Thoughts from Themes: Old is New on Capitol Hill

The second inauguration of Donald Trump was an historic event, marking his return to the White House as the 47th President of the United States. The ceremony took place indoors within the US Capitol Rotunda due to extreme cold weather, but that wasn’t the only difference from inaugurations past.

Vice President J.D. Vance and his wife Usha enthusiastically chased their kids around the events of the inauguration. It was a refreshing change to see youth returning to Washington DC, even if in the second seat, and also illustrative of what helped Trump win the White House and ultimately disrupt the establishment of Washington DC. While Trump is tied with his predecessor Biden for the oldest president to be sworn in at 78 years old, he has certainly made overtures to the younger generation and new media (including a reversal of his previous stance on Tik Tok) and credited the youth vote for putting him back in the White House. He even credited his son Barron Trump’s influence on social media and podcasts for getting him elected.

The inauguration was also attended by a mix of outsiders, including tech CEOs led by Elon Musk, Jeff Bezos, Sundar Pichai, Tim Cook, and Mark Zuckerberg in prominent positions visible behind the podium. Their visibility could be construed a sign of an endorsement of the new pro-business and pro-tech policies to come. Trump's inaugural address emphasized a new era of American greatness, promising to put America first and address issues such as immigration and government efficiency. Following the ceremony, Trump signed a series of executive orders aimed at reshaping US policies. These orders included ending birthright citizenship, sending troops to the southern border, and rolling back diversity, equity, and inclusion initiatives, and many more.

The significance of this inauguration lies in Trump's remarkable return to the presidency, making him the second president in US history to serve nonconsecutive terms. Having won the popular vote, the electoral college, the House, and the Senate, Trump and Republicans believe they have a mandate to execute their new legislative and administrative agenda. His executive orders signal a bold and non-establishment agenda, reflecting his campaign promises and setting the stage for significant policy changes.

Big Banks, Big Results

Earnings beats by the largest US banks (including JP Morgan, Wells Fargo, Bank of America, Citi, Goldman Sachs, and Morgan Stanley) continue to reinforce that big banks are back in a big way. US banks have topped the earnings scorecard over the past week relative to the market as a whole, posting an average surprise earnings beat of +12.30% and one-day price movement of +3.85%. This quarter’s better-than-expected earnings are a continuation of a longer trend of outperformance by global banks in an environment where size has mattered more than in years past. While rising interest rates toppled and squeezed smaller banks, large global banks have remained robustly resilient given their higher regulatory requirements and strategic asset acquisitions during the banking crisis of 2023. Stronger net interest income (NII), robust investment banking revenues, and asset management fees continue to bolster the earnings and share prices of the largest US banks.

Davos Digest

If one theme is abundantly evident to your correspondent on the ground at the World Economic Forum’s 2025 annual meeting in Davos, it is that artificial intelligence and the potential it holds is taking the world economy and its corporations by storm. One of the official themes of this year’s annual meeting is “Industries in the Intelligent Age.” A casual walk along the famous Davos Promenade, the street adorned by official houses of corporations and countries alike, confirms the ubiquity of artificial intelligence and how it remains at the forefront of every conversation and slogan. The slogans adorning IBM’s house (“3x the ROI in 3 years”) and Salesforce’s house (“39x faster time to value than DIY AI”) are brazenly bold in promising the future potential returns of artificial intelligence. (It is readily evident to your correspondent that tech firms are not subject to the same advertising regulations as those of investment firms… but I digress.). Apart from the technology itself, many of the meeting’s official sessions (“Powering AI and Data Centers with Nuclear Energy,” “Powering AI: Altering Energy, Economics, and Climate,” etc.) are dedicated to how the world will meet the significant energy demands of artificial intelligence, with nuclear heralded as a viable solution. The meeting is still in its early days. More to come next week.

The Demise of Semiconductors Is Greatly Exaggerated

Taiwan Semiconductor (TSM) may be a more important earnings call than all of the major chip makers combined because of how early it happens and how much it tells us about continued demand and what that may mean for the largest, most important chip companies in the world, otherwise known as its customers. For those who were underwhelmed by Nvidia's presentation at the Consumer Electronics Show, perhaps TSM's report is a better indication of what is to come when some of the biggest semiconductor companies report later in the quarter. TSM’s record quarterly profit from a year earlier on strong demand for AI chips and an expectation for revenue growth in 2025 put a tailwind behind chip stocks. TSM’s dominance mimics a monopoly so much so, that neither tariffs nor a slowdown in China can impact its aggressive growth. Even if its costs go up, they will pass them on to customers like Nvidia, AMD, Broadcom and others, who will have no other alternative but to buy. This could be a great sign for chip makers that report in the weeks ahead.

There are few companies that are as integral to the technology revolution as ASML Holdings (ASML), a leading provider of semiconductor manufacturing equipment that enables the development of high-powered chips that are driving advancements in artificial intelligence, high-performance computing, robotics, and other cutting-edge technologies. Looking ahead, this company has a very promising future with demand for advanced chips forecast to rise significantly over the next decade, and countries all over the world scrambling to build their own semiconductor manufacturing plants to reduce reliance on foreign chip suppliers. Its technology is likely to be in high demand in the coming years.

Arm Holdings (ARM), has been experiencing accelerated revenue growth over the past year and investors have rewarded the share price and the brand as it continues to supply an impressive client list comprised of names like Apple, Amazon, Google, and even the chip king Nvidia. They continue to supply chips in almost every smartphone including the new Apple iPhone 16. Arm appears to have an enormous amount of potential in today’s increasingly connected, digital world. Across industries, Arm is building the future of computing. It defines its total addressable market (TAM) as all chips that can contain a processor. So, the sky's the limit in terms of the growth potential here. It’s worth pointing out that increasing chip complexity is driving royalty revenue growth for Arm. Therefore, the company is well-positioned to capitalize on the tech revolution and the growth of emerging industries such as AI, high-performance computing, and autonomous vehicles. ARM will report on February 5th.

Major US Economic Reports & Federal Reserve System Speakers (Times in EST)

WEDNESDAY, JAN. 22

10:00 am US Leading Economic Indicators

THURSDAY, JAN. 23

8:30 am Initial Jobless Claims

FRIDAY, JAN. 24

10:00 am Existing Home Sales

10:00 am Consumer Sentiment (Final)

9:45 am S&P Flash U.S. Services PMI

9:45 am S&P Flash U.S. Manufacturing PMI

Disclosures

This report is provided for informational purposes only and is not intended to be, and should not be construed as, an offer, solicitation or recommendation with respect to any transaction and should not be treated as legal advice, investment advice or tax advice. Recipients should not rely upon this information as a substitute for obtaining specific legal or tax advice from their own professional legal or tax advisors. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities. Indices and trademarks are the property of their respective owners. Information is subject to change based on the market or other conditions.

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