Good morning investors,
November begins with markets extending October's momentum as Big Tech validates its massive AI spending with strong earnings. Berkshire's record $381 billion cash pile signals Buffett's caution as he hands the reins to Greg Abel, while the Kimberly-Clark/Kenvue mega-merger creates a $32 billion consumer health giant. With 80% of fund managers trailing benchmarks and bearish sentiment persisting despite the rally, the setup for a year-end chase couldn't be clearer.
Opening Bell: Tech Leads November Kickoff
S&P 500 ($SPY ( ▼ 1.55% )) futures rise 0.4% with Nasdaq ($QQQ ( ▼ 2.03% )) futures up 0.7% as semiconductor stocks rally on easing chip shortage fears. Micron jumps 3% leading chipmakers higher after China signaled exemptions for Nexperia semiconductor exports, alleviating automotive supply chain concerns. European automakers surge with Renault, Mercedes, and Stellantis all gaining 3% on the news.
Iren soars 22% premarket after signing a $9.7 billion deal to provide Microsoft with Nvidia GB300 GPUs over five years, validating its position as a trusted AI infrastructure provider. The VanEck Semiconductor ETF climbs 1% as Nvidia and AMD advance ahead of this week's earnings. November historically delivers the S&P 500's best monthly performance with average gains of 1.8%.
Berkshire's $381B Cash Mountain
Warren Buffett's final earnings report as CEO delivered a 34% surge in operating earnings to $13.5 billion, powered by insurance profits that tripled thanks to a mild hurricane season. Yet the Oracle continues hoarding cash, now at a record $381.6 billion, with no buybacks for nine straight months.
The message is unmistakable: at today's valuations, Buffett sees nothing worth buying. He's leaving successor Greg Abel maximum flexibility when he takes over in January. This isn't bearishness, it's discipline. Berkshire sold $10.4 billion in equities while completing the $9.7 billion OxyChem deal, barely denting the cash hoard.
My view: Buffett wants Abel to put his own stamp on Berkshire. The handoff of a fortress balance sheet lets the new CEO make defining moves without legacy constraints. Watch for Abel to deploy capital more aggressively once he's officially in charge.
Kimberly-Clark's $49B Kenvue Takeover
The consumer staples landscape shifts dramatically with Kimberly-Clark acquiring Tylenol-maker Kenvue for $48.7 billion in cash and stock. The deal creates a $32 billion revenue consumer health powerhouse combining Neutrogena, Huggies, Kleenex, and Tylenol under one roof.
Kenvue shares surge 18% while Kimberly-Clark drops 12.5% on dilution concerns. The target has faced strategic review pressure, leadership turnover, and litigation risks since spinning off from J&J in 2023. At $21.01 per share, buyers get a 28% premium but also inherit regulatory scrutiny after Trump's comments linking Tylenol to autism.
This represents classic consolidation in a mature sector facing inflation pressures. Scale matters when input costs rise and pricing power weakens. Expect more defensive mergers as consumer companies chase synergies.
Fed Division Deepens
The Fed's growing fractures are becoming impossible to ignore. Friday saw at least three regional presidents join Kansas City's Jeff Schmid in questioning last week's cut. Markets now price just 63% odds of a December cut, down from 95% a week ago.
Powell's warning that December is "not a foregone conclusion" reflects a committee pulled in opposite directions. Governor Miran wants aggressive 50bp cuts while Schmid opposed any easing. Operating blind due to the shutdown's data blackout makes consensus even harder.
The shutdown itself strengthens the cut case by slowing activity and reinforcing disinflation. September CPI showed 54% of components in outright deflation, a record high. Yet with policy still restrictive, not accommodative, the Fed has room to ease if conditions deteriorate further.
Trump-Xi Deal: Tactical Not Strategic
The Trump-Xi summit delivered headline wins but left fundamental issues untouched. Fentanyl tariffs drop from 20% to 10%, reducing overall China levies to 47% from 57%. China delays rare earth restrictions for a year and commits to buying 25 million tons of soybeans annually.
Bank of America calls it "tail risk reduction" but Macquarie notes TikTok, Taiwan, and Nvidia's Blackwell chips went unaddressed. This looks like 2020's Phase One redux, when China bought half its promised goods while tariffs stayed. The deal buys time but doesn't resolve the technology cold war driving decoupling.
Markets shrugged because they've learned these agreements are starting points, not endpoints. Real progress requires structural changes neither side seems ready to make.
Microsoft's $9.7B Nvidia Chip Deal
Iren's blockbuster agreement to supply Microsoft with Nvidia GB300 processors over five years validates the insatiable demand for AI compute. At nearly $10 billion, this single deal exceeds many companies' entire market caps.
Microsoft's willingness to lock in multi-year GPU supply at premium prices shows hyperscalers remain capacity-constrained despite massive spending. The deal structure, with Iren as intermediary, highlights how data center operators are becoming critical infrastructure players in the AI gold rush.
This reinforces my view that we're still early in AI infrastructure buildout. When companies commit $10 billion for chips they won't receive for years, they're betting on sustained demand that justifies today's premiums.
The Week Ahead: AI Earnings Test
Palantir Monday, AMD Tuesday, and Supermicro's delayed report will test whether AI momentum extends beyond hyperscalers. Over 100 S&P 500 companies report as Q3 earnings season enters its final stretch with 80% beating estimates so far.
Wednesday's ADP payrolls become crucial with government data frozen. ISM manufacturing and services indices will signal whether the economy is slowing enough to justify December easing. Friday's University of Michigan sentiment could show whether consumers share Wall Street's optimism.
Final Thought
November starts with a fascinating disconnect: 80% of fund managers trail benchmarks while bearish sentiment persists at levels seen only in bear market years (1990, 2002, 2022). This isn't complacency, it's skepticism despite the rally. When everyone expects a bubble to pop, it rarely does.
Big Tech's $400 billion 2025 capex commitment, rising to $700 billion by 2027, provides multi-year support. AWS reaccelerating to 20%+ growth, Meta's 30% video engagement surge, and Apple's iPhone resurgence validate that AI investment is driving real returns. The MIT-to-Wharton shift from 5% to 74% of companies seeing AI ROI marks an inflection point.
With inflation collapsing (54% of CPI components deflating), Fed easing bias intact, and margins expanding via AI efficiency gains, the macro setup remains constructive. Yes, valuations are stretched, but fund manager underperformance creates year-end chase dynamics.
I expect November chop but ultimately close higher. Focus on companies monetizing AI today (Amazon, Google, Nvidia) rather than those promising tomorrow. Buffett's cash pile isn't bearish, it's patient. When the world's greatest investor can't find bargains, it confirms we're late-cycle, not that collapse is imminent.
As always, feel free to reach out with questions about navigating November's opportunities.
Best regards,
Dan Sheehan
This newsletter is for informational purposes only and should not be considered as investment advice. Please consult with your financial advisor about your specific situation.