Good morning investors,
Amazon's potential $10 billion OpenAI investment at a $500 billion valuation signals AI's insatiable capital demands as Waymo simultaneously seeks $15 billion at $110 billion, doubling its October valuation. Tesla hits fresh all time highs on confirmed driverless Robotaxi testing while November's unemployment spike to 4.6% reveals a frozen labor market that's not weak enough for Fed cuts yet painful for job seekers. Warner Bros appears ready to reject Paramount's $108 billion bid and stick with Netflix, setting up Hollywood's most dramatic finale yet.
Lets dive in!
Opening Bell: Recovery Attempt
S&P ($SPY ( ▼ 0.26% )) futures up 0.4% with Nasdaq ($QQQ ( ▼ 0.38% )) futures matching while Dow ($DIA ( ▼ 0.53% )) futures rise 108 points. Oil touched 2021 lows yesterday with Exxon and Chevron each falling 2% on looming supply glut concerns. Tesla continues defying gravity, up 7% this week alone as Robotaxi validation transforms valuation debates.
Ford's EV retreat deepens with LG Energy Solution confirming termination of $6.5 billion battery supply deal. The South Korean battery maker citing Ford's production halt decision driven by "policy changes and shifts in outlook for EV demand", corporate speak for complete strategic reversal.
AI's Capital Black Hole
Amazon discussing $10 billion for OpenAI at $500 billion valuation while Waymo seeks $15 billion at $110 billion shows AI's voracious capital appetite. These numbers would have seemed absurd months ago, now they're Tuesday's news. The scale reflects reality as AI infrastructure requires sustained billions before unit economics work.
Waymo's 450,000 weekly paid rides across multiple cities validates the model works at scale. Google CEO Sundar Pichai saying Waymo will "meaningfully" contribute to financials by 2027 transforms it from R&D project to profit center. At $110 billion, investors bet Waymo becomes transportation's Google, a dominant platform capturing economics of entire category.
Labor Market's Painful Freeze
November's 4.6% unemployment rate, highest since September 2021, confirms the "low-hire, low-fire" dynamic crushing job seekers. Adding just 64,000 jobs while October lost 105,000 (mostly DOGE buyout endings) shows calcified conditions neither catastrophic nor healthy.
EY-Parthenon economists note "steady erosion in labor-market conditions, with hiring stuck at stall speed." Healthcare representing nearly half of 2025's job growth creates keyman risk, as any pullback there crashes everything. Yet this isn't weak enough for aggressive Fed action, leaving workers stuck in purgatory.
Tesla's Momentum Machine
Tesla ($TSLA ( ▲ 0.1% )) hitting all time highs validates my mid-year and recent predictions that the stock would pish to highs. Techincal patterns were my insight but now the stock has news, and when this stock has news, momentum can exceed all expectations. The stock embodies pure momentum, when it moves, it moves violently. Monday's 4% and Tuesday's 3% gains on Robotaxi testing confirmation show how quickly narrative shifts translate to price.
At these valuations, Tesla trades on dreams becoming reality. Every successful autonomous mile without safety drivers justifies premium multiples. The push-pull on valuation continues, but momentum traders feast on these directional moves. Most investors should avoid stepping in front of this freight train.
Warner Bros Drama Continues
Warner Bros board likely rejecting Paramount's $108 billion all cash bid to stick with Netflix's deal shows content value transcending corporate structure. The board advising shareholders against Paramount's superior financial offer suggests strategic considerations outweigh immediate premiums.
Netflix gaining HBO, Warner's studio, and extensive library while Paramount walks away empty handed again reshapes entertainment permanently. The streaming wars end not with competition but consolidation into mega platforms.
Year-End Financial Planning Reminder
As we approach year end, ensure critical financial planning items are complete: backdoor Roth IRA contributions executed by December 31st for simplicity sake, Roth conversions require completion this year to count for 2025 taxes, HSA contributions should be maxed out, and harvest tax losses to offset gains while avoiding wash sale rules. These moves can significantly impact after tax returns, procrastination costs real money. If you have any questions on year end planning, feel free to reach out to me. As a multi family office, we have all angles covered.
Market Positioning Update
Meta remains compelling after my sub $600 call proved prescient. Bank of America's survey showing 54% of fund managers adding tech exposure with Meta high on lists provides upward pressure. The AI capex concerns creating opportunity as buying momentum builds toward $700.
Bitcoin approaching year end with $93K resistance but $100K achievable if it gains momentum. Coinbase benefits as the all in one platform thesis gains traction. The ecosystem maturation supports higher valuations across crypto infrastructure plays.
Final Thought
Markets sit at an inflection point where bad news isn't bad enough for policy relief yet good news gets questioned for sustainability. The S&P's three day slide reflects this uncertainty, but I still feel there is upside into year end. What stands out to me about recent moves has been the broadening. With tech moving to the downside, the market could have gone with it, but its held up well.
We have seen areas like the equal weight S&P, small caps and mid caps hitting all time highs which is pushing back against the idea that the market was top heavy and the rally was solely relying on a handful of stocks.
December is historically one of the stronger months, and we see upside advances 73% of the time. I think the second half of the month will see strong upside for the market. Historically, December 15th is the low point of the month in December before making way for potential a Santa Claus rally.
Beyond December, the dynamic is a little tougher. The labor market's freeze creates a unique dynamic as GDP can grow while employment stagnates, putting the Fed in an impossible position. This relatively new phenomenon, growth without jobs, challenges traditional economic relationships and policy responses. We're likely seeing structural shifts from aging demographics, restrictive immigration, and yes, AI productivity gains rather than cyclical weakness.
The setup favors selective accumulation in oversold quality rather than aggressive speculation.
As always, feel free to reach out with questions about year-end positioning.
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.