Kevin Hassett emerges as Fed chair frontrunner, Trump negotiates price cuts for Ozempic, Wegovy

Key Concepts

Federal Reserve (Fed) Policy: Interest rate decisions, basis point cuts, Fed Chair nomination, economic data assessment.
Economic Indicators: Consumer confidence, jobless claims, government shutdown impact.
Pharmaceutical Pricing: Medicare drug costs, price negotiations, specific drug names (Ozempic, Wegovy).
Artificial Intelligence (AI): AI-driven initiatives, AI workloads, AI servers, AI infrastructure, AI platforms, AI hardware.
Technology Companies: HP, Tesla, SoftBank, Ampere Computing, Uber, Wide, Alibaba, Foxconn, Meta, Google, Nvidia, AMD, Dell, HP Inc.
Semiconductors: Chip design, ARM-based CPUs, ASICs (Application Specific Integrated Circuits), GPUs (Graphics Processing Units), TPUs (Tensor Processing Units), Nvidia's CUDA software.
Market Analysis: Stock performance, trading patterns, seasonality, VIX volatility index, portfolio positioning, year-end rallies (Santa Claus rally).
Corporate Earnings: Quarterly results, revenue forecasts, profit impact, stock price movements.
Global Markets: Wall Street, Europe, Asia, UK.

Federal Reserve and Economic Outlook

Kevin Hasset as Front Runner for Fed Chair: Kevin Hasset, a close Trump ally and current Director of the National Economic Council, has emerged as the leading candidate to become the next Chair of the Federal Reserve, according to Bloomberg. Hasset shares President Trump's view that interest rates should be lower and is advocating for a 50 basis point cut in the upcoming month. This contrasts with the current Chair, Jerome Powell, whom Trump nominated but has since expressed regret over, citing Powell's perceived slower pace in cutting interest rates.

Rising Rate Cut Hopes and Market Rally: Expectations of interest rate cuts are fueling a rally not only on Wall Street but also across global markets. The CME Fed Watch tool indicates an 85% probability of a rate cut next month, a significant increase from just over 30% the previous week.

Data Scarcity and Fed Policy: These rate cut hopes are rising despite challenges in assessing the true state of the economy due to a shortage of recent data caused by the government shutdown. Fed Chair Powell has previously emphasized caution when data is scarce. The upcoming release of the Fed's Beige Book and initial jobless claims numbers are anticipated. Yesterday's data, including consumer confidence falling to its lowest point since April, strengthens the case for a December rate cut.

Consumer Confidence Decline: Yolena Scholya from the Conference Board noted a broad-based decline in consumer confidence in November, affecting expectations for jobs, incomes, and financial situations. This decline is likely attributed to the ongoing government shutdown. Scholya expressed concern that the significant drop in families' assessment of their own financial situations was not pretty and suggests consumers are cutting back on discretionary spending, particularly on services like amusement parks.

Pharmaceutical and Corporate News

Medicare Drug Price Cuts for Obesity Medications: The US government has negotiated substantial price reductions for Novo Nordisk's obesity drugs, Ozempic and Wegovy, for Medicare beneficiaries. Starting in 2027, the government will pay $274 for a 30-day supply, a significant decrease from the current $959. These cost cuts were anticipated following a prior deal between Trump and Eli Lilly. Novo Nordisk shares saw an increase in response to this news.

HP Job Cuts Driven by AI Initiatives: HP plans to cut between 4,000 to 6,000 jobs as a result of AI-driven initiatives. The company expects these initiatives to generate $1 billion in savings by 2028. HP shares declined in pre-market trading following the announcement of disappointing Q4 results.

Tesla's Robo Taxi Expansion and EV Sales: Elon Musk announced plans to double the number of Tesla's robo taxis in Austin, Texas, next month. The current number of robo taxis is not specified, and the service operates in Austin and San Francisco. Tesla's push for robo taxis is seen as crucial given recent sales figures for its electric vehicles (EVs), particularly in Europe.

Tesla's European EV Sales Decline: Pra Subramanian, senior autos reporter, highlighted worsening sales for Tesla in Europe. October registrations, a proxy for sales, fell to 7,000 units, a nearly 50% drop year-over-year. In contrast, total EV registrations increased by 33%, and overall auto sales rose by 5%. Chinese competitors like BYD and Nio also saw growth. Factors contributing to Tesla's decline include Musk's unpopularity and increased competition from cheaper alternatives. A potential positive for Tesla is the scheduled approval of its Full Self-Driving (FSD) software in the Netherlands in February, which could help it compete more effectively.

Portfolio Positioning and Market Seasonality

Preparing for 2026 and December Trading: Jared Blickery, markets and data editor, offered insights on portfolio positioning for 2026, focusing on December trading patterns. Historically, September has been the only down month for the S&P 500 since 1990, based on median performance. December, while less robust than November (the best month), tends to be positive about 80% of the time.

December Trading Models: Two models were presented:

Median since 1990 (updated daily): This model shows a gentle upward drift into year-end.
Median since 1928 (matching day-of-week): This model suggests a rally into late November, a slight dip mid-December, followed by a re-acceleration to new highs by year-end.

Seasonality and Catalysts: Almanac trader Jeff Hirsch notes that when markets are up significantly heading into December, consolidation in the first half of the month is common. However, seasonality, which accounts for about one-third of price action, is less influential than day-to-day catalysts, which make up at least two-thirds of market movements.

VIX Volatility Index: The VIX volatility index generally moves inversely to stocks. This year has seen significant spikes, particularly post-Liberation Day and in October. The average VIX from 1990 shows a gentle decline into year-end as traders go on holiday, making significant volatility unusual but not unprecedented.

Key Observations on December Trading:

Markets tend to move up or sideways with decreasing volatility.
Major sell-offs at year-end are rare but can signal market bottoms or tops.
When stocks are up significantly entering December, expect consolidation in the first half and a rally in the second half.
Small caps tend to outperform large caps (S&P 500) in December.
The "Santa Claus rally" encompasses the last five trading days of December and the first two of the new year.

AI and Semiconductor Landscape

SoftBank Acquires Ampere Computing: SoftBank, a major investor in OpenAI and owner of ARM, has acquired Ampere Computing for $6.5 billion. Ampere designs ARM-based CPUs for cloud and AI workloads. This acquisition positions SoftBank to invest in the hardware backbone for AI and data center compute. Ampere is noted as a volatile stock.

Uber's International Robo Taxi Launch: Uber is launching its first fully autonomous taxis outside the US in Abu Dhabi, partnering with China's autonomous driving firm, Wide. This move signals potential international expansion in the autonomous taxi sector.

Alibaba's Cloud and AI Growth: Alibaba exceeded quarterly revenue forecasts, driven by strong performance in cloud and AI services, despite investment-related profit hits. Its Quen AI platform achieved 10 million downloads in one week, suggesting Alibaba's potential to build a global AI and cloud infrastructure to rival Western players.

Foxconn's US Investment in AI Servers: Foxconn has received approval for a $569 million investment to expand its AI server hardware operations in Wisconsin. The Taiwanese manufacturer is shifting focus from consumer electronics to AI infrastructure and hardware.

Meta's Potential Shift from Nvidia to Google TPUs: Reports of Meta planning to purchase chips from Google instead of Nvidia have caused market fluctuations. Google's Tensor Processing Units (TPUs) are a type of ASIC (Application Specific Integrated Circuit), designed for specific applications, unlike the more general-purpose GPUs (Graphics Processing Units) used by Nvidia for AI. Google uses TPUs for its Gemini AI and offers them to other companies like Anthropic and potentially Meta. This development highlights the trend of major tech companies developing their own chips to diversify beyond Nvidia and address capacity constraints. While this may pose a challenge for AMD, which aims to be an alternative to Nvidia, it doesn't necessarily signal Nvidia's decline. The reliance on specific software like Nvidia's CUDA for development on TPUs presents a hurdle for companies looking to switch.

Dell's Growing Role in AI Infrastructure: Dell is playing an increasingly significant role in AI infrastructure, with its AI servers, built around Nvidia's accelerators, driving growth. The company reported a record backlog in its infrastructure solutions group, which is growing faster than its PC business. Dell is positioned as a key provider for enterprises building AI data centers, with analysts noting its embrace of the "enterprise AI factory" concept. Running AI workloads locally on GPU-equipped servers is becoming more attractive due to the high cost of cloud-based AI and the sensitivity of on-premise data. Challenges for Dell and other server manufacturers include DRAM and NAND pricing.

Dell's Stock Performance and Analyst Views: Dell's stock surged following strong AI server demand, with Barclays calling the quarter exceptional. However, Morgan Stanley advised caution, citing rising memory chip prices and potential margin pressure. The demand for AI servers is expected to continue into fiscal year 2026.

DRAM and NAND Pricing Impact: Rising prices for DRAM and NAND memory chips are a factor affecting PC and server manufacturers like Dell and HP Inc., potentially impacting their margins.

Breaking Earnings and Market Check

Deere & Company Q4 Earnings: Deere & Company reported a decrease in Q4 profit to $1.07 billion from $1.25 billion, despite a 14% increase in net sales to $10.58 billion. Tariffs and uncertainty are expected to continue impacting earnings. The company's shares fell over 4.5% in pre-market trading due to a downbeat forecast.

Market Overview:

Bitcoin: Trading below $87,000, edging lower.
Gold: Trading slightly higher, correlating with rising bets on a Fed rate cut.
Asia: Stocks were higher, boosted by weak US data that increased Fed rate cut expectations.
Europe: European stocks opened higher across the board.
UK: Focus is on the autumn budget, with expectations of tax hikes to meet spending and borrowing rules.

Conclusion: The market is currently influenced by anticipation of Federal Reserve rate cuts, driven by weaker economic data and potential shifts in Fed leadership. The AI revolution continues to reshape the technology sector, with companies investing heavily in infrastructure, hardware, and software. While some companies face challenges from competition and rising costs, the overall trend points towards continued innovation and growth in AI-related fields. Investors are advised to consider seasonal trading patterns and the impact of global economic factors when positioning their portfolios.