Good morning investors,
Defense stocks surged with Northrop Grumman and Lockheed Martin up nearly 7% premarket after Trump calls for $1.5 trillion military budget by 2027, a 50% increase from current spending. Google overtakes Apple's market cap for the first time since 2019, hitting $3.88 trillion after a 65% surge in 2025.
Nvidia demands full upfront payment from Chinese H200 buyers as Beijing weighs approval, with over 2 million chips ordered at $27,000 each despite only 700,000 available. Intel stock jumps 6.5% on successful launch of Panther Lake chips using crucial 18A process, validating the turnaround strategy.
Opening Bell: Defense Rally, Tech Rotation
Dow ($DIA ( ▼ 0.53% )) futures down 147 points with S&P ($SPY ( ▼ 0.26% )) and Nasdaq ($QQQ ( ▼ 0.38% )) futures off 0.2% as markets digest Trump's corporate intervention threats. Defense contractors rocket higher with Northrop Grumman up 6.8%, Lockheed Martin gaining 6.7%, RTX advancing 5.4%, and Kratos Defense surging 6.6% on the $1.5 trillion budget announcement.
Bitcoin falls back under $90,000 after touching $93,000 earlier this week, giving back recent gains as momentum stalls. Oil rebounds over 1% after yesterday's selloff on Venezuelan supply concerns.
Trump's Corporate Crusade
The President's Truth Social barrage targeting defense contractors and institutional home buyers sent shockwaves through markets. Defense companies getting hammered for "massive dividends and stock buybacks at the expense of investing in plants and equipment" while simultaneously benefiting from budget increases creates an interesting scenario for these companies.
His plan to ban institutional investors from buying single family homes crashed Invitation Homes 7% and Blackstone 4%. As I noted yesterday, "People live in homes, not corporations" makes great soundbite but lacks implementation details. How do you define "large institutional investor"? New purchases only or forced portfolio sales?
Without specifics, this is policy by announcement. But market reactions show investors take it seriously. If enacted, it reshapes real estate investment while potentially reducing rental inventory, ironically raising rents.
Venezuela's Oil Takeover
Energy Secretary Chris Wright's plan for the U.S. to control Venezuelan oil sales indefinitely represents unprecedented intervention. "We're going to market the crude coming out of Venezuela - first this backed up stored oil and then indefinitely going forward," Wright declared.
The 30-50 million barrels of sanctioned oil heading to U.S. markets explains yesterday's crude selloff. Yet long term implications remain murky as revitalizing Venezuela's infrastructure requires tens of billions and years of work. Short term supply boost, long term uncertainty.
Google's Moment
Alphabet overtaking Apple's market cap marks more than symbolic victory, it reflects strategic divergence. Google's seventh-generation TPU chips and Gemini 3 drove 65% gains in 2025 while cloud signed more billion dollar deals than the previous two years combined. My top large cap pick for 2025 delivered spectacularly.
Apple's delayed Siri upgrade to 2026 leaves glaring AI gap as competitors race ahead. The $3.88 trillion versus $3.84 trillion split shows markets rewarding execution over reputation. I do however believe Apple is in a strategic position. Limited capex spend and sitting on a pile of cash, they could imply an acquisition strategy as the AI winners are determined, but the question would be, will they be too far behind.
CES AI Domination
Nvidia's Vera Rubin platform with 10x throughput improvement and 10x token cost reduction sets new performance bar. AMD's counter-punch with Helios "world's best AI rack" creates fascinating competition at 72 GPUs per rack for both systems.
Intel's successful Panther Lake launch validates its manufacturing comeback while Qualcomm's Snapdragon X Plus 2 creates three way AI PC battle. Every company showcasing humanoid robots, from Nvidia's cowboy hat wearing bot to Hyundai's 2028 factory deployment plans, confirms physical AI's arrival.
Nvidia's China Hedge
Requiring full upfront payment for H200 chips with no cancellations or refunds shows Nvidia hedging Beijing approval uncertainty. Chinese companies ordering 2 million chips at $27,000 each versus 700,000 available creates massive supply-demand imbalance.
Beijing asking tech companies to pause orders while determining domestic chip purchase requirements alongside H200s adds complexity. The selective approval for commercial use while barring military and state enterprises suggests careful balancing act.
Jobs Data Mixed Signals
November JOLTS showing continued "no hire, no fire" stagnation with unemployment at 4.6% confirms frozen market. Yet ADP's 41,000 December jobs added suggests stabilization. Today's Challenger job cuts and weekly claims provide more color ahead of Friday's crucial payrolls.
The disconnect between official strength and actual experience persists, with workers lacking confidence despite low unemployment, employers won't hire despite openings.
Final Thought
Trump's simultaneous attack on defense contractors while demanding 50% budget increases epitomizes this administration's market complexity. Punish buybacks and dividends while throwing money at the sector. Forcing corporations to act a certain way can create conflict.
The housing intervention represents populist politics meeting market reality. Banning institutional buyers sounds great until you realize they provide crucial rental inventory in supply constrained markets. Unintended consequences often exceed intended benefits. However, measures being taken to help average American afford homes is the right thing to do.
Venezuela's oil situation creates near term supply relief but long term complications. Markets focusing on immediate barrels miss geopolitical ramifications of indefinite U.S. control. China's muted response suggests acceptance or strategic patience.
The bull market continues but continue to expect choppiness.
As always, feel free to reach out with questions about navigating these crosscurrents.
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.