Weekly Research Briefing: Which Way Now?

"The new Administration is in the process of implementing significant policy changes in four distinct areas: trade, immigration, fiscal policy, and regulation. It is the net effect of these policy changes that will matter for the economy and for the path of monetary policy. While there have been recent developments in some of these areas, especially trade policy, uncertainty around the changes and their effects on the economic outlook is high."

"Some near-term measures of inflation expectations have recently moved up. We see this in both market and survey-based measures. And survey respondents, both consumers and businesses, are mentioning tariffs as a driving factor... Inflation has started to move up now, we think partly in response to tariffs, and there may be a delay in further progress over the course of this year."

"It can be the case that it's appropriate sometimes to look through inflation if it's going to go away quickly without action by us, if it's transitory. And that can be the case in the case of tariff inflation... So, I think, I think that's kind of the base case." 

Bottom line, a Fed put seems closer to being in the money than a Trump put though it probably would require material labor market weakness, a headwind for stocks initially given the once again very positive correlation between equities and rates. 

FED'S BOSTIC: WE WON'T GET BACK TO 2% INFLATION UNTIL EARLY 2027

FED'S BOSTIC: I WAS AT TWO RATE CUTS THIS YEAR, NOW ONLY SEE ONE

FED'S BOSTIC: I QUESTION WHETHER CONSUMER SENTIMENT WILL BE A LEADING INDICATOR OF WEAKER ACTIVITY

Senior tax officials are bracing for a sharp drop in revenue collected this spring, as an increasing number of individuals and businesses spurn filing their taxes or attempt to skip paying balances owed to the Internal Revenue Service, according to three people with knowledge of tax projections.

Treasury Department and IRS officials are predicting a decrease of more than 10 percent in tax receipts by the April 15 deadline compared with 2024, said the people, who spoke on the condition of anonymity to share nonpublic data. That would amount to more than $500 billion in lost federal revenue; the IRS collected $5.1 trillion last year...

The results could mean the government has to borrow more money to cover the cost of federal services. The IRS collects 95 percent of federal revenue each year. A shortfall in tax dollars, if Congress doesn’t cut spending to match, would drive up the national debt, which already sits at $36.2 trillion. 

Big U.S. consumer spending aided by big U.S. equity gains; household equity wealth rose $9tn in ’24 to $56tn; but using BofA private client equity data, we estimate US household equity wealth could fall $3tn in Q1’25.

‬‪Optimism among Canada’s small and medium-sized firms fell to the lowest level in at least a quarter-century after the US started a trade war with the country, according to the Canadian Federation of Independent Business.

The CFIB’s Business Barometer index fell to 25 this month, according to a flash poll of 1,065 firms taken between March 5 and March 7. That’s the lowest reading on record in data back to 2000.

‬‪US business activity growth picked up momentum in March, according to flash PMI® survey data, as a marked upturn in the service sector offset a renewed fall in manufacturing output. However, business expectations for the year ahead fell to their second lowest since October 2022 as companies grew increasingly cautious about the economic outlook, often citing worries over customer demand and the impact of aspects of the new administration's policies...

Cost pressures intensified across the economy in March. Across both goods and services, input costs increased at the sharpest rate for 23 months, surging especially in manufacturing (where the rate of inflation hit a 31-month high) but also picking up further pace (to an 18-month high) in the service sector. Higher costs were first and foremost attributed to tariffs, though increased staffing costs were also widely reported.

"Weakness in the industrial economy continued to pressure our higher-margin B2B volumes. Similar to last quarter, this dynamic was most pronounced at Freight. Where fewer shipments and lower weights continue to negatively affect our results, albeit to a lesser extent than last quarter." — FedEx (FDX) CEO Rajesh Subramaniam

Fed's Goolsbee: "Business contacts are waiting on capital spending in light of tariffs. When you have a lot of uncertainty you have to wait for things to clear up. There has been a decided turn towards anxiety and waiting on capital spending among business contacts."

"A little stag-, and more -flation. Revised forecasts now better reflect trade policy + recent data. 4Q/4Q growth 2025 is marked down from 2.3% to 1.8%; Inflation forecasts now is expected to reach 3.0% y/y core PCE in 2H ’25. Risks are skewed toward weaker growth and even higher inflation."

Google confirms to acquire Wiz, a cloud security platform, for $32B all-cash

ServiceNow confirms to have signed agreement to acquire AI-powered assistant developer Moveworks for $2.85B in cash and stock deal

Softbank confirms $6.5B in cash acquisition of Ampere computing (chip designer) 

Scopely buys Niantic's Games Business for $3.5B

Roper to acquire provider of SaaS solutions for Applied Behavior Analysis therapy CentralReach from Insight Partners for a net purchase price ~$1.65B, including a $200M tax benefit 

QXO Confirms to Acquire Beacon Roofing Supply at $124.35/shr in Cash for $11B

Building materials company James Hardie Industries has agreed to buy AZEK, a maker of home decking, railing and pergolas, in a cash-and-stock deal worth $8.75 billion.

Clearlake Capital is acquiring Dun & Bradstreet —a leading provider of business data and analytics—in a $7.7 billion all-cash deal, including debt, offering shareholders $9.15 per share.

The Doctors Company to Acquire ProAssurance Corporation for $25/shr in Cash for a total transaction of $1.3B 

While the S&P 500 has declined by just over 10% at its lowest, recent levels, many stocks are down more than 20% with a majority of stocks down more than 30% in some sectors, like Semiconductors and Consumer Durables & Apparel. For small cap stocks it’s been worse with the Russell 2000 index down almost 20% at its lowest levels with more than 50% of the stocks in the index down more than 30%.

@LizAnnSonders: U.S. Earnings Revisions Index from ⁦@Citi⁩ has been negative for 13 consecutive weeks

‪@mark-ungewitter.bsky.social‬: Around the world in relative strength. Gold and China have the healthiest profiles from a structural perspective, given the series of higher lows and higher highs since early 2024.‬‬‬‬

Despite the sharp rally in European and Chinese stocks this year, US stocks are valued at a premium of 50 per cent above international markets — close to the widest leads on record. America’s share of the main global market benchmark remains well over 60 per cent even though its share of global GDP is well below 30 per cent.

In short, the overdue rebalancing of global markets has just begun, and is likely to be playing out for a long time.

From the headlines, you would think investors are questioning US dominance based entirely on Trump’s tariffs and the extreme uncertainty surrounding his policies. But the hype around American exceptionalism was built on superior US economic growth, which was artificially juiced by massive government spending and an unprecedented boom in capital expenditure in artificial intelligence. The US economy had never been this government-dependent before, and running budget deficits of 6 per cent was not sustainable. Meanwhile, the recent fiscal reforms in Germany, and the launch of low-cost AI models in China, are demonstrating that the rest of the world can compete with the US.  

So far, the move out of US equities has been led by the fast-money crowd, including hedge funds. Many others have yet to follow. Even as consumer and small business surveys show declining confidence, American retail investors keep buying the dip. They have poured more money into US stocks every day (but one) since prices peaked late last month. Often, they are using the most aggressive vehicles available, such as leveraged ETFs...

In the past, stocks around the world tended to do well when the US market did well, and poorly when the country did poorly. That tie has broken in recent times, as the hype around America sucked the money and life out of other markets. The link remains broken, only now the US is faltering and few other nations are stumbling with it.

European stock markets just had their best month for foreign inflows in a decade. Japan is attracting inflows as well. Emerging markets are no longer falling with the US market, either. And as the questions about US economic and market dominance spread to the broad mass of investors worldwide, the hype for American exceptionalism will continue to fade. It may be hard to believe but many of the forces at play are even bigger than Trump.

Accenture analysts are weighing the risks to the consulting company amid the federal government’s cost-cutting plans.

Accenture reported better-than-expected fiscal-second-quarter earnings on Tuesday, but shares still fell 7.3% following the report. Management said on the earnings call that because the new presidential administration has goals to run the federal government more efficiently, “many new procurement actions have slowed, which is negatively impacting our sales and revenue.”...

Chief Executive Julie Sweet said on the earnings call that federal contracts represented about 8% of global revenue and 16% of Americas revenue in 2024.

The stocks have also been relatively weak since the Nov. 5 election. Through early trading Friday, CACI, Booz Allen, and Leidos stocks were down an average of almost 40%. Gartner shares were off closer to 20%.

Business mix is the likely reason for the reactions. Booz Allen and CAIC get almost all their revenue from the U.S. government or government-related entities. The number for Leidos is closer to 90%. Gartner has about $1 billion in “outstanding revenue contracts” with the U.S. government.

"European EV sales have surged at the start of 2025. European EV registrations declined by 2% in 2024. But on a year-to-date basis for this year, U.K. sales have increased by 42%, German sales have increased by 41%, Italy by 71% and Spain by 55%. The availability of cheaper EVs has broadened and European governments are looking at incentivizing EVs once more." — Lithium Royalty (LITRF) CEO Ernie Ortiz

"I’ve said before, somebody actually asked, 'Why would I say that?', but I said before that when Blackwell starts shipping in volume, you couldn’t give Hoppers away and this is what I mean, and this makes sense. If anybody, if you’re still looking to buy a Hopper, don’t be afraid, it’s okay. I’m the chief revenue destroyer. My sales guys are going, 'Oh no, don’t say that'. There are circumstances where Hopper is fine, that’s the best thing I could say about Hopper. There are circumstances where you’re fine, not many, if I have to take a swing, and so that’s kind of my point. When the technology is moving this fast and because the workload is so intense and you’re building these things, they’re factories, we really like you to invest in the right versions." — Nvidia (NVDA) CEO Jensen Huang

It's St. Patrick's Day, 2025. It's late, the family is asleep. I grab a beer and head out to watch a rock concert. But by "head out" I mean, put on the Vision Pro. Minutes later, I'm in Mexico City – over 5,000 miles away from my home in London – watching James Hetfield walk up to the stage. I'm right behind him. His cigar smoke wafting in my face. The crowd roars as he emerges into the stadium.

It felt very close. Very real.

Honestly, I was blown away by the "Apple Immersive" Metallica concert that was released for the Vision Pro this past weekend. I like Metallica – like any red-blooded teenager in the 1990s, I grew up with "The Black Album" – but I was more of a grunge kid. But my god, Apple (and the band) nailed this experience. It's only about 30 minutes – just three songs – but I easily could have watched that for another few hours.

I watched it again today. In broad daylight. Suddenly it's night. You're absolutely transported. It's so good. It wasn't exactly like being at a concert, obviously – you're not too cold or too hot or feeling crammed in. Your beer doesn't spill. But it also wasn't like watching one on YouTube. It was in between – in many ways, a happy median.

It continues to feel like Apple is starting to come into their own content-wise with the Vision Pro. To say they were slow out of the gate is an insult to speed. Apple should have launched with dozens – if not hundreds – of immersive video experiences ready to roll. Instead, we had like a half dozen to start. And then we'd get a new one every six weeks or so – if we were lucky. But now they're starting to roll in a bit faster. And more importantly, Apple is seemingly getting better at producing them.