Inferno
The LA wildfires are weakening, inflation is cooling, but the stock market? It's heating up.
The year started with a Cybertruck on fire in Vegas. Now, Tesla ($TSLA) CEO Elon Musk is using Starlink-fitted Cybertrucks to aid areas devastated by the LA blaze – probably the costliest wildfire in U.S. history. AccuWeather estimates that total damages and economic losses could sit between US$135b and US$150b.
Insurers alone are expected to take a US$20b hit. So it's no wonder that insurance stocks Allstate ($ALL), Progressive ($PGR) and Chubb ($CB) had a rough week after the fires broke out. Small cap Mercury General ($MCY) was even worse off, losing as much as 25% between 8 and 15 January.
Those stocks have now mostly bounced back. In part, that’s due to the winds dying down, even as the Palisades and Eaton fires continue to burn. It’s also got something to do with the consumer price index (CPI) number.
Core CPI came in at 3.2%, lower than the expected 3.3%. That sent a strong message to the markets, which, until recently, seemed to be working overtime to price in inflation risks. All three major U.S. indices rallied hard last Wednesday: the Dow soared 580 points, the S&P 500 gained 80 points and the Nasdaq was up by 356 points.
Stellar earnings from Wall Street’s biggest banks were another positive catalyst for the markets. JPMorgan ($JPM) led the pack with record annual profit of US$54b for 2024, while its Q4 net income surged 50% to US$14b. Wells Fargo ($WFC), Morgan Stanley ($MS) and Bank of America ($BAC) also came in with impressive results, all reporting strong net interest income and robust investment banking revenues.
This also kicked off a highly anticipated earnings season that promises to be red hot. Taiwan Semiconductor Manufacturing Company’s ($TSM) earnings beat is case in point: the Nvidia ($NVDA) supplier reported 57% YoY profit growth and expects revenue from AI accelerators to double in 2025. Other firms that benefit from the AI narrative will be closely watched this earnings season, given the U.S. export restrictions and proposed changes to trade policy we looked at last week.
Big tech CEOs seem very aware of how important policy decisions will be. Meta’s ($META) Mark Zuckerberg, Apple’s ($AAPL) Tim Cook and Alphabet’s ($GOOGL) Sundar Pichai all established direct lines of communication with Trump ahead of the election. Amazon’s ($AMZN) Andy Jassy and Nvidia’s Jensen Huang recently joined them in cozying up to the new administration.
Of course, no one has captured more headlines than Elon Musk for his Trump bromance. And it's Musk who will be in the hot seat if things don’t pan out as investors expect when Tesla reports next week. If the company misses earnings, he may find himself putting out a different kind of fire.
