You Ain’t Seen Nothing Yet with Daniel Clifton

NVIDIA

Across the shows: 76 speakers in other episodes, 71 bullish and 28 bearish calls, past 30 days

• Josh Brown · Ritholtz Wealth ManagementUncertain

  Nvidia's multiple has compressed severely; earnings growth alone has kept the stock from suffering more.

  Josh argues that over the last twelve months large AI sellers like Nvidia and Broadcom have seen their multiples compress severely. Their stocks have held up only because earnings growth has outpaced the multiple compression. He says the market never believed that the pace of earnings growth would last, which leaves the stocks exposed if earnings growth slows.

  “The multiple compression has been severe. The only reason the stocks haven't really suffered is because they're growing earnings faster than the rate that we're compressing their multiple on the street.”at 41:52

Meta Platforms

Across the shows: 71 speakers in other episodes, 76 bullish and 36 bearish calls, past 30 days

• Daniel Clifton · Baird StrategasBullish

  Meta's stock benefits from data center spending limits because they cap its cash-burning capex.

  Clifton argues the market is more worried about Meta's cash flow than about other hyperscalers, because Meta has no cloud revenue to offset its spending. If Congress or state governments limit data centers, that puts handcuffs on Zuckerberg's ability to spend, which he sees as good for Meta. He says Meta's stock rose as the Democrats' odds of a sweep increased. Josh counters that Meta has commitments that limit how much it can cancel.

  “Meta is a great Democratic stock... the market's always been more worried about Meta's cash flow rather than the other ones because there's no cloud revenue to back it up.”at 47:36

AI infrastructure & data centers

• Josh Brown · Ritholtz Wealth Management

  Data-center selloff is overdone; moratoria wouldn't shut construction sites that employ unions.

  Josh calls the market reaction the right one but overdone. The Nasdaq was down about 5%, Nvidia about 10% and SanDisk about 20%. He says a contingent of Middle America works construction jobs, and the construction unions depend on data-center work to keep their membership and employment up. He does not expect a Democratic governor to shut down existing work sites and send workers home, even if they impose a moratorium on new construction. He argues the market is acting as though all of the build-out will stop.

  “It's overdone in the sense that there is a contingent of Middle America that works construction jobs. ... I don't envision a scenario where a Democratic governor comes in. They might say moratorium on new construction, but they're not saying close down the work site, send all the workers home.”at 7:59

• Daniel Clifton · Baird Strategas

  Local opposition is cancelling data center projects; states, not Congress, now control the build-out risk.

  Dan argues the first layer of data-center risk is local. Most projects are being cancelled by local opposition, not by state or federal officials, and this predates the election. On Tuesday, 38 of 40 local data-center referendums went against the industry, and Meta recalled three city commissioners who had approved its data center. Governors now matter more than Congress for the build-out. Virginia is the example: after a new governor pushed a roughly $600M data-center tax increase in June, Blackstone pulled the state's largest data-center project within two days and Amazon cancelled four zoned Northern Virginia sites, so Virginia capex is lower than before the election. Dan's 'Boone Pickens rule' (nobody cares if other states ban it as long as your state hosts) broke in June, when Virginia and then Texas turned. That was also the week data-center stocks peaked relative to the S&P 500.

  “Most of these are getting canceled because of local opposition, not because of a state official or federal official.”at 23:05

• Daniel Clifton · Baird Strategas

  Data centers pay local property taxes, lowering rates and lifting home values in host counties like Loudoun.

  Dan's April study found that a data center pays local property taxes, which lowers the tax rate for everyone else. The property tax rate in Loudoun County has fallen for ten years in a row, which he says is not happening anywhere else in the country. The lower tax is capitalised into home values, a differential of about $20,000 per homeowner. Data centers also create housing demand in host counties compared with neighbours like Arlington that have none. He concedes that water use, noise and health fears are legitimate local objections, and that voters are not told about the tax benefit.

  “The property tax rate in Loudoun County has come down ten years in a row. I'm a public finance economist. That's how I started my career thirty years ago. That's not happening anywhere in the country.”at 30:10

• Daniel Clifton · Baird Strategas

  Data-center supply-chain stocks, not hyperscalers, took the hit on election day; the trade was always about parts.

  Dan's team screened 45 AI stocks on election day. The only ones up were the hyperscalers and Qualcomm. Everything tied to the parts that go into a data center was hit: industrials such as Caterpillar, data-center real estate, semiconductor equipment and power generation. Dan says this was the right reaction, because the data-center trade has always been about the physical inputs rather than the platforms. He notes that earnings season creates multicollinearity that makes the read hard to separate. His election baskets worked the day before but not the day of the selloff.

  “we have 45 AI stocks that we put on our screen, and the only ones that were up were like the hyperscalers and Qualcomm. ... Everything else was getting killed because the data center trade has always been about the parts that go into the data center.”at 34:13

• Daniel Clifton · Baird Strategas

  Democrats will use debt-ceiling leverage to end 100% expensing for data center equipment, a new capex headwind.

  Clifton says Democrats have a clear mandate on data centers. He expects them to use the debt ceiling as leverage to get Trump to remove 100% expensing of capital equipment for data centers. He says this is a separate federal leg on top of state-level restrictions. Clifton also tells clients the market has to adjust its capex forecasts and earnings expectations to a new reality where data center spending faces political limits, and that the market needs the range of policy outcomes to narrow before it can settle.

  “the Democrats are very clear that they have a mandate on data centers and they're going to use the debt ceiling as leverage to get Trump to take away 100% expensing of capital equipment for data centers.”at 38:20

• Josh Brown · Ritholtz Wealth Management

  Cloud providers with existing compute gain value if new data center buildout is restrained.

  Josh argues that if the industry builds less compute because of political pressure, the companies that already have large cloud compute capacity become more valuable. Microsoft, Amazon and Google are the top three clouds. Their stocks barely fell in the post-election selloff, which he reads as evidence that the market sees existing compute as more valuable than it was two days earlier.

  “I think the right stocks to pay attention to are Microsoft... Amazon and Google... Which are the numbers one, two, and three. Yeah. Clouds.”at 48:05

• Daniel Clifton · Baird Strategas

  Texas and Virginia moratoria and tax plans will constrain data center construction, starting with Texas.

  Clifton describes a Texas moratorium on data centers that Governor Abbott put in place. An energy audit is due December 10 and a public hearing December 17. The new Democratic-led legislature sits January to June, and he expects it to push data center taxes and environmental standards. He says Virginia's restrictions effectively killed Northern Virginia data center construction. He sees a negotiation between environmental groups and hyperscaler-funded business groups, which he thinks will take time but will eventually produce standards that constrain builds.

  “Virginia did it, and it killed Northern Virginia data center construction. We're still doing data centers in Richmond and outside Charlottesville, but we killed off the entire Northern Virginia data center.”at 56:12

US stock market outlook

• Josh Brown · Ritholtz Wealth Management

  Trump not contesting the result removed the tail risk that drove the post-election rally.

  Josh argues the data centers were a sideshow on election day. What drove the rally was that the result was not contested. Markets had feared Trump would contest states, which would mean Supreme Court fights and months of uncertainty. When he said he was not contesting it, the market rallied, with no revolution, no court battles and no war. He sees the next day's pullback as a hangover from having overreacted.

  “What really was being expressed yesterday is, oh, cool. No revolution. No court battles. No war.”at 35:13

• Daniel Clifton · Baird Strategas

  S&P 500 has not fallen over the 12 months after a midterm election since 1938; stocks likely rally.

  Clifton argues the post-midterm selloff is a pattern, not a regime change. He says the S&P 500 has not declined in the twelve months after a midterm since 1938. Josh's chart shows an average 12-month post-midterm return of +14.8%. He explains the mechanism: markets sell off in midterm years on worst-case assumptions, then investors look ahead to the next year. He adds that under every partisan split of the last hundred years, stocks were higher, so the party outcome matters less. He cites his own sixth midterm cycle and compares the current move to the post-2010 municipal bond selloff, which proved a great buying opportunity.

  “And I've always said the S and P 500 has not declined in the twelve months following a midterm election since 1938.”at 39:38

• Daniel Clifton · Baird Strategas

  Healthcare has outperformed in 12 of the last 14 midterm years; Clifton's house is bullish on healthcare.

  Clifton cites history: healthcare has outperformed the market in 12 of the last 14 midterm years, by about 10% on average. His firm entered the year bullish on healthcare and staples, which looked crazy in January but has played out. He is careful to say the trade is selective. Healthcare is not great in year three of a presidential term, so he warns investors about the Democrats' drug pricing agenda.

  “this is the twelfth midterm election year out of the last 14 where health care outperforms.”at 1:00:48

• Daniel Clifton · Baird Strategas

  Tech historically the worst sector for stocks in year three of a presidential term.

  Clifton cites the historical pattern that tech is the worst-performing sector in year three of a presidential term, which he notes is interesting given everything else going on in AI. He presents it as a caution for tech as the cycle moves into that year, in contrast to healthcare, which he likes.

  “as you go into year three of the presidential cycle... the worst sector for stocks in year three of a presidential term is tech”at 1:03:07

US elections & politics

• Daniel Clifton · Baird Strategas

  Voters have ousted the governing party in 10 of 11 federal elections since the financial crisis.

  Dan cites a stat: six Senate candidates won states that the other party's president had carried by more than 10 points two years earlier. In the prior 35 years there were five. He reads this as Trump's base not turning out, Democrats being energised and independents swinging the other way. He says the pattern can hold for a couple of cycles but has been cycling every two years, and he suggests social media may be a driver.

  “We've had 11 federal elections since the financial crisis, and the voters of this country have removed the party in power in 10 of those 11 elections.”at 16:23

• Daniel Clifton · Baird Strategas

  The midterms were a vote for moderation: new Democratic senators aren't Sanders-style and will seek deals.

  Dan says the Democrats who won Senate seats in Kansas, Iowa and South Carolina are not Bernie Sanders Democrats. Those winners will want to make deals with Republicans in Washington. Republicans facing 2028 races in those states will also want deals with them. He argues this makes the result a vote for moderation, and Josh says the market and social media are reading it differently.

  “the people who won on the Senate side for the Democrats in Kansas and Iowa, South Carolina, they are not Bernie Sanders Democrats. And that is a very important point because now they're going to come to Washington.”at 19:00

• Daniel Clifton · Baird Strategas

  Democrats should pass a congressional stock trading ban on January 3; corruption angered voters.

  Clifton travels the country and says voters, from Northwest Iowa to Des Moines, see corruption in gasoline, groceries, fertilizer, data centers, crypto and oil deals. He says voters care about corruption and that it is bipartisan. He argues that it would be malpractice for Democrats to campaign against corruption without acting on it. He says they should pass a congressional stock trading bill when they take office on January 3 to cement their credibility. He is skeptical it will pass, given the past failures.

  “On the congressional trading, I think at some point, the Democrats should walk in on January 3 and pass the bill. They will cement themselves.”at 1:08:15

US rates & the Fed

• Daniel Clifton · Baird Strategas

  Iran de-escalation should lower oil and rates, meaning fewer Fed hikes.

  Dan calls the interest rate story a big one. He argues that a directionally improved situation in Iran should bring lower rates. Lower oil prices would mean fewer Fed rate increases. The view is conditional on the Iran outcome and gives no timeline.

  “Well, I agree, and I think the interest rate story is a big one. If you get a directionally improved situation in Iran, you're going to get lower rates. If you get lower oil prices, you're going to get fewer Fed rate increases.”at 21:27

• Daniel Clifton · Baird Strategas

  Fewer data centers would let the Fed raise rates less, so data center policy matters for Fed policy.

  Clifton argues that data center buildout is a source of the inflation pressure that is pushing the Fed toward hikes. If states and Congress restrict data centers, the Fed chair would need to hike less. He says the market needs to see this link, because the Fed response to a data center slowdown is what will offset the economic hit.

  “[Kevin Warsh] needs to pay attention to what's happening in this data center stuff. Because if you are going to have fewer data centers, then he shouldn't be raising rates as much.”at 40:31

• Daniel Clifton · Baird Strategas

  Warsh's plan to shrink the Fed balance sheet via bank deregulation lets him hike less.

  Clifton says Kevin Warsh believes the post-financial-crisis model of growing the balance sheet raises money supply and inflation. He expects Warsh to deregulate financial services within weeks, lowering the reserve requirements banks must hold. Banks would then buy Treasuries and the Fed balance sheet would shrink. Clifton says each $250 billion of balance sheet reduction equals one fewer rate hike, which would let inflation fall without hiking as much as people expect.

  “For every $250,000,000,000 balance sheet reduction we get, that's one less rate increase I've to do.”at 58:41

Healthcare system & insurers

• Daniel Clifton · Baird Strategas

  No Medicare-for-all trade this time; health-care stocks are ripping despite the midterm result.

  After Trump's first midterm in 2018, the market priced in a Warren or Sanders nominee and crushed health-care and financial stocks for two years, a 'Medicare for all trade'. Dan says that is not happening this time. The midterm is about data centers rather than health care. Health-care stocks have been rallying through the election.

  “You're not getting it on health care. In fact, health care stocks have been ripping through all this.”at 19:40

• Daniel Clifton · Baird Strategas

  Medicaid managed care insurers rallied on Democrats avoiding OBBBA cuts; Texas expansion could add share.

  Clifton says Medicaid managed care stocks such as Centene and Molina didn't respond all election cycle, then jumped as the Democrats' win made it likely that the OBBBA Medicaid cuts would not come in. Those intermediaries get paid by the government to deliver services. He adds that the Texas legislature flipping matters, because Texas is a non-expansion state that could expand Medicaid, which would increase these companies' market share.

  “Centene, Molina, HEA, THC. These things are going nuts.”at 1:02:11

Pharma & biotech

• Daniel Clifton · Baird Strategas

  Democratic NIH budget increase will flow directly into life-science tools company earnings.

  Clifton says the Democrats want to increase the National Institutes of Health budget. He says every dollar that goes out of NIH shows up dollar-for-dollar in life science tools earnings. He matches federal spending line items to stocks through his colleague's work and says the correlation is tick-for-tick. He adds that AI for drug discovery is a direct beneficiary, as long as companies can get compute. Life-science tools stocks have been on fire, even though some names had bad earnings.

  “Democrats... increase in the National Institute of Health budget... Tick for tick, every dollar that goes out of NIH goes right in the life science tools earnings.”at 1:01:20

• Daniel Clifton · Baird Strategas

  Drug pricing will likely narrow to Medicaid global pricing within six months, with pharma headline risk.

  Clifton expects the Democrats' ambitious drug price cram-down bill, which might include 50 cram-downs a year and removal of the orphan drug exclusion, to be reported around Thanksgiving. He says it will never become law. Instead, the Democrats will trade pieces of it for war funding with the president. He expects Trump and Warren to push a Medicaid-focused global price, with Medicare as the bigger threat. Big pharma will lobby to keep the change on Medicaid, which is smaller. Headline risk will hit pharma names in the meantime.

  “And so the Democrats want to do 50 cram downs. That's probably too much. Trump will want to do this Medicaid... in six months from now, we'll probably end up with a global price on Medicaid drugs. It's very small.”at 1:05:26

US growth & recession risk

• Daniel Clifton · Baird Strategas

  Growth slowdown from 3% to 2% since the crisis fuels populism; 2028 could be a true populist election.

  Dan argues the economy used to grow around 3%, which gave enough real income to go around. Since the financial crisis growth has been around 2% for about 18 years. He estimates US households would be $5.6T richer at 3% growth. He says voters feel their standard of living is not rising, and because the establishment is not delivering, voters are moving to populists in both parties. He says the 2028 election could be the first real populist contest in a century, with a generational shift among the 40-year-old cohort.

  “the economy used to grow at 3%. There was enough real income to go around for everybody. When the financial crisis came, we went from three to two, and we have stayed there for, what is it, eighteen years now.”at 16:56

US Treasuries & yields

• Josh Brown · Ritholtz Wealth Management

  Interest rates should fall as a data-center slowdown means less debt competing with Treasuries.

  Josh argues that if the data-center build-out slows, less corporate debt has to be sold. That means less supply competing with Treasuries, which should push yields lower. He adds that everybody likes lower rates, especially if they are market-driven rather than set by the Fed.

  “Interest rates should come down. Absolutely. Because if the data center build out is gonna slow, that's less debt that needs to be sold. That's competing with treasuries.”at 20:25

US deficit & government debt

• Daniel Clifton · Baird Strategas

  US deficit will likely improve next year, a view out of consensus, as one-off stimulus rolls off.

  Dan says the deficit will improve next year even if a budget deal passes. This year had almost $1T of stimulus. Tariff refunds were paid after the Supreme Court struck down the IEEPA tariffs, so there is no tariff revenue flowing now. The One Big Beautiful Bill distributions were already banked this year and will not recur. Mechanically, the deficit narrows. He adds that because the deficit runs from a large base, private-sector growth must offset the fiscal tightening.

  “The deficit's probably going to get better here. This is a widely out of consensus view. Even if there's a budget deal, the deficit's probably to get better next year because we just did almost $1,000,000,000,000 of stimulus this year.”at 21:48

Power demand & the grid

• Daniel Clifton · Baird Strategas

  Louisiana can isolate data-center power from consumers, unlike PJM states where costs get blended.

  Dan explains why Meta's Louisiana Beignet project is going ahead without problems. Louisiana can go behind the grid, segregating data-center electricity from consumers so households are not paying for it. In the Northeast, the PJM interconnection mixes all load together, which creates confusion about who pays. Other states will try to copy the model but are not there yet. He adds that Louisiana is embracing the jobs and running a better PR effort.

  “Part of it, number one, is that they can go behind the grid. They can actually segregate the electricity away from the consumer.”at 28:01

Middle East & Iran

• Daniel Clifton · Baird Strategas

  Iran's IRGC will accept economic suffocation rather than deal, so the status quo likely persists.

  Clifton explains the IRGC's view: Iran cannot be seen to back down after being attacked, because failing to respond would be existential for them. He says the civilian leadership needs a deal, but the blockade and sanctions are working. He concludes the status quo is the most likely outcome, with negotiations going back and forth without a resolution that normalizes the strait.

  “So they're willing to get totally suffocated economically and not do a deal.”at 52:21

Oil & fuels

• Daniel Clifton · Baird Strategas

  Oil stays elevated until the Strait of Hormuz normalizes; Clifton is in the higher-for-longer camp.

  Clifton says the Strait of Hormuz is now driving every other financial asset, and oil only comes down if the strait normalizes. Oil has not fallen even though about 18 million barrels a day are still getting out. He is skeptical that the market's hope for a deal is realistic, because ending the war requires both sides to agree. He warns the market against assuming oil will fall quickly. He is open to lower oil but wants a plan that gets there.

  “I've been in the higher for longer camp.”at 53:04

Banks

• Daniel Clifton · Baird Strategas

  Next year's liquidity coverage ratio changes will really boost banks.

  Clifton describes a wave of financial deregulation under Warsh. It would unlock bank capital by reducing the reserves banks must hold, freeing them to buy Treasuries. He says the liquidity coverage ratio will be changed next year, and that this will really boost the banks.

  “Next year, we'll do what's called the liquidity coverage ratio and make changes to that, and that really boosts the banks.”at 58:41

Commercial real estate

• Daniel Clifton · Baird Strategas

  Real estate is weak now, but would benefit if Warsh cuts inflation without hiking as much.

  Clifton says his real estate clients are gloomy, and his meetings with them feel like funerals. He believes that if Warsh is successful and cuts inflation without raising rates as much as people expect, that will be a positive for real estate. He expects the improvement to show up in other sectors as well. This view depends on the Fed balance sheet strategy working.

  “I think that's going to be a positive for the real estate, and you'll start to see some of these other sectors.”at 59:10

GLP-1s & obesity drugs

• Josh Brown · Ritholtz Wealth Management

  GLP-1 drugs may be a bigger societal story than data centers, altering how people live.

  Josh relays Scott Galloway's view that however big the data center story is, GLP-1 drugs are a bigger deal. Josh agrees there is something big happening that will alter how society lives, even if it does not involve construction on the scale of data centers. He points to healthcare stocks rallying since September as growth managers look for secular growth outside AI chips.

  “I'm pretty sure GLP-1s are a bigger deal.”at 59:46