Markets Processing a Potential Harris Presidency: As it appears increasingly likely that Kamala Harris will be the Democratic nominee for president following Joe Biden’s exit from the race and several high-profile Democratic endorsements of her campaign, markets are adjusting to reflect this new possibility. What would a Harris presidency look like for the markets? It's challenging to pinpoint her detailed policy stances given the unique and somewhat rushed circumstances of her entry into the race, but we can make some educated guesses.
Predictably, Harris would likely follow a similar playbook to Biden, given her role in his administration over the past four years, though she may adopt a more nuanced approach to gain support from key stakeholders. In terms of international trade, she has consistently supported globalization, much like Biden, which contrasts sharply with Trump’s more isolationist stance. This has led to a recent unwinding of the “Trump Trade,” where investors shifted from internationally focused companies to domestic ones as the likelihood of a Harris win increased.
Harris might also be more favorable to large mega-cap companies compared to both Biden and Trump. While Biden often positioned himself against big business and Trump historically limited major companies' influence in Washington, Harris could take a more balanced approach, seeking input from the corporate sector as she aims to gain support and demonstrate a collaborative stance.
These are speculative outcomes based on Harris’s track record over the past four years and early market interpretations of her candidacy. We will certainly gain more clarity in the coming weeks as the situation develops and her policy positions become more defined.
Tesla Wants to be an AI Company: Elon Musk's message to investors in this week's earnings release is clear: if you're focused on short-term results, Tesla might not be the right investment for you. Tesla's headline financial results fell below expectations, with the company grappling with rising costs and softer demand. The weaker demand for EVs was anticipated, but the cost issues were more surprising and largely self-inflicted, as Tesla doubles down on AI development—from advancing self-driving technology to creating the Optimus humanoid robot for factory use. Musk is convinced these technologies will elevate the company to new heights and remains committed to investing whatever it takes to achieve success in these areas.
In typical Musk fashion, he set aggressive timelines, announcing that autonomous robo-taxis would be unveiled in October and providing rides next year. Current Tesla owners will also have the option to upgrade their hardware to transform their cars into autonomous taxis. As Musk stated, “I recommend anyone who doesn’t believe that Tesla will solve vehicle autonomy should not hold Tesla stock.” Lofty goals as usual, but Musk’s commitment to innovation remains unwavering.
Activists Take Aim at Starbucks: Late last week, Elliott Management, a prominent activist hedge fund, began acquiring a stake in Starbucks and has reportedly been in contact with management to improve performance. This is promising news for Starbucks investors, as Elliott has a strong track record on Wall Street. Starbucks has struggled recently, both internationally and in the US, following significant leadership changes and the exit of founder Howard Schultz.
Activist funds like Elliott are known for driving bold changes to boost stock prices. Earlier this year, Trian's involvement with Disney led to nearly a 50% rise in its stock price, despite Trian not securing board seats. While it's uncertain how Elliott's involvement with Starbucks will play out, their interest often signals positive potential for companies with strong brand equity facing operational challenges.
UPS Testing Investor Patience: UPS has had a rough ride over the past couple of quarters, and the outlook remains challenging. The company’s second-quarter results disappointed investors, with package volumes increasing for the first time in a while, but at the cost of a lower-quality mix. Customers are opting for cheaper, less profitable options like ground shipping over more expensive air shipping. This comes as UPS is also dealing with the impact of its costly new labor contract with the Teamsters union.
Looking ahead, management highlighted potential volume growth from a new contract with USPS, won from FedEx, and additional volume from major e-commerce players, likely Chinese companies Temu and Shein. However, the margin expectations for this new volume remain uncertain, with many speculating they are not favorable. CEO Carol Tomé and her management team must focus on reducing spending and growing margins. While Tomé is highly respected, having had a distinguished career as CFO of Home Depot, investor patience is wearing thin.
Comments