Markets Wrap Up a Shaky Q1 & Elon Musk Sells ‘X’ To... 'xAI'
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Good morning, Brew Daily Show. I'm Neil Freiman. And I'm Toby Howell. Today, why Elon Musk sold one of his companies to Elon Musk. Then we'll recap the wobbly first quarter Wall Street has had to kick off the year. It's Monday, March 31st. Let's ride.

What a difference 200 miles makes. On Saturday, New York City was in full-on summer mode as temperatures reached 80 degrees. But just above I-95, the weather could not have been any different. On the same day, people living in Boston were hit with freezing rain and temps in the mid-30s.

That 45 degree temperature gap between Boston and New York City isn't just good material for small talk. It's history. Meteorologists said it was the widest temperature difference between the two cities on record. Meanwhile, in Connecticut, they couldn't decide which side to take per usual. I mean,

It was snowing briefly in Boston. Meanwhile, you and me, Neil, we were golfing in short sleeves. The farmer's tans were coming out in droves. Really drives home what they say about Boston, though. New York prices, Chicago weather, Scranton culture. Oh, you're doing Boston dirty.

Now a word from our new sponsor, TaxAct. Toby, you look a little pale today. What is going on? Well, first of all, Neil, it's been winter, so I'm not exactly sun-kissed, but also it's tax season. Needless to say, I'm a little nervous. I am sweating over here. Relax. TaxAct is there to soothe your beating heart. It simplifies tax filing for both your small businesses and your individual taxes. And if you bundle them together, you can save some cash. But Neil, you know me. I always have a million questions like,

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Today is

It is the final trading day of Q1, and Wall Street's 2025 is off to a start you'd expect from the Chicago White Sox. Nothing has quite gone according to plan, with the S&P 500 fresh off recording its fifth weekly loss in the past six weeks, as it digested some less-than-stellar economic news. The tech-focused Nasdaq is also officially in correction territory, as the Magnificent Seven has labored in Q1.

But here are some other storylines as we look to close the chapter on the first three months of the year. First up, European stocks are suddenly hotter than Portuguese, period, period. After years of the U.S. lapping the global pack, the playbook flipped in Q1. Tariff uncertainty weighed on American markets.

While Europe's promise to boost defense spending sent local stocks flying, the S&P 500 now trails Europe's stocks index by nearly 17 percentage points, the biggest gap ever recorded, according to Bloomberg.

One reason why the U.S. is now the global laggard, our MVPs, the magnificent seven mega cap stocks, are tossing up more bricks than Tennessee in the first half. Nvidia is down over 20% and Tesla has dropped more than 30%. In all, they have lost nearly $2 trillion in market cap so far in 2025 after driving half the gains for the S&P 500 last year.

Still, there have been hints of good news. Other companies outside the magnificent seven are quietly thriving. One ETF, excluding the big boys is actually up in 2025. I'll be at just over 1%. So Neil, I think the best way to sum up Q1 was that it was better spent doing anything other than looking at your brokerage account. The sports metaphors were strong in that one, Toby. So kudos on that. Yeah. Let's start by looking internationally. Uh,

because we do focus a lot on the United States, but there were a lot of fireworks afield. I want to start with China, actually. So they have their own Magnificent Seven, and that includes big tech companies like Alibaba, Tencent, BYD, which is this EV maker, Baidu, JD.com. They are soaring. The MSCI China index has jumped more than 30% since the end of August. DeepSeek was sort of their open AI.

breakthrough moment for artificial intelligence and investors have been plowing money into the Chinese stock market, whereas for years it had been kind of stagnant. So there's been a real changing of the guard over there. You mentioned Magnificent Seven stocks have shed $2 trillion in value. Terrific 10 is maybe another name to know over in China, where they're absolutely soaring. So we've seen the script flipped a little bit. And a little bit more on China. China typically

in the past has moved in tandem with emerging markets because it was classified as an emerging market for most of the early 2000s. If you look back in history, Chinese shares rose 63% from 2009 to 2010. The broad gates of emerging markets climbed 103% over that same time. Go back to 2016, 2017, China stocks up 50%. Emerging market shares rallied 46%. But now they are out

pacing that emerging markets, you know, widespread ETF. The MSCI China index is up 30% since the end of August, while the gauge of equities in emerging markets is dropped only 7%. So we're finally seeing those two paths depart. And you're right, because it is with this AI hype, plus the car manufacturing hype from BYD. So yeah, China has been a big winner.

Transitioning to the other part of the world, Europe has also been a massive winner. We've spoke about them a lot on the podcast so far. A lot of it is due to Germany kind of changing its tune on its fiscal policy, saying that we're going to invest more into defense spending. Defense stocks have been the MVP over there. And meanwhile,

U.S. stocks are just having kind of a nightmarish start to the beginning of the year. Tariff threats, you know, inflation sticking around. We had this major inflation reading on Friday that didn't come in. So it came in too hot, actually, which is why, you know, suddenly the U.S. is this

I called him the laggard of the global economy because right now we are. Let's talk about that report on Friday. It was a true double whammy. So there was this inflation measure that comes out, which the Fed is really keyed in on. It shows inflation and then it also shows consumer spending. And

We went 0 for 2 because inflation came in hotter than expected. It rose by 0.4 percent in February. It picked up pace for the fourth straight month. And then you had consumer spending did not go up at all, went up 0.1 percent. So you're seeing less consumer spending, higher inflation. That is a recipe for what has become sort of the boogeyman on Wall Street, and it

right now, which is this word called stagflation, where you have higher inflation and lower growth, and it leads to really bad outcomes for the economy and as well as the stock market. One example of this is Goldman Sachs has this basket of stocks that do really well in stagflation times. There aren't many, but there are a few like in defensive sectors like health care, which thrive during recessions. And that is up nearly 20 percent this year compared to the S&P 500's 5 percent drop. I think

zooming out here in the early days of this administration, it's definitely paid to hedge your best. The US stock market in general has been a little troubled. So if you've taken a broader view, looped in some more global stocks, looped in some bond holdings, actually, domestic and foreign bond holdings, that classic 60-40 portfolio construction that a lot of people used to have, that's

It's almost like nothing has happened this year. That is basically pretty level on the year so far. So it's almost like returning to a throwback era of investing before, you know, the AI bubble before, or not bubble, just AI stocks started ripping instead of before the magnificent seven, you know, put the entire stock market on its shoulders. There was just this classic portfolio construction of 60-40. And it looks like that has been the best way to kind of hedge off against some of these uncertainties that have been gripping the stock market.

Or if you've invested in gold bars and those are lining your holes because gold is up 17% this year already for its best start to a year since 1986.

You know that meme where Obama gives himself a medal? That's kind of what Elon Musk just did with parts of his business empire. On Friday, the world's richest person said he had sold X, his social media company, to XAI, his artificial intelligence company. According to Musk, the all-stock deal values XAI at $80 billion and X at $33 billion, down from the $44 billion he spent on Twitter.

So why do this? Isn't this basically just shuffling money around? Musk said that the deal cements that XAI and X's futures are intertwined. Today, he declared, we officially take the step to combine the data, models, compute, distribution, and talent.

Outside observers, such as Axios' Dan Primock, also added an important piece of context. This is an attempt to prevent his ex-investors from losing money. Remember, at one point, X's value had plunged 70% from when Musk bought it, and while business has rebounded,

It remains on shaky financial footing. Toby, while this was a surprising announcement, the writing had been on the wall since X and XAI were sharing loads of resources and Elon Musk has pulled off something similar among his various businesses. What do you think this link up says about his ambitions? Well, I think one, you're totally right that it just offers this resolution for X back

who have probably been nervously looking at that announcement. It was discounted heavily just a few months ago because of just this exodus of advertising revenue. Now those backers are basically made whole again at an evaluation very similar to what Elon Musk originally acquired Twitter for back in 2022. But also, I think this has a lot to do with giving Grok

XAI's LOM a pretty unfair and unique advantage because remember, Grok has been trained on this huge amounts of data culled from X. All those posts go into feeding XAI's Grok chatbot. And now they have full control over that data set. They can control how they use it, but also they can control what other companies get to train themselves on that data. So it makes a lot of sense giving XAI this

this fountain of proprietary data that they can now use to try to separate from the pack of this very crowded space of LLMs. Which is why some analysts look at this deal and said, hey, that was pretty smart. I could see other smaller players in AI and other smaller social media players

doing similar things. Maybe they don't have the same owner, but they might link up in order to gain scale and command higher valuations. I mean, the valuation for XAI at $80 billion, that's more than the combined market values of Snap, Pinterest, and Reddit. Right now, Google pays Reddit to train its large language model on Reddit data. Well, what if they were the same company?

They would also have training data and they would have distribution like Grok has. Grok is a large language model that anytime you log into Twitter or X, you can see it being used. So it might spur more partnerships, maybe even some mergers between smaller players in AI like Anthropic or Perplexity and smaller players in social media like Snap, Pinterest or Reddit.

And this is just straight out of the Elon Musk playbook. He loves combining his various companies, not just financially like he just did, but also he loves using employees to work across multiple companies. So this is not the first time that we've seen basically him treat his employees

empire, for lack of a better word, as a single entity where everything is shared across each different company. So this tie up we probably should have seen coming. It makes sense on just so many levels. So now it finally happened. And in 2020 and 2016, Elon Musk did something similar when he used Tesla stock to buy his other company, SolarCity.

Okay, let's head to our winners of the weekend, the segment where Toby and I pick two things whose Sunday morning eggs were sunny side up. I won the pre-show extreme ironing contest, so I get to go first. And my winner is fraudsters because some of the most notorious white-collar criminals of the past several years are now free men.

On Friday, President Trump issued a flurry of pardons to business leaders who were found guilty of fraud. The first pardon went out to Trevor Milton, the founder of electric truck maker Nikola, which is now bankrupt. Milton was sentenced to four years in prison and fined

$1 million after he was convicted by a jury of fraud for misleading investors about the capabilities of Nikola's trucks, pumping up the stock with unfounded claims. When asked about the pardon, Trump said it had come highly recommended by many people he knew. Trump also granted clemency to Carlos Watson, the media executive who founded Aussie Media. When Watson heard the news, he was

literally on his way to report to prison to serve a 10 year sentence for fraud. In July, Watson was found guilty of fraud for inflating revenue figures when courting investors and lying about having completed business deals that were either made up or not finalized during the sentencing. The judge told Watson, the quantum of dishonesty in this case was exceptional. Watson maintained his innocence throughout. And on Friday said, I am profoundly grateful to president Trump for correcting this grave injustice. Toby, big,

weekend in the world of fraud. Yeah, there are certainly some damning anecdotes that will go down in infamy from two of those cases that you just mentioned. I mean, Trevor Milton, the founder of Nikola, will go down to the Mount Rushmore of fraudsters because at one point he was rolling one of their trucks down a hill and passing it off as if it was

operating under its own power source. That anecdote alone is just an insane business lore story right there that ended up with him, yeah, being convicted of fraud. And then also do not sleep on what happened at Aussie Media because that is a crazy story. Aussie COO at the time, Samir Rao, allegedly hopped on a call with

Goldman bankers as they were trying to court this big investment from them and pretended to be a YouTube executive. He used a disguised voice to hype up Ozzy's partnership and performance prospect. They were trying to get $40 million out of Goldman. So these are two just insane fraud business stories that

Now both of them are kind of walking free, but just taking a trip down memory lane to reacquaint myself with these two stories. It was truly a wild time in business media. And while those two guys were walking free on Friday, another fraudster is awaiting her prison sentence because Charlie Javis, remember her? She's that Forbes 30 under 30 who founded this fintech, Frank Frazier.

which sold to JP Morgan for $175 million, was convicted of fraud for, quote, falsely and dramatically inflating the number of the company's customers. After JP Morgan bought Frank, they had a ton of buyer's remorse because they sent out this email to the supposed list of more than 4 million Frank customers only to return just a few small percentage,

percentages of those emails. Turns out that Javis and one of the other executives at Frank had been artificially inflating their email list. So now Javis was convicted by a jury on Friday, and she awaits a prison sentence later this summer. Up next, we have my winner of the weekend.

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My winner of the weekend is hitting dingers because with a new bat design, the New York Yankees cooked up for this season. It's looking like you're going to be seeing a lot more home runs on Saturday. The Bronx Bombers hit a team record nine home runs against the poor Milwaukee Brewers, then followed up that performance with a four home run game. The next day, Eagle Eye fans were quick to note that the bats that some players were using looked a little different.

They were shaped almost like bowling pins, with more mass concentrated in the middle near the sweet spot rather than spread evenly throughout the barrel. This design was not the result of an affinity for torpedoes, but rather the work of an MIT physicist on the payroll named Aaron Lenhart. Despite his lofty credentials, his explanation for the design tweak was not exactly rocket science.

Really, it's just about making the bat as heavy and as fat as possible in the area where you're trying to do damage on the baseball, he told The Athletic. In other words, make fat bat hit ball hard. Now, I know what you're thinking. Yankees, controversial performance edge.

Is this cheating? The answer is no. The bats appear to comply with MLB regulations. League rules specify that bats must be no longer than 42 inches, no thicker than 2.61 inches, and made of solid wood. And these Yankee bats violate none of the above. Neil, as a Red Sox fan, how do you feel about these new Super Bats? Why?

aren't we using them? I mean, if the rule states that they just have to be a certain dimension and made of a solid piece of wood, it is kind of mind-boggling that the folks in Major League Baseball around the teams haven't figured this out sooner, and we've been using the same design bat for decades, but I guess that's just how disruption works. You kind of think insularly and not outside the box, like this guy does, Len Hart, and it's a very fascinating story that shows how analytics

has really infiltrated the game of baseball and sports more broadly. Last year, Aaron Judge, the star of the Yankees, was complaining that the analytics department was not speaking to the players in a simple enough fashion. So the analytics department, who are all these data nerds, are complaining.

you know, finding these insights, they're reviewing tape, they're, you know, running computer programs. But when they would try to translate those insights to the players, it wasn't a good communication system. So what the Yankees did was hire this guy at Lenhart, who is this former MIT physicist who taught physics at Michigan for seven years. And, you know, he's on that side of the ball, but he's also a,

former baseball coach as well. So he's the perfect marriage between what these two emerging trends in the game, he can bring things together. And he also had this, you know, remarkable design for a bat that is probably going to be the hottest product since the Stanley cup. What is funny though, is that these bats aren't actually universally adapted by the Yankees at

at all. Aaron Judge, who you just mentioned, for instance, isn't making the switch. He basically said, have you looked at what I've done over the past few years? Why would I fix what ain't broke? And he's been hitting the most home runs on the Yankees. So part of it is also maybe just a placebo effect. Volpe, another player on the Yankees, said a lot of it is just looking out at your bat and you see how big the barrel it is.

It's exciting. I think any 0.001% mentally that could give you confidence helps. So maybe it is just as much of a mental placebo effect as it is actually boosting performance. But I do think you're right. When people, this whole weekend, people on social media were saying like, how did no one think about this? Like put more mass where you hit the ball. Like it seems so simple, but at the same time, it did take, you know, an M by T physicist to think outside the box and actually make this switch.

Moving on, fans of the HBO series White Lotus have been treated to a buffet of uncomfortable moments this season, ranging from funny to completely unwatchable while in the vicinity of your immediate family. But officials from one particular Southern university are not enjoying the highly rated third season at all, and that is Duke.

Duke has played a prominent supporting role so far, one that doesn't portray the Blue Devils in the best light. One of the show's main characters, Timothy Ratliff, who is played by Jason Isaacs, a.k.a. Lucius Malfoy, is a businessman and a Duke alumni who is on vacay in Thailand. Now, I'll pause here if you haven't seen the show yet because spoilers ahead.

Seriously, you've had your chance. All right, if you're caught up, you know that Ratliff is the subject of an investigation for some financial crimes, and his son Saxon, who is also a Duke alum, has an interesting encounter with his brother. The legal situation causes the elder Ratliff to spiral. He steals his wife's anti-anxiety meds and also gets his hands on a resort security card's gun.

In one scene, he has the gun to his head while very conspicuously wearing a Duke Blue Devils shirt, leading to some observations around the internet as to how useful that particular screen grab could be if Duke loses in March Madness. For fans of the show, it's been an entertaining and memeable plot point, but for Duke officials, the show has gone too far. Frank Tramble, a VP of comms at Duke, said in an email that the show, quote,

And now this interesting IP legal battle has emerged. Is HBO legally allowed to use the Duke name and brand in such unflattering ways?

How far do trademark protections extend? And most importantly, Neil, will Duke win the national championship? Because I really need them to for my bracket. They'll probably win the national championship, but they probably won't win any legal case against HBO or the White Lotus because under the First Amendment, artists have really strong protections to use well-known trademarks for artistic and expressive purposes. Just think of...

of Saturday Night Live. Jeopardy probably does not like that they use celebrity Jeopardy to make raunchy jokes for decades, but they can because this is a free country. We have the First Amendment and you can use trademarks in your artistic work. What you can't use a trademark for is to do people into thinking you are Duke when you're not

So say you started a college and then you called it Duke University and had similar branding, obviously has the same name that probably wouldn't fly under trademark law. But when you're making art like Mike White does with White Lotus, you have a wide latitude. So legal experts chimed in on this case and said that, you know, Duke as a business doesn't really have.

any case here to pursue legal action, but they can complain. I mean, this is not the first time this has happened to, I mean, you know, the adages, there's no such thing as bad publicity, but in fact, a lot of brands have kind of gone through this same thing that Duke is going through right now. The most recent one that is top of mind is Peloton who had to do a lot of damage control after a reboot of sex in the city had someone exercising on a Peloton die. And I'll leave it at

that because again spoilers the company said that at the time yes they approved their usage of peloton bike in the show but they didn't know exactly how it was used and tried to walk back

Okay, it's Monday, so here are the major events you need to know about in the week ahead.

Everyone is watching what tariffs will be announced on Wednesday, which President Trump has dubbed Liberation Day. Depending on the size and extent of the tariffs, it could lead to a reorganization of the global economy we haven't seen in decades. On Wednesday, Trump has vowed to place reciprocal tariffs on all countries that tax imports from the United States, while the next day, 25% tariffs on foreign cars will go into effect.

We should also expect countries to announce retaliatory tariffs against the U.S. that day, sending this trade war into nuclear territory. In a sign of just how impactful these tariffs will be, some auto dealers across the country were packed this weekend as Americans scrambled to buy cars before prices rise. Again, nothing is certain until it happens. And some of these orders are reversed as soon as they are given.

But this is a risky trade war, as we've spoken about. Stocks don't like it every day. American budgets don't like it. Businesses don't like it. But what we'll see here is if A, if these tariffs happen, B, if they're like broccoli, bad in the moment, but good for you long-term, or C, maybe they're like moldy broccoli, bad in the moment and bad long-term. So that's kind of the options that are branching out in front of us ahead of this quote-unquote liberation. Yeah, 48 hours, we still have

Really no idea what's about to come down the pipeline, but really the global economy hangs in the balance. Even as tariffs dominate Wall Street shadow, investors will face another big test on Friday with the jobs report. Economists estimate that employment growth is expected to have slowed to 128,000 jobs added in March from about 150K in February. And special attention will be paid to whether Elon Musk's sweeping Doge layoffs are

of the federal workforce will show up in the data. Yeah, the jobs market has been one of these shining lights. It's been steady. It's withstood a lot of pressure from different parts of the economy. This is truly a make or break it moment. Not make or break it, but we'll actually see if jobs

Doge's effects are going to show up in the jobs report because it has been steady. And if that steady drumbeat starts to falter a little bit, that's when things get a little bit more dicey. And remember the TikTok ban? Well, time to start thinking about it again, because on Saturday, Trump's extension that delayed a U.S. ban on TikTok will expire, meaning the Chinese app could leave app stores once again, as it did in January. Trump is trying to get Beijing to greenlight a sale to a U.S. entity by relaxing tariffs.

But if that doesn't happen by Saturday, which doesn't seem to be in the cards, Trump said he'll extend the deadline again. Yeah, I think that little China tidbit is something that's very interesting to look like because Trump has acknowledged that this—

deal will only get done with China's approval. So maybe a little reduction in tariffs is floating down the pipeline. So it is funny how TikTok has suddenly become part of this trade war and has become part of this global reorganization of trade. So every time you're swiping through a video, just know that you could be influencing the direction of the global economy. Can it still be March Madness if it takes place in April? Sure. Why not? The men's final four is set and it's

All number one seeds, Florida will play Auburn and Duke will play Houston on Saturday. The winners will face off in the championship game a week from today. And then on the women's bracket, the final four will be solidified today. South Carolina and UCLA have already punched their ticket to the final four. On the women's side too, I think you can't sleep on UConn. Paige Becker's dropping 40 the other day. Everyone forgot how good she was in the Kaitlyn Clark madness, but she is amazing.

Absolutely her. As for the men's, I can confidently say that a number one seed is taking home the crowd this year. And this is the first time that it's been all number one seeds in the final four since 2008. And nothing bad happened in 2008. So I'm sure that's not an omen whatsoever. All right, let's wrap it up there. Thank you for starting your morning with us and have a wonderful start to the week. For any questions, comments, or feedback, send an email to morningbrewdailyatmorningbrew.com.

Let's roll the credits. Emily Milliron is our executive producer. Raymond Liu is our producer. Olivia Graham and Olivia Lake are our associate producers. Uchenna Waogu is our technical director. Scoop Stardaris is on audio. Hair and makeup, we need a torpedo mic stat. Devin Emery is our chief content officer and our show is a production of Morning Brew. Great show today, Neil. Let's run it back tomorrow.