failings enabled hackers to steal Tesla employee data.
Investor focus lands squarely on automotive gross margins after the price cuts. Profitability is crucial as Tesla spends aggressively on scaling new factories amid Elon Musk’s dire economic warnings. Eyes will also look to any updated Full Self Driving timelines after previous delays.