Weekly Research Briefing: Deck the Cooper

"Our customer base, which is predominantly middle to upper income, remained resilient and engaged in the third quarter."

A Procter & Gamble Co. executive said US sales of the product categories the company competes in were down “significantly” in October and probably through November, a cautionary note on American consumers’ spending heading into the holiday season.

Sales for those categories were “down both in volume and in value significantly in October,” P&G Chief Financial Officer Andre Schulten said at a conference hosted by Morgan Stanley. “I don’t expect November to be materially different,” he added…

Heading into this quarter, P&G executives were prepared for some headwinds, expecting US consumers to be “more nervous and cautious.” The company also anticipated stronger competition from rivals, Schulten said.

What was unexpected, he added, was the government shutdown as well as the impact on monthly federal food assistance, known as SNAP.

“The context in the US is more volatile,” Schulten said. “Probably the most volatile we’ve seen in a long time.”

@KevRGordon: Another new all-time low for how consumers feel about the current economic environment in December per UMich

@RenMacLLC: Private payrolls negative over the last three months. Notable distribution: Small firms are the ones shedding workers, according to the latest ADP. Over the last three months, small business have cut 178,000 off their payroll ranks. By contrast, large firms have added 143,000.

(US) TRUFLATION PROXY OF US AGGREGATED INFLATION INDEX RISES TO 2.51% (NEAR 2025'S HIGHS AND EDGING BACK UP AFTER HOLIDAYS) V 2.37% W/W V 1.4% BEFORE 'LIBERATION DAY' Deutsche Bank study shows that Truflation often leads official CPI trends by around 40 days.

Just before President Trump left the White House for Thanksgiving, top aides met with him in his private dining room to discuss inflation and the economy in hopes he would calibrate his message on affordability.

In another meeting last month, this time in the Oval Office, aides presented Trump with surveys from one of the president’s own pollsters detailing voters’ concerns about the cost of living. His team has begun showing him social-media posts that illustrate how Americans view the economy. Top aides have taken turns talking to their boss about his economic messaging—and the need to emphasize what voters are feeling. Almost every senior White House official is involved in the effort.

It is part of an across-the-White House bid to change Trump’s messaging on the economy, as many advisers worry that voters’ concerns about high prices are dragging down his presidency and hurting Republicans, according to people familiar with the matter. In conversations in recent weeks, Trump’s advisers have encouraged the president to talk more about what the administration is doing to increase wages, lower the cost of housing and reduce inflation, the people said.

By almost any yardstick that matters, this has been a good year for fixed-income investors. Investment-grade and high-yield credit alike have traded at tight valuations, supported by still-elevated yields and corporate fundamentals that have held up. High yield, in particular, remained very resilient in the face of concerns over growth, trade frictions, and policy uncertainty…

That strong 2025 can largely be attributed to solid earnings and to a Federal Reserve that came through with two rate cuts — and will almost certainly cut again this week.

Through it all, investors haven’t chased risk indiscriminately. Positioning has favored shorter-duration, higher-quality issuers, reflecting sensitivity of returns to changes in Treasury yields as base rates remain high. With spreads tight, it will be very hard for 2026 to match this year’s performance.

The market for private credit is an estimated $40 trillion. It is a big engine for the economy that fuels innovation, growth and the industrial renaissance now underway across the US and around the world. We and other providers of private capital help finance both publicly traded companies — they are large users of private credit — and private companies, which represent roughly 86% of US businesses with revenue over $100 million.

Of the $40 trillion private credit market, roughly $38 trillion is debt rated as investment grade, about 95% of the market. This vast pool is split between bank balance sheets and investors and plays a critical role in financing the economy. Increasingly, long-dated private credit held by pension funds and insurers is financing the long-term needs of critical infrastructure — from energy transition to data and manufacturing — providing the patient, flexible funding that traditional markets cannot offer. Simply put, banks generally finance shorter durations while investors finance longer ones.

A much smaller amount, just $2 trillion of the $40 trillion private credit market, is so-called leveraged lending, below investment grade. This generally comes in two flavors: broadly syndicated (typically originated by banks for resale) and direct lending (typically originated by asset managers that intend to hold for the long term). This small quantity also plays a vital role in the financing of markets that provide much-needed capital for less-established companies or for businesses going through some sort of transition.

This small sliver of leveraged lending is what some market observers believe represents all “private credit,” obscuring the fact that the bulk of the vibrant private credit market is investment grade. Further, when discussing the private credit holdings of financial institutions, particularly insurance companies, some in the news media fail to note that almost all of these holdings are of investment-grade credit rather than leveraged lending.

Isolated incidents of corporate bankruptcies within this smaller subset of leveraged lending say nothing about the broader private credit market and are just that, isolated. Incidentally, both Tricolor and First Brands, which have received a lot of attention, were originated in the broadly syndicated market by banks.

The OCC & FDIC rolled back their 2013 Guidance that limited banks from extending 6x leverage on corporate loans, which has restricted their ability to provide financing for many of the LBOs as well as growth capital for tech and software companies that were scaling. Given last week’s guidance, banks are essentially granted permission to step back in and compete…

Since the GFC, banks have yielded market share to nonbank lenders (Private Credit: DL Funds, BDCs), which helped fuel the growth of private credit. This development was critical for private equity and markets in general as private credit provided essential capital that enabled thousands of privately-owned companies to thrive. Private credit fueled M&A and LBOs as well as CapEx needs. Banks providing capital for a growing economy is critical; we welcome this development as bank will compete with Private credit lenders, providing an alternative source of capital for companies. In addition, bank regulators have eased the supplementary leverage ratio that dictates how much capital big banks must hold against their total assets freeing up capital to lend, driving ROE and bank asset growth.

UK banks are celebrating the most favourable regulatory environment since the financial crisis, top executives told the Financial Times, as regulators ease rules and the government turns to the sector to help revive growth.

“The financial crisis was obviously quite some time ago now,” City minister Lucy Rigby told the FT Global Banking Summit. “I think there is an extent to which . . . from a narrative point of view, we don’t want banks to be any longer on the naughty step.”

Bank executives queued up at the London summit to welcome the UK’s more business-friendly tone, praising the new era of open dialogue and a recognition of the importance of financial services to the British economy — while calling for further easing of regulation.

“I don’t think there has been an environment for financial services that has been as supportive and positive since the financial crisis,” said Charlie Nunn, chief executive of Lloyds Banking Group. “The narrative has changed significantly, but we are not there yet.”

It’s been about 17 years since banks sent global equity benchmarks plunging to distressed levels during the financial crisis. In Spain and Italy, an unstoppable surge in shares of the country’s biggest lenders is finally wiping out those losses.

Spain’s Ibex 35 Index claimed its first record high since 2007 in October, and Italy’s FTSE MIB has hit the highest level since 2001 last month. These rallies have been overwhelmingly propelled by banks, which account for almost 70% of the gains in Spain this year and nearly 80% of those in Italy, with lenders making up nearly 40% of the benchmarks by weight…

Europe’s best-performing sector so far this year, the Stoxx 600 Banks Index, is up 56% compared with a 14% gain in the broader benchmark. Spanish banks have emerged as clear standouts, providing four of the sector’s top 10 stocks in 2025. Strong earnings, generous investor payouts, improving economic prospects and industry consolidation supported the shares of lenders in the two southern European countries and beyond.

@KevRGordon: CBOE equity put/call ratio fell on Friday to its lowest since May

@AlmanacTrader: S&P 500 7-Month Win Streak Bullish for Next 6 Months. Contrary to popular belief that such streaks steal from future performance, stocks are up 87.5% of the time 3 & 6 months later.

It no longer makes much sense for us to continue recommending overweighting the Information Technology and Communication Services sectors in an S&P 500 portfolio, as we have since 2010. The same can be said about overweighting the United States in the All Country World (ACW) MSCI portfolio, as we have been since 2010 as well… the first recommendation has worked so well that the two S&P 500 sectors now account for a record 45.2% of the index's total market capitalization (chart).

Overweighting these two sectors combined has been justified by their forward earnings share soaring to a record 38.6% of the S&P 500's forward earnings. However, the riskiness of an S&P 500 portfolio has increased along with its concentration in the two sectors.

@MikeZaccardi: by my count, $COST has made one 52wk low since March 2009

Commodity Breakout: As the dollar weakens at resistance levels, the commodity index completed a 2.5yr base formation. Gold 19%, NatGas 11%, Oil 9%, Silver 7%, Copper 6%, Soybeans 5.6%.

China’s trade surplus in goods has surpassed $1tn this year for the first time, as exports boomed despite US President Donald Trump’s tariff war.

In the first 11 months of this year, China’s trade surplus in dollar terms was $1.076tn, according to data released on Monday by the country’s customs administration, which covers goods but not services.

China’s trade surplus in goods for the full year in 2024 was just shy of $1tn.

OpenAI’s artificial intelligence products are saving workers an average of about 40 to 60 minutes a day on professional tasks, according to a large survey conducted by the ChatGPT maker amid lingering skepticism of the economic benefits of AI.

Employees in industries such as data science, engineering and communications, as well as certain roles like accounting, reported some of the most time saved from using AI, according to OpenAI’s survey of 9,000 workers across 100 companies. Three quarters of employees said that using AI at work has improved either the speed or quality of their output, the survey found…

OpenAI is finding, he said, that “enterprise adoption is actually accelerating, basically just as quickly as consumer — in some places, more quickly than consumer.”

OpenAI now has more than 1 million businesses paying to use its enterprise AI products. There are now 7 million paid seats, or employees, for ChatGPT workplace products, according to the report.

In cutting-edge Microsoft data centres, racks of chips used to train AI models sit idle. “The biggest issue we are now having is not a compute glut, but it’s power,” said Microsoft’s chief executive Satya Nadella during a recent podcast interview.

The topic has been top of mind in a year when big tech “hyperscalers” — Amazon, Google, Meta and Microsoft — have set out plans to spend more than $400bn in capital expenditure…

Big tech stocks have risen as a result, but if computing supply is constrained by a lack of power, the AI “bubble” could deflate.

OpenAI alone has signed infrastructure deals totalling more than $1.4tn, amounting to an estimated 28GW in capacity over the next eight years. Chief executive Sam Altman has characterised the power crunch as existential.

“A certain risk is if we don’t have the compute, we will not be able to generate the revenue or make the models at this kind of scale,” he said recently…

As hyperscalers expand and deploy more advanced chips, the pressure on energy supply is intensifying. In October, OpenAI wrote an open letter to the US government urging it to set an ambitious target of building 100GW a year of new capacity.

“In 2024, the PRC [People’s Republic of China] added 429GW of new power capacity — more than one-third of the entire US grid, and more than half of all global electricity growth. The US contributed just 51GW, or 12 per cent,” the company noted.

Companies are hurrying to the bond market for cheap M&A funding while the going is good, long before their deals are even completed.

That’s made this quarter the biggest in four years for acquisition financing at $113 billion globally, one of the highest tallies on record, according to data compiled by Bloomberg. On just one day last week, Merck & Co Inc. and GE HealthCare Technologies Inc. raised a combined $9.25 billion, both for buyouts announced only around two weeks earlier.

These sales are a sign of how strong credit sentiment is heading into the end of 2025, with corporate spreads near record low levels and fund flows continuing to pour in. With a resurgence in mergers and acquisitions activity, and worries that a flood of debt to fund AI could dent the market next year, companies are wasting no time in executing their financing plans on both sides of the Atlantic…

Demand has been so strong that borrowers haven’t needed to pay a premium when including clauses to buy back the debt if the M&A is not completed by a set date. That somewhat mitigates the risk of companies being stuck with a pile of additional debt if their deal goes sour, though issuers may still face a small financial penalty if that happens.

PE dealmaking in aerospace and defense rebounded sharply in Q3 as tariff chaos eased, investors considered the promise of a bulging defense budget and positive news from Boeing cheered the industry.

The vertical recorded 87 PE deals, a 78% increase from Q2's 49 and slightly more than the 84 deals seen a year earlier, according to our Q3 2025 Aerospace & Defense Report. Disclosed deal value also rose to $6.5 billion from $4.5 billion in Q2.

The proposed fiscal 2026 US defense budget is expected to exceed $1 trillion in total funding and is heavily oriented toward next-generation aircraft, missile defense, hypersonics and space, pointing PE investors in these directions.

At the same time, the tariff program has evolved toward reciprocal agreements with key partners, which helps PE firms better assess long term supply chain and input cost risks, despite ongoing legal challenges.

And Boeing's expectations for a gradual normalization of its 737 Max production following a nod from the Federal Aviation Administration, combined with healthy backlogs at both Boeing and Airbus, points to a more predictable demand outlook for the sector's supply chain.

SpaceX is kicking off a secondary share sale that would value the rocket maker at $800 billion, people familiar with the matter said, surpassing OpenAI to make it the most valuable U.S. private company.

The company’s Chief Financial Officer Bret Johnsen told investors about the sale in recent days, and SpaceX executives have also said the company is weighing a potential initial public offering in 2026, some of the people said.

The $800 billion valuation is double the $400 billion value it fetched in a recent secondary share sale…

SpaceX investors have been waiting for an IPO for years as the company has grown into an essential service for the U.S. government, launching satellites and astronauts.

They grow up so fast. Anthropic, a maker of artificial intelligence models and rival to OpenAI, has hired lawyers ahead of an initial public offering that could value it at $350bn next year. By that point the company would have reached the not-at-all-grand age of five.

That makes it a pretty good example of AI companies’ turbocharged growth. As a comparison, Google went public six years after its founding, achieving a valuation of about $23bn. Facebook took eight years to spring into public markets with roughly a $100bn price tag. The geriatric Microsoft waited 11 years and debuted in 1986 at around $800mn.

Behind the hype, at least, is a business. Anthropic’s main product is its chatbot Claude. That generates revenue, if not yet profit: Anthropic has projected that it could make $70bn in sales by 2028, The Information has reported. That would put its mooted valuation at five times that sum. Meta went public in 2012 at, with hindsight, a multiple of six times its three-year-hence sales; China’s Alibaba at seven times and Palantir at 10.

When investors do get the chance to buy stock in Anthropic directly, joining existing backers Amazon, Google, Microsoft and Nvidia, they will be benchmarking it particularly closely with OpenAI, the maker of ChatGPT, whose latest valuation of $500bn is also five times 2028 projections.

With visible signs of pressure at the lowest-rated parts of the market, Morgan Stanley’s Andrew Sheets argues that it’s reasonable for skeptics to worry that the credit cycle will buckle under its own weight. However, rather than a collapse, Sheets suggests the cycle could burn hotter in 2026 before it burns out. Easier fiscal, monetary and regulatory policy, and the largest capex splurge in a generation should enable the corporate sector to take more risks.

Morgan Stanley’s team notes that non-financial corporate debt as a share of US gross domestic product has been declining for five years, while global banks and insurers remain well capitalized by historical standards. And even if the 20% annual increase in international mergers and acquisitions in 2026 that Morgan Stanley is predicting comes to pass, it would still sit slightly below its long-run average.

“Boo-Yah: A Portrait of Stuart Scott” (ESPN, Dec. 10): Scott was one of the most dynamic and vivid sportscasters, gracing the world with some of the most memorable calls in ESPN history—“Like gravy on a biscuit, it’s all good”; “As cool as the other side of the pillow”; “They call him the Windex Man cause he’s always cleaning the glass”; and the still-iconic “Boo-Yah!” His life and career, cut short by cancer, are the subjects of a new “30 for 30” film from Andre Gaines.