Stocks Rally + Investors Hot on Trump Trade 📈

Author

Adam Garcia
July 17, 2024

Good morning. It's July 17th, and today, we will examine how investors are reacting to the “Trump trade,” Tesla’s possible mega jump, UHG’s slow recovery after cyberattacks, and more.

Previous Close 📈

All three key indices were, once again, trading above yesterday’s close.

Futures

Dow futures remained unchanged, while S&P 500 and Nasdaq 100 futures dipped slightly.

What to Watch

It's going to be a busy morning.

Johnson & Johnson will report its quarterly earnings, while Housing Starts data will be released at 8:30 a.m. and industrial production data at 9:15 a.m.

Keep an eye out for speeches by Richmond Fed President Tom Barkin at 9 a.m. and Fed Gov. Christopher Waller at 9:35 a.m.

Energy

Investors Pivot to 'Trump Trade' as a Second Term Becomes More Likely

As expectations grow for former President Donald Trump to win a second term, the aptly nicknamed “Trump trade” is gaining momentum. Investors expect his policies to boost corporate profits but are also wary of potential long-term fiscal challenges.

Market trends show investors favoring sectors that might benefit from Trump's proposed tax cuts and deregulation, such as small-cap stocks and energy shares. This shift is also influenced by anticipated Federal Reserve interest rate cuts, leading to a move away from big tech stocks.

In Treasury markets, some investors are selling longer-dated bonds due to concerns about increased government borrowing and inflation. Close Brothers predicts another 4 years of a Trump administration could add $4-5 trillion to government debt over the next decade.

Prediction markets and recent polls reflect growing confidence in Trump's chances. PredictIt shows higher odds for Trump, and a Reuters/Ipsos poll indicates Trump leading Biden 43% to 41%. This has driven rallies in small caps and crypto stocks, with notable gains for Geo Group and Riot Platforms.

Conversely, European carmakers' stocks have declined due to potential tariff concerns. Bond investors worry about higher inflation and fiscal deficits, causing fluctuations in Treasury yields based on Trump's election outlook.

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Healthcare

UnitedHealth Revises Cyberattack Impact, CEO Admits Over-Optimism

UnitedHealth Group’s (UNH) recovery from the cyberattack on its subsidiary, Change Healthcare, is likely to be much slower than earlier hoped for, prompting new financial guidance.

The company now expects an additional $0.30 per share hit for the year, totaling $0.60 per share due to the attack. The cyberattack cost UNH $1.1 billion in Q2 alone, with the total annual impact estimate increasing from $1.6 billion to $2.3 billion for 2024.

CEO Andrew Witty acknowledged that the company underestimated the attack's impact and the recovery pace. Change Healthcare, which processes payments and health information, was targeted by the BlackCat ransomware group in February, resulting in a $22 million ransom payment and significant disruptions.

Despite these challenges, UNH's Q2 revenue grew by $6 billion to $99 billion, a 7% increase from the previous year, with earnings per share at $6.80, slightly above Wall Street estimates. Following the earnings call, UNH's stock rose over 4% to $536 per share.

UNH is enhancing its technology use, reporting a drop in its operational cost ratio to 13.3% in Q2 from 14.9% last year. The company is utilizing AI to improve efficiency, particularly in handling Medicare Advantage claims and onboarding clients to its OptumRx platform, which saw a 13% revenue increase and a 5% rise in processed prescriptions.

Markets

Dow Futures Little Changed After Index Posts Best Day Since June 2023

Dow futures showed a slight rise on Wednesday, following the index's best performance since June 2023. Futures for the Dow Jones Industrial Average gained 0.03%, while S&P 500 and Nasdaq 100 futures declined by 0.21% and 0.41%, respectively.

On Tuesday, the Dow surged over 700 points, hitting a record high and marking its best session since June 2023. The S&P 500 rose 0.64%, and the Nasdaq Composite increased by 0.2%.

Small-cap stocks have gained momentum since the June CPI report, with investors shifting from megacap tech to small caps and cyclical stocks. The Russell 2000 increased by 3.5%, marking its fifth consecutive day of gains and a 10% rise this month.

Optimism about interest rate cuts is fueling this broader market rally, with Fed funds futures indicating a 100% chance of rate cuts in September, according to the CME FedWatch tool.

Technology

Tesla Stock Will Surge 10-Fold on Robotaxis, Ark’s Wood Says

Tesla’s stock is set to increase tenfold with the launch of an autonomous taxi platform, predicts Cathie Wood of Ark Investment Management. She estimates the autonomous taxi ecosystem to be an $8-$10 trillion global revenue opportunity, with Tesla capturing a significant share.

Investors are increasingly valuing Tesla for its potential in autonomous taxis rather than just as an EV maker. Wood, a long-time Tesla bull, has focused Ark’s valuation on Tesla’s autonomous-driving potential, believing the stock has substantial growth ahead.

Since 2017, Wood and Ark have touted Tesla's robotaxi network potential, despite the company’s slow progress. Optimism about this venture has helped Tesla shares recover from a 43% decline earlier this year. Tesla, a top holding in Ark’s Innovation ETF, faces slower gains compared to peers, but Wood remains confident in its prospects.

Despite recent setbacks, including a delayed robotaxi unveiling, Wood believes Tesla is nearing a breakthrough. Tesla’s position in Ark’s portfolio has surpassed usual limits, reflecting Wood’s confidence in upcoming advancements in the robotaxi project.

Movers and Shakers

Shimmick [SHIM] - Last Close: $2.07

Shimmick Corporation’s stock is flying high in early morning trade.

The company announced on the 16th that it had signed a $27.6M subcontract for electrical work on the Sunol Valley Water Treatment Plant Ozonation Project.

It also announced that the prime contract, valued at $234M, was awarded to J.F. Shea Construction, Inc. by the San Francisco Public Utilities Commission (SFPUC) on May 14, 2024.

The project is a major investment in improving water quality for the San Francisco Bay Area.

The stock was trading at about 55% higher than its previous close, with volume of about 2.1M against an average 3-month volume of about 126k

Five Below [FIVE] - Last Close $102.07

Five Below has fallen by more than 15% over the previous close in pre-market trading.

Shares slumped after the announcement of a leadership transition and a downbeat Q2 outlook.

The company announced a 9.5% increase in total sales for the 10-week period ending July 13. However, its Q2 sales are expected to be 6% to 7% lower than comparable sales.

Conduit Pharma [CDT] - Last Close: $0.25

Conduit Pharmaceuticals is again trending up in premarket trading.

The gains are due to its recent announcement that it has received approval for its composition of matter patent application by IP Australia on July 15th.

While the stock saw impressive gains in yesterday’s pre-market trading, its price fell during the day.

The stock again rose sharply this morning, going as high as 13% in pre-market trading.

Everything else

That’s all for today. Thank you for reading. If you have any feedback, please reply to this email.

Best Regards,

— Adam Garcia
Elite Trade Club

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