Good morning investors,
A big week ahead for markets as we get a backlog of economic data. In today's newsletter, I explore the Kevin vs. Kevin Fed chair battle that is intensifying, as Trump tells the WSJ both Hassett and Warsh are "great," with betting markets giving Hassett 57% odds versus Warsh's 39%.
I also look at the skepticism around the continuance of this rally, after potentially notching three consecutive 20%+ years, but as Art Cashin wisely noted: "Bull markets don't die of old age, they get killed by the Fed."
I also look at SpaceX's secondary share sale at an $800 billion valuation ahead of a potential 2026 IPO would create history's largest public debut, dwarfing anything markets have seen. ServiceNow nears a $7 billion acquisition of cybersecurity startup Armis, choosing M&A over waiting for choppy IPO markets.
Opening Bell: Recovery Mode
Dow ($DIA ( ▲ 0.04% )) futures up 207 points with S&P ($SPY ( ▲ 0.48% )) and Nasdaq ($QQQ ( ▲ 0.77% )) futures gaining 0.4% and 0.5% respectively. iRobot plunges over 70% premarket after filing bankruptcy and agreeing to be acquired by manufacturer Picea Robotics. The Roomba maker succumbed to Chinese competition and Trump tariffs despite dominating U.S. and Japanese markets.
Spain fined Airbnb $75 million for advertising unlicensed rentals as European governments crack down on platforms blamed for housing shortages. The fine equals six times Airbnb's profit from illegal listings, Spain's second-largest consumer rights penalty ever.
SpaceX's Trillion-Dollar Ambitions
SpaceX preparing for 2026 IPO at $800 billion valuation would raise over $30 billion, making it history's largest listing at $1.5 trillion market cap. CFO Bret Johnsen's letter to shareholders confirms what's been Silicon Valley's worst-kept secret, Musk needs massive capital for Mars ambitions and space based data centers.
The valuation seems absurd until you consider SpaceX controls 60% of global satellite launches, operates Starlink's profitable internet constellation, and has NASA contracts locked for decades. Still, $1.5 trillion prices in flawless execution of projects that don't yet exist.
ServiceNow's Armis Acquisition
ServiceNow acquiring Armis for up to $7 billion validates cybersecurity's premium valuations while highlighting IPO market dysfunction. Armis raised $435 million just last month at $6.1 billion valuation, planning 2026-2027 IPO. Now they're selling for immediate liquidity rather than risk public market volatility.
The deal makes strategic sense, as ServiceNow gets cutting edge IoT security capabilities while Armis achieves liquidity without IPO uncertainty. With $300 million ARR growing rapidly, Armis could have commanded higher public valuations, but certainty trumps potential.
Fed Chair Drama Intensifies
Trump's WSJ interview putting both Kevins in play shifts dynamics significantly. Hassett's odds dropping from 73% to 57% while Warsh surges to 39% suggests real competition. Jamie Dimon reportedly backs Warsh despite acknowledging Hassett would cut rates more aggressively near term.
Bond markets pricing dovish Fed regardless of winner, with foreign currencies strengthening against the dollar on expectations of Trump-aligned monetary policy. The big question out there is the impact on bond portfolios diversification as the Fed becomes more aligned and open to opinion from the federal government.
This Week's Critical Data
Tuesday brings the long delayed November jobs report with just 50,000 jobs expected and unemployment potentially rising to 4.4%. October retail sales also hit Tuesday, providing first official consumer spending data in months. Thursday's November CPI becomes crucial for 2026 rate expectations.
Micron reports Wednesday with semiconductor sector needing validation after Broadcom's margin warnings. Nike Thursday could signal whether premium consumer brands maintain pricing power. FedEx provides logistics health check critical for reading economic momentum.
My 2026 Market Outlook
The setup entering 2026 fascinates me. After potentially notching three years of 20%+ gains trained investors to stay cautious, expecting mean reversion. But Fed reluctance to clearly endorse easing has suppressed normal expansionary dynamics. I see 2026 surprising to the upside as rates fall, animal spirits return, and leadership broadens beyond mega caps.
This doesn't mean smooth sailing. I expect a 15-20% drawdown at some point, likely around mini-bear territory, before recovering to higher year end levels. Big Tech still anchors index earnings, but easier policy helps the rest of the market participate. Markets top on euphoria, not widespread skepticism with cautious positioning.
I will be releasing my full 2026 market outlook soon on my newly formed Substack - https://dansheehan9.substack.com/
Subscribe to the page for exclusive access to the report when it comes out.
AI Reality Check
Oracle's collapse and Broadcom's margin warnings don't kill the AI thesis, they refine it. Valuations look extreme because markets discount a decade of exponential growth, but most current "winners" won't stay winners. Only a minority of today's AI stocks prove great long-term picks.
The broader theme still outperforms as adoption spreads, driven by structural labor shortages making technology spending necessity not hype. Winners will be companies proving efficiency gains translate to profits, not those burning cash on infrastructure hopes.
Final Thought
We stand at a fascinating crossroads with the S&P potentially having three straight 20%+ years, something that's only happened once before in the 1990s. Skeptics cite unsustainability while bulls note the Fed put emerging for 2026 regardless of which Kevin gets the chair.
Art Cashin's wisdom that "bull markets don't die of old age, they get killed by the Fed" proves particularly relevant now. Trump will nominate a dovish Fed chair committed to keeping the party going rather than playing matador. This changes everything for 2026 dynamics.
My view: momentum and breadth improved significantly since November 20. Advances by industrials, financials, and small caps validate broadening participation. The rotation from tech isn't bearish, it's healthy evolution from narrow leadership to sustainable advance.
The "Magnificent 7 versus Impressive 493" narrative oversimplifies but captures truth. As AI competition erodes monopolies, benefits spread across the broader market. Small caps and financials offer relative value after weak flows while banks become increasingly tech-like in efficiency.
The combination of dovish Fed, broadening leadership, and skeptical positioning creates powerful setup for continuation despite three years of gains. Bull markets climb walls of worry until everyone's euphoric, we're nowhere near that point.
As always, feel free to reach out with questions about positioning for year-end and 2026.
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.