How many news headlines do you see every single day?

It’s probably a lot. But how many of them do you actually read?

It’s probably a lot less. Nobody has time to sort through that much data when there’s also work to be done and lives to be led.

And so, today, I thought I’d try something new.

For today’s issue, I’ll share the five stories I have my eye on as we enter a new week in the markets.

Just five, mind you. But they are handpicked news stories that caught my eye over the last few days… broken into bite-sized segments you can easily digest in your busy day.

The news cycle this last week, of course, has heavily centered around the elections. The incoming Trump presidency is almost certainly going to have enormous impacts on the nation and the world.

In fact, it already is, as our first news story seems to indicate.

With that said, there are other trends, trades, and moves worth talking about, as I also aim to prove.

1. China Passes HUGE Cash Infusion

The Chinese government announced a five-year, 10 trillion yuan ($1.4 trillion) program to pay down localized government debt through 2028. According to its own admission, there’s “hidden” debt on public balance sheets. And it’s weighing heavily on various cities and towns that are then negatively impacting the larger economy.

$1.4 trillion is a whole heck of a lot of money. Yet it still disappointed many investors inside and outside the country alike. They were hoping for more direct stimulus, which Finance Minister Lan Fo’an at least heavily implied would come next year.

Considering how much China has struggled to regain its pre-pandemic standing, there is a major case to be made for acting now. Not later. But it seems Beijing first needs to process a new threat to its economic health. Or, more accurately, a returning threat.

I like how The Economist put it when it wrote how, “China suffers from the three Ds: debt, deflation, and poor demographics. America’s presidential election added a fourth: Donald Trump, who has threatened to slap high tariffs on Chinese exports when he returns to the White House.” Considering how reliant both countries are on each other, I imagine the world’s second-largest economy is hoping there’s room for negotiation with the author of The Art of the Deal.

Once it knows that, then it can perhaps act accordingly on everything else that’s weighing it down.

2. The Small-Cap Story Just Expanded

As I mentioned on Wednesday, the Russell 2000 rose a whopping 4.46% after Trump’s electoral victory. Those small-cap “businesses and their investors are now expecting economic abundance and a continuation of the Trump taxes, which benefited them immensely.”

To give you an idea of how excited they are, here’s how they moved last week:

That means they finally clawed back everything they’ve lost since November 2021:

I’m not saying that small-cap stocks have become risk-free all of a sudden. First off, no investment – no matter how stable it’s proved to be – can claim that status. There are always negative realities and possibilities any business of any size has to deal with. And smaller companies have a lot more to prove to themselves, their customers, their investors, and their financiers.

At the same time, I’m more excited than ever about the small-cap service I’m launching in a matter of weeks!

3. Real Estate Has Plenty More to Move Too

Out of all the recognized U.S. investment sectors, financial services are the clear winner year-to-date. Up 31.78% last week, their only contender is the communication services, which has risen 31.30%. Other than that, there’s no challenge.

  • Industrials – 24.07%

  • Utilities – 22.45%

  • Technology – 21.23%

  • Consumer discretionary – 17.12%

  • Energy – 11.59%

  • Basic materials – 11.02%

  • Consumer staples – 10.45%

  • Healthcare – 8.55%

  • Real estate – 6.44%

And as you’ll notice, the sector I’m most familiar with – real estate – is bringing up the rear.

There are multiple reasons for this, many of which my team and I have discussed before. They range from misperceptions about real estate investment trusts’ (REITs) reliance on debt and, therefore, interest rates… to a wave of commercial real estate debt coming due… to office landlords weighing down everyone’s opinion of how well the larger sector can perform.

But considering the continuing health of the larger sector, with more-than-manageable balance sheets and stellar leaders making strategic buy and sell decisions every day, I see real estate’s last-place position merely as an indication of greater profit potential going into 2025. Catch up on my view of real estate going forward right here.

4. Pajama Meetings Are Going Out the Door

Speaking of office REITs…

The Washington Post just informed its 3,000-plus employees they’ll be back at their corporate desks five days a week starting in June. Before that, Amazon (AMZN) informed its 350,000 corporate employees that their hybrid schedules were rescinded as of January 2. And around the same time, Starbucks (SBUX) told its white-collar workers that they could look for another job if they didn’t want to come in at least three times a week.

That might be bad news for the workers. But it’s great for office landlords who have been contending with increased vacancies for the last four and a half years. There’s still plenty of space left to fill, mind you, particularly in certain cities. As The Wall Street Journal noted two weeks ago, just “one-third of companies require workers in five days a week” even this long after the shutdowns officially ended.

All the same, that’s a marked improvement over last year… or even last quarter’s 31%. And it looks like a trend that will continue strengthening from here as the jobs market tightens. Employers know their workers are far more replaceable now and, therefore, much more likely to comply with in-office demands.

Could this finally be the turnaround office buildings have so desperately needed? I’ll certainly be keeping my eye on it.

5. What’s Going on With Mortgage Rates?

The Federal Reserve cut interest rates last week by a quarter point after dropping them a half point in September. Yet mortgage rates are back on the rise. This seems to make no sense whatsoever, and you’re not alone if you’re struggling to understand the opposing moves.

But the truth is that mortgage rates are based on several different factors, not just interest rates. Supply and demand, which hasn’t gotten any better, also plays a part. So does inflation, which most financial sources expect to go up under Trump’s promised tariffs.

After all, inflation brings down the dollar’s purchasing power. In which case, the money banks lend out now will be worth less as it’s paid back. They need to charge accordingly in order to make a profit. Ipso facto, mortgage rates aren’t budging.

I have a different take on that topic, however. As I explained in Thursday’s Wide Moat Daily, while “many conservative-leaning and liberal-leaning news outlets alike” expect higher prices next year, they should also consider Trump’s other pledges. Like the ones about increasing domestic energy production and ending the foreign wars we’re spending hundreds of billions of dollars on.

If he can pull that off, then I expect mortgage rates will start dropping once again.

Regards,

Brad Thomas
Editor, Wide Moat Daily