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Last chance saloon for the bears for a while?
Summary: Today, we run through a number of factors, from the very tactical, to the very big picture, on why bears might try to make a stand here - with earnings season in the wings to test this wildly bullish market anyway in the weeks ahead. Regardless, Trump's new populist pronouncements on big defense companies and companies buying US housing are pivotal, as they will have strong bipartisan support. Elsewhere, geopolitics will remain a massive distraction even if markets continue to ignore developments there for now, outside of European defense stocks, at least. Today's pod hosted by Saxo Global Head of Macro Strategy John J. Hardy.
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Today’s Links
FT outlines the kleptocratic, gangster government of Venezuela, an enormous hurdle to establishing a well run economy. Can it transform from within based on heavy pressure without or is it hopeless? As noted in the podcast today - I link to the following in the spirit of absorbing not endorsing interesting things that I am reading - consider the Donroe Doctrine in action, a piece suggesting the US aims to reshape the entire global political landscape from Venezuela and Iran to Russia and China, in part via control of oil markets. Bloomberg breaks down Europe’s rocket companies - a far more innovative scene than I realized - a listed Italian rocket company in there as well. Europe as enough talent to do compete with the US and China - it needs the right funding and regulatory setups to encourage that talent. Eurointelligence.com is always worth checking into on occasion, today especially on their “Two scenarios” paragraph on the state of US-Ukraine-Russia relations and Europe’s overall stance. The chart below of US military giant Northrop Grumman (2024 revenues of USD 40 billion) shows the ugly reaction yesterday to Trump spelling out his intent (for at least the second time if a bit more specifically and loudly yesterday) to prevent the large US defense companies from distributing dividends, purchasing their own stock, or allowing executive compensation above USD 5 million per year if they don’t “deliver on time” to their only customer, the US government. The ugly sell-off came just after a strong runup in NOC and other defense-related names, as the US attack on Venezuela’s leadership suggests a more aggressive US defensive posture. Yesterday even saw Trump expressing the hope to take US defense spending sharply higher to USD 1.5 trillion. Alas, NOC has weapons programs that are running behind schedule and has relied especially hard on dividends and buyback to power its share price. It had 145 million shares outstanding at the end of 2024 versus 150 million at the end of 2023 and 167 million shares back at the end of 2020. The dividend yield is currently only 1.6%. This is an interesting populist move from the US president, and in many ways justified, given the exorbitant cost overruns in the sector. Can this move discipline these companies into higher productivity?Chart of the Day - Northrop Grumman
And a weekly chart of Northrop Grumman:
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