A daily market update from FS Insight — what you need to know ahead of opening bell.

“Eventually, all things merge into one, and a river runs through it.” — Norman Maclean

Overnight

Qatar presents final draft of Gaza truce deal after a ‘breakthrough’ SEM

Special counsel asserts Trump would have been convicted for efforts to overturn 2020 election WSJ

Fire-scarred Los Angeles braces for more extreme winds BBG

A global bond sell-off is deepening as investors pare Fed rate cut expectations CNBC

Goldman sees financing as the future. It is rearranging itself to reflect that. WSJ

SEC charges Robinhood with securities violations, brokerage to pay $45 million penalty CNBC

Cleveland-Cliffs and Nucor plan joint bid for US Steel FT

UK competition watchdog launches probe into Google SEM

Honeywell plans breakup under pressure from Elliott BBG

Macquarie to invest up to $5 billion in Applied Digital AI data centers WSJ

TikTok says report of possible sale to Musk ‘pure fiction’ BBC

Spain plans 100% tax for homes bought by non-EU residents BBC

Rare comet may be visible for first time in 160,000 years BBC

Chart of the Day

MORNING INSIGHT

Good morning!

There is a regime change underway, resulting in stocks performing better when yields start to fall. We think this window could start this Wednesday.

Click HERE for more.

TECHNICAL

• SPX has now gotten to right above 5700 while intermediate-term trends are intact.
• Financials, Technology, Industrials, Comm. Svcs, and Discretionary all nearing support.
• SPX short-term cycle composite could bottom out over the next 2-5 trading days.

Click HERE for more.

CRYPTO

Any hot prints in upcoming macro data could send us lower, so while it’s tough to advise trying to get too cute in the near term, there could be opportunities for those with dry powder to deploy.

Click HERE for more. 

First News

Water. That’s certainly a subject that’s at top of mind for those affected by the raging wildfires still threatening large swaths of the greater Los Angeles area. As of this writing, the weather forecast is calling for more dangerous high winds – and no rain – putting more lives and properties at risk.  

The availability of clean, accessible water is also of major concern for the technology sector, and obviously, it’s a critical issue for communities around the world. 

Yet this is an issue that tends to get ignored until a crisis – think Los Angeles or Flint, Michigan – emerges. Water stocks (PHO -0.98% , CGW -0.61% , PIO -0.50% , etc.) did not do particularly well last year, underperforming relative to both the S&P 500 and utilities stocks (XLU -0.25% ) in general. Utilities (XLU -0.25% ) actually outperformed the broader S&P 500 for much of 2024, largely driven by anticipated growth in demand for electricity by AI, hyperscalers, and Bitcoin mining. 

Yet access to plentiful, clean water is arguably just as important for our AI and technology-driven ambitions. The resource is critical to the manufacturing of the bleeding-edge chips designed by Nvidia and its competitors. Taiwan Semiconductor Manufacturing Company used more than 26.6 billion gallons of water in 2023, and though Taiwan does have water-supply issues, the island state at least gets abundant rainfall every year. The same cannot be said for Arizona and Texas, where TSMC and other chip companies are building fabrication plants (fabs) as part of the 2022 CHIPS Act.

Once they are made and installed, those advanced chips generate enormous quantities of heat energy that need to be dissipated. Often, that is done using evaporative and air-cooled systems that use even more water – a JPMorgan report estimates that large data centers can require 5 million gallons of water a day, and even a mid-sized data center can use up to 300,000 gallons a day. (A transition to more effective and energy-efficient liquid-cooled systems could significantly reduce this, however.)

Even with its growing importance, water infrastructure continues to be underfunded, with that same JPMorgan report estimating an annual federal shortfall of $91 billion in the U.S. alone. That funding is needed to maintain or replace the nation’s water mains and pipes, much of which is well past its 75-100 year safe lifespan. It is also needed to develop and implement new strategies to deal with increasing demand and with new risks such as those arising from climate change, increasing the risk of ever-more catastrophic floods, wildfires, and other natural disasters. 

Also among those new risks: cyberattacks. Such attacks against U.S. infrastructure have been intensifying for years, and last October, the largest U.S. water utility, American Water, disclosed that it had been hit by one such attack, forcing it to shut down online customer-service functionality including bill-paying. 

In the meantime, there will undoubtedly be much scrutinizing of the water infrastructure in the greater Los Angeles area in the coming weeks and months. In the past week, LA’s firefighters have been repeatedly hamstrung by fire hydrants that ran dry or delivered inadequate water pressure. Some observers noted that Los Angeles never anticipated wildfires menacing the city. Martin Adams, former general manager of the Los Angeles Department of Water and Power (DPW), told the Los Angeles Times that “the system has never been designed to fight a wildfire that then envelops a community.” Instead, as is typical for urban water systems, it was designed to fight fires endangering individual homes or small clusters of buildings: when most of the region’s public water systems were built (in the 1960s and 1970s), the risk of such catastrophic wildfires was much lower. 

The extent to which such a wildfire risk should have been anticipated, particularly given the growing impact of climate change, will surely be discussed and debated for quite some time.

Our thoughts are with both those battling the wildfires and those who have been impacted by the blaze.