During the 2008 Beijing Olympics, Kobe Bryant and Pau Gasol faced off in a memorable game between Team USA and Spain. Despite being teammates on the Los Angeles Lakers, Bryant was determined to set the tone for the match. Before the game, he told his teammates he planned to run through Gasol’s chest on the first play.
True to his word, Bryant charged straight into Gasol, sending a clear message about his commitment to winning. This move not only shocked Gasol but also fired up Team USA, who went on to dominate the game. The incident highlighted Bryant’s fierce competitive spirit and his willingness to do whatever it took to win, even if it meant going hard against a close friend and teammate.
This past weekend President Trump signed executive orders to impose 25% tariffs on Canada and Mexico, and an additional 10% on China. Many understood his tough stance on China and Mexico, but his bully move on Canada is almost analogous to the late “Black Mamba” running over his friend just because he was wearing a different jersey.
Investors became quite concerned, led over the weekend by a drop in Bitcoin to $91,000 at one point Sunday night, while Ethereum, Solana, and the entire crypto space lost much of their recent gains.* Cryptocurrencies trade around the clock and have become a proxy of investor mood on weekends when all other markets are closed. For the second weekend in a row, all crypto markets sold off, illustrating a risk-off mentality. When traditional markets opened on Monday morning, there was a broad-based selloff across all major indices, reflecting the heightened macroeconomic uncertainty and potential inflationary fallout from heightened prices.
Trump seemed undeterred, even posting on Truth Social: “Will there be some pain? Yes, maybe (and maybe not!).” The “maybe not” is a tell for Trump, who uses harsh stances as negotiation tactics, signaling that he was open to negotiation before the tariffs were due to take effect. True to form, tariffs on both Mexico and Canada were delayed by one month following subsequent calls between Trump and both President Claudia Sheinbaum and Prime Minister Justin Trudeau on Monday. Time will tell whether the truce will hold, but, in the interim, Trump seems content to use his “bully pulpit,” even with his close allies. He knows he has a mere four years to fulfill what he believes is a mandate, and it’s clear that he will use every bit of the massive leverage the US has to reposition our trade agreements. Fortunately for now, avocados and Coronas remain on the menu for upcoming Super Bowl parties.
Targeted Themes Outperforming Broad Benchmarks
Amidst the market volatility, targeted thematic and quality fundamental strategies are outperforming broad benchmarks year-to-date. Indices tracking cloud computing, cybersecurity, robotics, and uranium/nuclear infrastructure have outperformed the Nasdaq 100 Index year-to-date.
Additionally, indices tracking global banks, European luxury brands, aerospace/defense, and US infrastructure have outperformed the S&P 500 Index year-to-date. Amidst the prospect of aggressive federal spending cuts by the new administration, the outperformance of aerospace/defense and US infrastructure in particular reflect their relative resilience and confidence that federal funding will continue to support both sectors.
Separately, indices tracking strategies with an emphasis on quality factors like free cash flow yield and pricing power are also outperforming their respective broad benchmarks year-to-date. Should trade wars escalate and costs rise materially, companies with higher free cash flow and greater pricing power may prove better able to weather the storm relative to their peers.
Finally, the general rise in macroeconomic uncertainty has fueled a rise in precious metals, with gold hitting a new all-time high above $2,800/oz. Indices tracking gold miners and silver miners have outperformed the price returns of gold and silver bullion, respectively, on a year-to-date basis.
Investment Themes
ARM Holdings (ARM): ARM reports earnings on Wednesday and expectations are high as the stock has been on quite of a run after the announcement of Stargate investment a few weeks back. For good reason, ARM’s power efficient design is very important in an infrastructure build with intense power needs where technology, GPU chips, and devices are becoming more complex within smaller frames. And while they don’t make the chips, they license technology that make the chips better, higher performing, and more energy efficient. ARM is virtually ubiquitous in most smartphones, robotics, gaming, and graphics. Given that they aren’t manufacturing the chips, their margins remain robust. DeepSeek has caused volatility in the space, but demand is still significant. Whether open sourced or closed, ARM is expected to continue to have a dominant position with major partners like Nvidia, Qualcomm, Apple, and many others. Investors will be keen to hear how bullish they are about guidance in light of recent uncertainty.
Advanced Micro Devices (AMD): No one has denied the quality of AMD’s chips as they have aggressively entered into the GPU chip space. Now it is time to see if they have actually taken some market share away from the dominant players. There is no slowdown in capex spending on AI nor data centers, and software is coming to the forefront of investment again. The question remains: will AMD show investors enough progress in sales and revenue to ignite animal spirits? The share price has suffered recently along with other chip makers on the news of DeekSeek and potential tariffs on chip makers. With the valuation more attractive than the prior quarter and analysts lopsided with buy ratings, investors are more bullish than they have been in past quarters.
MicroStrategy (MSTR): the plan remains the same; buy Bitcoin at the top forever and increase shareholder value as a levered play on the cryptocurrency. That is the playbook for Michael Saylor and MicroStrategy, and it is exactly what they have been doing over the last quarter as the crypto-friendly Trump administration has bolstered the market. As of January 27, MSTR owns 471,107 BTC at an average price of $62,473.01per coin (according to Bitcoin Treasuries by BiTBO). No one is tuned into the Bitcoin market more than Saylor, so investors will be looking for any indications of crypto industry plans that are on the horizon, including updates on a national Bitcoin reserve and continued institutional demand. Insights into further plans and monetization of all these Bitcoin holdings could boost the share price as well.
Palantir (PLTR): For years, analysts and commentators said that Palantir was an overvalued company. After their earnings call , investors poured into the stock to try to catch up to what CEO Alex Karp called “untamed organic demand.” Palantir blew away revenue and earnings while providing such aggressive guidance that the share price soared to more than $100 per share in pre-market trading on Tuesday morning. PLTR, once known solely for national security work mostly for governments, has become more mainstream and is very quickly growing its enterprise revenues. As the AI buildout continues and security demand remains robust globally, Palantir is poised to continue to gain market share.
Alphabet (Google): Despite being a late entrant to the AI race, Alphabet is now making significant strides. AI-powered overviews in Google Search are starting to demonstrate value, with investors primarily focused on ad revenue – the company’s core growth driver – expected to increase by 9.5% in the upcoming fourth-quarter report. Although its cloud business has garnered attention, search remains Alphabet’s primary asset. Maintaining dominance in the search space while integrating AI seamlessly will be crucial to sustaining revenue growth. Meanwhile, Alphabet’s cloud division impressed with 35% growth last quarter, surpassing Amazon and Microsoft – albeit from a smaller base. Continued investment is expected, but so far, efficiency gains have supported strong profitability. Balancing expansion with cost management will be a key theme in the coming quarters.
Amazon (AMZN): Amazon concluded the third quarter on a high note last November, setting a positive tone for its upcoming fourth-quarter earnings report. As always, AWS will be a critical factor in market sentiment, with any growth exceeding 19% likely to be well received. Investors will also be looking for updates on AWS’s AI initiatives and the substantial investments Amazon has committed to in the AI space. Meanwhile, Amazon’s e-commerce division—often overshadowed by AWS – is showing renewed momentum. New initiatives such as the discount storefront ‘Amazon Haul’ have expanded its reach. If Amazon can further optimize automation, there is potential for notable margin expansion.
Major US Economic Reports & Federal Reserve System Speakers (Times in EST)
TUESDAY, FEB. 4
10:00 am Job openings
10:00 am Factory orders
11:00 am Atlanta Fed President Raphael Bostic speaks on housing
2:00 pm San Francisco Fed President Daly speaks
7:30 pm Federal Reserve Vice Chairman Philip Jefferson speaks
WEDNESDAY, FEB. 5
8:15 am ADP employment
8:30 am U.S. trade deficit
9:00 am Richmond Fed President Tom Barkin speaks
9:45 am S&P final U.S. services PMI
10:00 am ISM services
1:00 pm Chicago Fed President Goolsbee speaks
3:00 pm Fed Governor Michelle Bowman speaks
7:30 pm Fed Vice Chairman Philip Jefferson speaks
THURSDAY, FEB. 6
8:30 am Initial jobless claims
8:30 am U.S. productivity
2:30 pm Fed Governor Christopher Waller speaks
5:10 pm Dallas Fed President Lorie Logan speaks
FRIDAY, FEB. 7
8:30 am U.S. employment report
8:30 am U.S. unemployment rate
8:30 am U.S. hourly wages
8:30 am Hourly wages year over year
9:25 am Fed Governor Michelle Bowman speaks
10:00 am Wholesale inventories
10:00 am Consumer sentiment (prelim)
3:00 pm Consumer credit
Source: MarketWatch.com, US Economic Calendar
Disclosures:
*Source: Bloomberg as of 3 February 2025
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