It's '10 Plus 10' on China
Another day full of headlines... More tariffs to come on China... The recipe for stronger, richer economies... Negotiating tactics... The latest on Nvidia... Something worth buying today...
The news of the day...
Another earnings beat from Nvidia (NVDA) was... punished? More on that after we review some other fresh headlines...
Weekly jobless claims in the U.S. hit a three-month high of 242,000... with those in Washington, D.C. spiking again – 26% higher than a week ago. The broader rise is another economic signal that has Wall Street concerned.
And in what could be becoming a trend, today Kansas City Fed President Jeff Schmid became the second Federal Reserve official this week to warn publicly about repeating 1970s-style inflation if interest-rate cuts continue.
We've warned about this "twin peaks" risk long ago and the idea that high(er) inflation is not dead. Yet Schmid also noted uncertainties around growth tied to concerns about higher prices and tariffs. During a speech at the U.S. Department of Agriculture, he said...
This presents the possibility that the Fed could have to balance inflation risks against growth concerns.
In other words, "stagflation." That's when growth is slowing but high inflation isn't.
And about those tariffs...
On social media this morning, President Donald Trump again threatened to impose 25% tariffs on Mexico and Canada, pending results of efforts to stop illegal drugs from crossing the U.S. border. And he said another 10% tariff on China would be coming on Tuesday.
To be clear: That's in addition to the 10% tariff Trump put in place on Chinese imports earlier this month. "It's 10 plus 10. Was there confusion on that?" he said to a reporter who asked about it at the White House today. "It's a second 10."
The major U.S. stock indexes tumbled in the late afternoon upon that commentary. The S&P 500 and small-cap Russell 2000 Index finished 1.5% lower, the tech-heavy Nasdaq Composite Index fell 2.7%, and the Dow Jones Industrial Average dropped 0.4%.
A fresh take on tariffs...
You've heard enough from me (Corey McLaughlin) on the subject. In short, we posit they're inflationary and create higher costs for businesses, which are ultimately passed on to consumers or eat into companies' bottom lines.
For a fresh voice, here's what our Dr. David "Doc" Eifrig had to say about it in his free Health & Wealth Bulletin daily newsletter yesterday...
Tariffs are bad for the economy. There's no way around it. And there's really no way that all of Trump's threats will come to fruition.
Most of the time, we distrust the forecasts of egghead economists who never seem to get it right. But in this case, they virtually all agree that Trump's tariffs are nonsense – and they are right.
While it would be nice to tax foreign imports, generate cash, and strengthen our own industry, it just doesn't work that way. You have to think of the second-order effects...
For instance, in 2018, during his first term, Trump instituted tariffs on foreign steel to protect blue-collar jobs at home.
A study published by the Federal Reserve estimated that steel producers gained about 1,000 new jobs. However, this caused input costs for U.S. industries that use steel, such as the automotive industry, to rise. Overall, it amounted to about 75,000 fewer manufacturing jobs.
Trade protectionism doesn't grow wealth. It destroys it. Free trade is what builds stronger, richer economies.
Now, that said, Doc went on to analyze how and why Trump is throwing around the threat of tariffs, primarily as a way to get trade concessions from other nations... as we've also written in these pages. As Doc said...
It's clear to us that Trump would prefer to pry other deals from our trading partners and not institute huge tariffs across the board. So for now, we'll just have to wait and see whether Trump's bargaining tactics pay off.
Even if they go into effect, though, Doc doesn't "view them as an inevitability that will doom us to a recession or send the markets spiraling." In the meantime, though, the uncertainty has added an element of volatility to the markets. As Doc said...
Markets have feared disruptive tariffs – and for good reason.
The latest from Nvidia...
Yesterday, we told you to keep an eye out for another market-moving event – AI chipmaker Nvidia's quarterly earnings. The AI boom has sent Nvidia's stock soaring higher, making it one of the most important companies in the market.
Since a low in October 2022, Nvidia's shares have surged more than 1,000%. The company is now the world's second-largest by market cap, which also makes it the second-largest weighting in the major U.S. stock indexes. (Nvidia accounts for 6.1% of the S&P 500 and 8.1% of the Nasdaq.)
So, last night, all eyes were on its latest financial report. Here are the highlights...
For the fourth quarter, Nvidia generated $39.3 billion in sales and earnings per share came in at $0.89, up 78% and 80%, respectively, year over year. Both of those metrics came in above Wall Street's expectations.
For the full 2025 fiscal year, which ended January 26, Nvidia brought in a record $130.5 billion in sales. That was helped by Nvidia's AI-driven data centers. This segment's revenue jumped 93% in the fourth quarter and 142% in the full fiscal year.
And Nvidia believes this is just the beginning for its AI business. This was the first quarter that its new "Blackwell" chips were on the market. Nvidia Chief Financial Officer Colette Kress explained in the earnings release...
We delivered $11.0 billion of Blackwell architecture revenue in the fourth quarter of fiscal 2025, the fastest product ramp in our company's history. Blackwell sales were led by large cloud service providers which represented approximately 50% of our data center revenue.
The news was good looking ahead, too... Nvidia forecast revenue of $43 billion, above Wall Street's estimate. That would also represent a 65% jump from the same quarter last year. "AI is advancing at light speed," Nvidia CEO Jensen Huang said.
And yet... Nvidia stock was down about 8% today...
It's not enough for Nvidia to be great anymore because things aren't as great as they once were. Even with the strong growth and projections, Nvidia's rate of growth was a lot higher not too long ago.
In the fourth quarter of the 2024 fiscal year, sales more than tripled (versus 78% growth this time around). And in that quarter, data-center revenue was five times what it had been the year before... versus "only" growing by another 93% this time around.
And Nvidia's gross margins came in at 73% in the most recent quarter, down from both the third quarter and the same period a year ago.
Continued growth and margins show that Nvidia still has world-class financials. But with the stock trading at 50 times earnings and more than 27 times sales, investors can get impatient and start looking for other opportunities.
Nvidia shares are down from their all-time high on January 6. And so far in 2025, the stock is down roughly 13%, considerably lagging the broader market. (The S&P 500 is about flat year-to-date after today's trading.)
How to handle a position like this...
As the poster child for AI, Nvidia is going to remain under a microscope and make headlines. But if you've owned shares for a while, a drawdown like this is a "high-class problem," as Stansberry's Investment Advisory lead editor Whitney Tilson describes it.
When a stock like this has already put together monster gains like it has over the past two years, right now might not be a great time to buy new shares. But if you already have some, Whitney doesn't suggest selling all of them.
As he reiterated today in his free daily newsletter...
... The key to long-term investment success isn't just being smart – and lucky – enough to own a few huge winners. You must let your winners run.
Looking at the math behind long-term investment success, take any portfolio of 20 stocks or more, and you'll see that it isn't usually driven by a high batting average (e.g., 80% of the stocks go up), but a high slugging percentage (a few huge winners) instead.
But of course, this math doesn't work if you sell those winners – that cuts off the long right tail of the distribution...
But what if such a stock becomes such an outsized portion of your portfolio that you're losing sleep at night?
An easy answer is to trim it – but not too much.
Now, here is something still worth buying today...
It has to do with something that could be bigger than AI...
Yesterday, our team released the latest update on this story, which our firm has tried for years to get the word out about. Right now may be your last chance to get the most out of this opportunity.
In a few weeks, if not days, the best chance for 1,000% potential upside could be gone.
Our publisher, Brett Aitken, is urging all Stansberry Research readers to get the full story now... with help from a behind-the-scenes employee who is personally involved in one of the greatest tech revolutions of our lifetimes. Click here to get the details.
New 52-week highs (as of 2/26/25): Abbott Laboratories (ABT), Alamos Gold (AGI), Alpha Architect 1-3 Month Box Fund (BOXX), Brown & Brown (BRO), Masimo (MASI), Annaly Capital Management (NLY), and Wheaton Precious Metals (WPM).
In today's mailbag, a variety of feedback on yesterday's edition... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.
"'This scene today was straight out of a reality-TV set.' Er... that's because it is, it's all theatre..." – Subscriber Mark M.
"Why do you want to frame [Trump] as being a serious mature leader?... You never say, 'We don't need more tax cuts...' You won't directly criticize Trump." – Subscriber Charles S.
"Corey seems to be mocking President Trump's Cabinet meeting. At the very least, they are meeting and sharing a vision and a plan. That's miles above anything Biden ever did besides stumbling and bumbling around making a fool of himself. Let's see how the plan looks two years from now Corey. As for Massie, he is a Democrat with a R behind his name, so consider the source." – Subscriber Ted T.
"I am always amazed at economic pundits saying tax cuts increase the deficit. If you go back to President John F. Kennedy's tax cuts, Reagan's, and W. Bush, revenue increased every time. Bush actually had the budget balanced for one year and it happened in his third year. He had stated that the budget would balance after his fourth year; it actually occurred in the third year, then Iraq hit. The problem is not revenue, it is spending. I agree the Republicans are about as bad as the Dems. But I do believe that this time 'could' be different IF the spending cuts are actually done." – Subscriber Thomas W.
Corey McLaughlin comment: I was expecting some feedback along these lines given the subject yesterday... You can see the various views we received stemming from the same set of words, which is interesting.
First off, as longtime readers may know, I try to be an "equal opportunity" critic – no matter the political party or government entity. Perhaps it's a character flaw, but I've found it helpful in analyzing the world and the markets.
We said plenty in the past few years about how the Biden administration helped fuel 40-year-high inflation... and how White House decisions made during Trump's first term did, too. We wrote about all that as it was happening and, frankly, both ideas turned out correct.
And, of course, you can track the origins of our current debt situation as far back as you want to go, across various presidents and even before America was founded.
I like to keep in mind at least two key moments... One is "the day the dollar died" on August 15, 1971 when President Richard Nixon took the U.S. off the gold standard for good. The other is sometime in the 10th century, when Chinese merchants are thought to have first invented the idea of fiat currency.
Back then, high demand for coins exceeded supply of precious metals. Someone had the bright idea to create credit notes ‒ paper money ‒ to enable transactions without making new coins. Enough people trusted the system that a new way of doing business was born.
"Stable currency" has faced stiff challenges in the thousand years since.
Today, when we feel compelled to point out how politicians' decisions could affect the economy in the future, we will, and we know criticism often comes with the territory. But we do this all with one thing in mind...
The idea here is to provide timely information that we think is helpful for making investment decisions.
The point, as we made yesterday, is that the Trump administration – Elon Musk included – is saying it wants to "balance the budget" and downsize government... Yet at the same time, Congress appears to be going about business as usual, proposing a $4 trillion "debt ceiling" increase.
Make of that what you will. And, as always, let us know what you think.
All the best,
Corey McLaughlin and Nick Koziol
Baltimore, Maryland
February 27, 2025