Valentine's Week: Bull vs. Bear, Tariffs + A New Interview with United for Literacy's Mélanie Valcin

What happened this week?

“I trust that the implementation of the proposed tariffs will take enough time for industries to lobby against them, and inevitably lead to some sort of reversal; the North American strategy on Trade is irrational. Trump’s approach to trade is getting murky. In this connection, it is increasingly important for traders to acknowledge that he uses the stock market as his scorecard. Bad performance here is the only thing that will stop his incoherent strategy on trade. In the last hour of trading on Friday, the S&P 500 dropped 0.5%.”

Everybody's been talking about tariffs, and at least some of them are delayed, postponed, whatever term we're going to use, not in the case of China. But I'll start with you. Can you talk a little bit about how the bond market has reacted to the announcements this week and potentially what that means for the chances of a Fed rate cut this year?

The usual spin on why you should own some commodity exposure in a diversified portfolio is pretty standard: a little bit of diversification but – more importantly – with inflation protection.

Use of the terms “bull” and “bear” in financial markets can be traced back to London’s financial district in the late 19th century, used as an analogy for how each animal attacks; the bull thrusts its horns upwards, and a bear swipes its paws downwards. Others believe the terms started in the 16th century when bearskin salesmen would sell skins they had yet to receive from trappers, hoping the price from trappers would drop. We’ll leave that debate to you.

The Fed pause that gives pause: Stronger-than-expected inflation and labor market data into the end of 2024 led to the US Federal Reserve's (“Fed’s”) decision to pause interest rate cuts. Easier financial conditions, along with positive real wage growth, have bolstered wealth and consumer spending. These dynamics have reduced the impact of higher interest rates on the real economy relative to historical cycles, so far requiring less normalization than policymakers previously expected.

Despite a solid January, during which every asset class I track went up, the past 8 weeks or so have had a “churning” feel to them.? The Mag 7 has been consolidating, Bitcoin seems stuck at $100k, the banks are on fire, and both the dollar and Treasuries have corrected some of their initial “Trump Trade” reaction.? The Fed may well be done easing, but nobody seems to care, as all eyes are fixed on the long end of the yield curve.

For decades, investors have faced a fundamental challenge: how to effectively diversify their portfolios without sacrificing returns. The conventional wisdom has been that adding alternative investments requires selling a portion of core holdings, often leading to underperformance when traditional assets rally.

There’s a shift underway in the mergers and acquisitions (M&A) market. The headwinds of rising rates, price volatility and increased global regulatory scrutiny appear to be fading—and market sentiment is getting brighter.

The recent buzz around a certain AI company is another reminder of how technological advancements shape markets. While I’m not tech expert (I can barely use Zoom), history suggests that innovations that drive cost efficiency tend to be net positives for the market and the overall economy.

European stocks get little love. However, we think the yawning valuation discount of European equities to their US peers (see Exhibit 1) may be too wide for investors to ignore. Efforts to improve the region’s competitiveness, declining interest rates, and a potential political change in Germany—along with a focus on greater shareholder returns—could spark a revival. Europe is a market where value opportunities are loudly knocking, and we believe the early 2025 strength in local markets may continue.

Top Performing

1. Airbnb (ABNB): Shares surged 15% following a profitable fourth quarter.
2. DraftKings (DKNG): The stock jumped 12% after exceeding profit estimates and raising its revenue outlook, partly due to the acquisition of competitor Jackpocket.
3. Super Micro Computer (SMCI): Experienced an 11% increase after issuing positive long-term sales guidance.
4. Robinhood Markets (HOOD): Shares reached a record high, driven by significant cryptocurrency trading.
5. Dutch Bros (BROS): The stock soared after reporting favorable results and an optimistic expansion outlook.

Bottom Performing

1. SoundHound AI (SOUN): Shares plummeted 29% after Nvidia divested its stake in the company.
2. Applied Materials (AMAT): The stock fell 7.1% following mixed earnings guidance.
3. Coinbase Global (COIN): Despite beating earnings estimates, shares dropped 7% due to concerns over President Trump's crypto-friendly stance.
4. Incyte (INCY): The pharmaceutical company's shares tumbled 7.9% after reporting lower-than-expected adjusted profits for the fourth quarter and issuing a 2025 sales outlook below forecasts.
5. ON Semiconductor (ON): Shares dropped 8.2% after the company missed profit and sales estimates for the fourth quarter and provided guidance below forecasts.

Hedge Funds Advocate for Regulatory Changes in the UK

Hedge funds are urging the UK's Financial Conduct Authority (FCA) to reduce post-Brexit reporting requirements. Currently, both buy-side institutions, like hedge funds, and sell-side institutions must report market transactions—a rule inherited from the EU. The hedge funds argue that this dual reporting is redundant and costly, and are calling for the FCA to exempt buy-side institutions from this obligation. They believe that deregulation would support the UK's stagnant economy and enhance its status as a global financial hub. The FCA is considering these changes, aiming to simplify and reduce the cost of transaction reporting. A comprehensive review and proposed changes to the reporting rules are expected later this year.

Elliott Management Acquires Significant Stake in BP

Activist hedge fund Elliott Management has amassed a 5% stake in British Petroleum (BP), valued at approximately ￡3.8 billion. This move suggests potential pressure on BP to adjust its strategic focus, possibly advocating for a reduction in green energy ventures in favor of traditional oil and gas operations. The acquisition reflects Elliott's ongoing strategy of influencing major corporations' directions to enhance shareholder value.

HSBC Announces Layoffs Amid Investment Banking Overhaul

HSBC is set to initiate a new round of job cuts within its investment banking sector, targeting global roles starting in Asia as early as February 17. This move is part of CEO Georges Elhedery’s efforts to reduce costs and enhance efficiency since his appointment in September. Elhedery has executed significant restructuring, including merging its commercial and investment banking units, withdrawing from M&A and equity capital markets in certain regions, and reducing the executive committee by a third. A comprehensive update on HSBC's strategic plan is expected with the 2024 results on February 19.

Carlyle Group Targets Wealthy Investors in Expansion Plans

Carlyle Group plans to significantly expand its team dedicated to wealthy individuals after seeing a 65% increase in assets from individual investors last year. They aim to grow their Global Wealth team by 50%, following a similar increase last year. Carlyle is shifting focus from institutional investors to attract wealthy individuals, who hold over $140 trillion globally, to bridge a financing gap left by institutional investors such as pension funds and university endowments. Carlyle's assets under management from individuals reached over $9 billion, less than rivals Blackstone and KKR & Co.

Investment Firms Reevaluate Climate Change Strategies Amid Political Shifts

Several investment firms are adjusting their approaches to climate change and sustainability in response to political shifts and market dynamics. For instance, Parnassus Investments, the largest U.S. sustainable-investing firm, has removed references to being "fossil-fuel free" from its website. Similarly, Engine No. 1, known for its activist campaign at ExxonMobil, has altered its messaging to focus more on innovation and reindustrialization rather than explicitly on environmental and social issues. These changes come amid declining prices for green investments and political opposition to ESG (Environmental, Social, and Governance) strategies, particularly following the election of President Donald Trump, who has been critical of ESG initiatives.

Amtrak Partners with Private Sector for Major Infrastructure Investments

Amtrak has announced a partnership with private sector entities to undertake significant infrastructure projects across the United States. This collaboration aims to modernize the nation's rail system, including the replacement of century-old bridges and tunnels, and the introduction of state-of-the-art trains. The initiative is expected to create numerous jobs and stimulate economic growth, reflecting a substantial commitment to revitalizing America's transportation infrastructure.

?? ?? Did you know that nearly 1 in 5 Canadian adults struggles to read a simple sentence?In this eye-opening episode of the?Insight is Capital? Podcast, we?sit down with Mélanie Valcin, MA, President & CEO of United for Literacy formerly Frontier College to discuss the?life-changing impact of literacy?on individuals, families, and the?Canadian economy. ??

We explore:

? The hidden literacy crisis in Canada and how it affects employment, health, and civic engagement

? The?$50+ billion GDP boost?that raising literacy levels by just 1% could create

? How?United for Literacy?is helping individuals overcome barriers and unlock new opportunities

? The vital role of?financial literacy?in economic empowerment

? Ways YOU can help make a difference

Thank you for listening! We're honoured to bring you these exclusive conversations.Watch it here ?? https://lnkd.in/gjG7XucU

#TBT: In a past episode of Raise Your Average, Dave Nadig dropped a truth bomb about the future of financial advising in an AI-driven world:"If you're an advisor and you have not tried to have a financial planning conversation with ChatGPT, you're not doing your job because your clients are going to."His point? AI isn’t replacing great advisors—it’s exposing bad ones. If your clients can get the same value from ChatGPT as they do from you, that’s not an AI problem—that’s a you problem.

Financial services are already being disrupted, and this shift isn’t a threat—it’s an opportunity. The real winners will be the advisors who embrace these tools, not fear them.Are you leaning in or staying behind? ??

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