Futures modestly higher ahead of PPI, Applied Digital pops, early spring for fertilizers, winners if TikTok is banned
Well, the episode is done. You can listen to it here. It will be on Spotify, Apple, YouTube and wherever you get your podcasts later today. Eric Jackson of EMJ Capital joined me to talk about why he is still bullish on quantum computers, why he sees bitcoin hitting $200,000, and his biggest turnaround idea right now.
That wasn’t so bad: After an ugly start to the trading day, US markets managed a solid finish with the S&P 500 and the Dow Jones Industrial average finishing in the green while the NASDAQ closed well off its lows. The TSX, on the other hand, slipped and fell almost 1% as nearly every sector struggled. Even energy stocks were broadly lower despite oil prices advancing. This morning futures are higher on a report from Bloomberg that the Trump team is discussing a more gradual approach to increasing tariffs. The report says that gradual increases of 2-5% are being considered instead of aggressive one-time hikes. Not everyone is convinced that this should be bullish for the markets. “A lasting rise in tariffs at such a pace would be hardly trivial…,” wrote Jim Reid of Deutsche bank. “…However, the market has latched on the gradual and incremental element rather than the potential build up of tariffs and the potential end game.” Tech stocks in particular are recovering, especially those quantum computing names. Crypto is pumping. Overseas, Chinese stocks popped more than 2.5% on the report. This morning we get a read of producer inflation in the United States at 8:30amET ahead of consumer inflation tomorrow. Producer prices are expected to reaccelerate to the highest level since February 2023 when you exclude food and energy. It would also be about four months in a row of increasing prices.
Dwell on it: Shares of KB Home are popping 9% in the pre-market after earnings and sales beat expectations. This is likely a relief rally on a better than feared quarter for the US homebuilder. The stock has made a round trip over the past year and is trading around a 9-month low on the back of concerns that higher mortgage rates are going to crimp housing sales. Under the hood, you could see signs of weakness. While home deliveries were up strongly, average selling price growth was tepid and missed expectations. Margins were lower that expected. The mid-point of their full year sales outlook, margins, and average selling price were all weaker than expected. The company delivered better profit on a combination of cost-cutting and buybacks. However, the CEO struck an optimistic tone. “Buyers continued to demonstrate a desire for homeownership and housing-market conditions improved relative to last year, despite ongoing mortgage interest-rate headwinds,” said CEO Jeff Mezger. Indeed, orders were up a strong 41%. Rival homebuilders like Lennar, Toll Brothers, DR Horton, and Pulte are up in the pre-market.
Bet the (server) farm: Shares of Applied Digital are rocketing 37% on a Wall Street Journal report that Macquarie will invest up to $5 billion in its data centres. Applied Digital owns data centres that are designed to handle intense cloud computing workloads, AI computing power, and crypto related mining. The investment from Macquarie is a huge injection of cash into the business (Bloomberg data shows cash on hand is around $58 million). It’s also an ugly wakeup call for investors who were betting against the stock, nearly 30% of the shares outstanding are short.
Bet the actual farm: I’ve been watching Nutrien and other fertilizers recently wondering if they were going to take notice of the rally in corn prices. The link between fertilizers and corn prices is well established because as crop prices increase, farmers have more cash to spend on things like fertilizer. Well, analysts have taken notice. Yesterday Nutrien got two upgrades and this morning Scotia’s Ben Isaacson says he thinks the rally is an early spring thaw rather than a head fake. He likes Nutrien and Mosaic here. Isaacson notes that there has been a dearth of generalist investor interest in the space, but with corn rallying its hard to ignore. “Strong equity performance is explained by the complete absence of generalists in the ferts reacting to the first sign of good news in the space in months. The most common feedback from generalists post Q3 results was, ‘corn is only $4, it’s too early to care’. Not anymore,” Isaacson wrote.
TikTok on the Clock: Bloomberg is reported that senior Chinese officials are working on contingencies if the ban on TikTok is upheld by the Supreme Court. One of them is reportedly Elon Musk buying the US operations given his ties to President-elect Trump and positive relations in China. However, TikTok has told the BBC that such reports are “pure fiction”. The ban is supposed to go into effect on January 19th in the US. Recall the US declared TikTok should be banned on national security grounds because it is owned by China’s ByteDance. Here is who could benefit from a possible TikTok ban. “Our industry contacts have suggested that, in the case of a TikTok ban, TikTok advertisers are likely to migrate ~60-70% of their TikTok budgets to META properties, ~20-30% to GOOGL’s YouTube, and ~10% to SNAP,” wrote Mark Mahaney of Evercore in a note to clients yesterday. However, if Musk ends up buying TikTok that could change the equation.
