Daily Research Updates
Morning Briefings
Expert market analysis delivered every morning. Stay informed with comprehensive research and data-driven insights.
Trump’s Crypto Reserve Put & US GDP Math
Bitcoin’s value surged when Trump posted his support of a federal “strategic crypto reserve.” If Uncle Sam were to invest in cryptocurrencies, bitcoin would no longer be independent of government influence—and neither would the financial markets broadly. Today, Ed explores the potentially significant implications of the notion in advance of the White House’s first Crypto Summit on Friday. … Also: A look at the math of how recent trade and PMI data chopped the Q1 real GDP growth projection of the Atlanta Fed’s GDPNow model. We’re more sanguine than the model, expecting January’s weakness to be temporary; we see Q1 real GDP growing between 1.5% and 2.5% y/y.
Testing The Resilience Of The US Economy
We continue to bet on the resilience of the American economy. Yes, the Atlanta Fed’s GDPNow model lowered its Q1 GDP forecast significantly on Friday. The volatile model swung in response to January’s surge in imported goods ahead of Trump’s tariffs. In addition, consumer spending was depressed by a colder-than-usual January, but consumer spending and the model are bound to rebound in February. Eric explains why we believe pessimism about the economic outlook is unwarranted. … Also: The uncertainty introduced by Trump 2.0’s flurry of aggressive actions has lured bears out of their caves. Eric provides counterarguments to their most common growlings. ... And: Dr Ed pans “Zero Day” (-).
Homes, Earnings & Clunkers
Are homes looking sweet again? Home Depot and Lowe's Q4 results beat analysts' expectations and could continue to improve if consumers tap their home equity, Jackie reports. While that bodes well for the S&P 500 Home Improvement Retail industry’s earnings, prospects for the S&P 500 Homebuilding industry look more dubious. … Also: A look at which sectors and industries offer investors attractive earnings growth prospects at far lower valuations than tech stocks. … And not all startups we’ve spotlighted in past Disruptive Technologies segments have gone on to glory. A look at some of the flashes in the pan.
On Bitcoin, India, And S&P 500 Earnings
Today, Eric examines MSTR’s strategy of levering up to buy bitcoin via equity and debt issuance. It’s worked great until recently; but if the value of bitcoin were to continue to plummet, MSTR could be in trouble. We think bitcoin is here to stay; MSTR may not be. … Also: Melissa reports that India’s financial markets have become speculative and its GDP growth has cooled from its former blistering 8% y/y rate. But the government has a plan: “Make India Great Again” aims to grow India into the world’s third largest economy by 2030. … How supported by earnings are recent S&P 500 valuations? Joe shares timely data on which way the estimate revisions winds have been blowing.
DOGE & The Deficit
Federal spending needs to be cut to pre-pandemic levels relative to GDP, in our opinion, and we’re confident that Trump 2.0 can do so. But DOGE may not be the way that is achieved. The new department’s bold early initiatives seem misaligned with the administration’s goals. ... However: A look at how Trump 2.0 may be able to ease pressure on the fiscal deficit by increasing domestic production and overhauling global trade to remedy imbalances. We’re optimistic that these approaches will work, which supports both our Roaring 2020s economic outlook and Stay Home investment strategy.
A Tale Of Woes
While Ed and Eric have been accentuating the positives in the stock market outlook and also acknowledging the negatives, investors and many commentators seem suddenly to be doing the opposite. Today, Ed outlines both the concerns that dragged the stock market off its midweek record high last week and our base-case Roaring 2020s scenario (55% subjective odds). Even if a 1990s-style meltup was followed by a meltdown (25% odds), we’d expect that meltdown to be short-lived. That’s because our productivity-driven Roaring 2020s economic scenario would still be buoying corporate earnings. … Also: what we’re monitoring to assess the concerns that have weakened the market in recent days, thus focusing our attention on our “bucket list” of what could go wrong (20% odds). ... And: Dr Ed reviews “SAS: Rogue Heroes” (+ +).
On Crude Oil, Valuation & AI
The Q4 earnings of Occidental Petroleum provides a case study in how an oil producer can grow earnings at a time when global production is outpacing consumption and oil prices are weak. … Also: It’s not just the richly valued Information Technology sector that has propelled the S&P 500’s forward P/E well above its historical average. Multiples have expanded over the past year for nearly all S&P 500 sectors. Today, Jackie examines valuation inflation among non-tech sectors. … And: A look at the upgrades to AI LLMs and AI agents that serve as personal assistants—smart enough to get on your computer and do errands from shopping to posting.
European Renaissance?
The EU is suffering economically, its growth slowed by internal hurdles that act as unintended tariffs. Melissa examines a grand new plan to reinvigorate economic growth, but YRI is skeptical of its success. Investors in European stock markets, on the other hand, seem suddenly optimistic on the region’s outlook unless bargain-basement valuations are the appeal. ... Also: Eric explores the market ramifications of Europe’s finally spending on its own economic and defense security. … And: How did S&P 500 companies fare last quarter? Judging by the results in hand so far, very well: Nearly three-fourths grew their revenues from year-ago levels, and almost as many grew earnings.
The Gunfight At DOGE City
The Bond Vigilantes aren’t saddling up just yet, but they’re on high alert, Ed reports. They’re watching to see whether anti-DOGE gunslingers will cripple the new federal department or whether DOGE will root out sufficient government inefficiencies to enable Trump 2.0 to slow the budget deficit’s growth and proceed on its tax-cut plans. The stakes are high for the US economy and financial markets, as the Bond Vigilantes have never carried more firepower in their holsters. Fortunately, Treasury Security Bessent is keeping the administration mindful of that. … Also: Eric puts January’s retail sales report in sanguine perspective and discusses industrial production data suggesting a rolling recovery in US manufacturing. ... And: Dr Ed reviews “September 5” (+ +).
On Tariffs, IPOs & AI Tools
Trump 2.0’s various new tariffs have multiple aims. Regarding China, the administration hopes that the additional 10% across-the-board tariff on all imports from the country will spur the Chinese government to slow the flow of fentanyl into the US. Jackie reports on how China has responded. … Also: Investors have bid up stocks in the S&P 500 Financials sector in hopes that many will benefit from Trump 2.0’s business-friendly tax and capital market policies. Will the IPO market continue its gradual rebound of recent years? This week will be telling. … And: A look at the AI apps office workers have embraced.
On Liquidity, Tariffs & Earnings
The Fed doesn’t always make the right decisions. But there’s next to no chance that it will mismanage liquidity and overly stress short-term funding markets, Eric explains. The Fed would end its quantitative tightening before that happened. … Also: Melissa delves into the motivations behind Trump 2.0’s tariffs. The newly announced global steel and aluminum tariffs are matters of national security, seeking to promote US independence from foreign sources of these critical metals. Coming soon will be reciprocal tariffs that aim to level the playing field in global trade. … Also: Joe assesses how Q4 results are shaping up among S&P 500 and Mag-7 companies that have reported so far.
Roaring 2020s & Reciprocal Tariffs
Dr Ed is on the road more often these days visiting YRI accounts around the US and abroad. His “Roaring 2020s Tour” focuses on the resilience of the US economy over recent years and reasons that it should continue to expand, with no recession, through the rest of the decade and maybe even into the 2030s. That should keep the US stock market rising to record highs. … True, the Roaring 1920s ended badly, with a crisis that trade wars escalated until the US implemented reciprocal tariffs that could be negotiated down with individual nations. We don’t expect a repeat of the trade war scenario, as Trump seems to favor reciprocal tariffs.
Anatomy Of Full Employment
When others saw labor market weakening last summer, we saw normalization from the settling down of pandemic-period churn. Our labor market outlook remains constructive. The growth of the labor force should continue to slow, but demand for workers will remain strong, keeping the labor market needle at full employment. Strong productivity gains from widespread AI adoption and a full-employment labor market should spur robust real wage growth. Strong wage growth should keep consumer spending growth and GDP growth strong. All this should keep our Roaring 2020s economic scenario on track. Indeed, January’s labor market data confirm every aspect of our outlook. ... Also: Dr Ed reviews “Mothers’ Instinct” (++).
Palantir, Semis &Tesla’s Big Year
Nvidia remains king of the AI play, but another AI company has been turning investors’ heads: Palantir. This government supplier has also been saving corporate America much time and money with its AI software solutions. Jackie recaps takeaways from the company’s recent conference call, including insights about the commoditization of LLMs, competitive threats from China, and the opportunity that is DOGE. … Also: Semiconductor chip makers reported mixed December-quarter results. … And: Tesla plans impressive product launches in the areas of autonomous vehicles, electric trucks, and humanoid robots. But the humanoid competitive playing field is crowded.
Investing Outside The Mag-7
We continue to recommend overweighting the US stock market in global portfolios. While valuations might be lower in foreign markets, Eric explains, we don’t see enough economic justification to abandon our Stay Home stance for a Go Global one. Within the US stock market, we like large caps, particularly S&P 493 companies, which should expand profit margins as they adopt productivity-boosting technologies. If volatile macro news provides opportunities to buy underappreciated Value stocks on dips, be sure those dips aren’t traps. … Also: Joe reports that among Q4 reporters to date, Financials sector firms have outperformed on several metrics. He also updates us on analysts’ estimate revisions trends.
Trump’s Tariffs: The Art Of The Deal
Trump’s tariffs are about much more than money. They support his agenda to reshape America’s relations with each of the affected nations to the exclusive benefit of the US, Melissa explains. The vision of this consummate dealmaker amounts to no less than a realignment of global trade in support of America’s national security and economic interests. … We’re not worried that the tariffs will spark an upward inflationary spiral; Eric walks through the reasons. If the tariffs were to trigger a global trade war, its effects could slow US economic growth; but that’s not our base-case outlook.
Anatomy Of Gross National Product
Why is the US economy so strong? Look in the mirror: The consumer is the engine of growth. Yes, technological advancements will continue to buoy GDP, as will Trump 2.0 deregulation and lower taxes. But consumer spending accounts for nearly 70% of real GDP. We reject the notion that consumer spending will slow in the face of depleted saving and other drags; it’s too resilient, which is why the economy is so resilient. Likewise, we don’t expect capital spending to slow notwithstanding a weak Q4; companies still have much to gain from investments in AI and other technological innovations. That’s the linchpin of our productivity-led Roaring 2020s outlook (55% odds) and higher S&P 500 price targets for the rest of the decade. ... Also: Dr Ed reviews “Woman of the Hour” (+).
Transports, Insurance& More AI
The S&P 500 Transportation Composite has been on the move this year, Jackie reports, especially its Airlines and Railroad components. Airline traffic is up to pre-pandemic highs for the big players, and so are their earnings and stock prices. Budget airlines aren’t faring as well. Rail loadings are up, though the S&P 500 Rail Transportation index isn’t yet reflecting the strength analysts see in revenues and earnings this year and next. … Also: Insurers exposed to the California wildfires are fuming over the state’s market interventions, but the share prices of two rose after managements’ Q4 earnings calls. … And: Is DeepSeek a mouthpiece for the Chinese Communist Party?
On Eurozone Stocks, BOJ Policy& More On AI Stocks
Eurozone stock markets have been performing well and sport much lower valuations than the US stock market. But their valuations are lower partly for index composition reasons, Eric explains, and we still have plenty of economic and political concerns about the region. So we don’t recommend rotating into Eurozone stocks, preferring our Stay Home investment stance. … Also: Melissa discusses the markets’ reactions to the Bank of Japan’s recent rate hike and the likely path of Japanese interest rates looking ahead. … And: Now that DeepSeek has rocked the world of AI and taken a chunk out of the Magnificent-7’s collective valuation, Joe asks: Is it time for the S&P 493 and the Equal-Weight S&P 500 to shine?
Gray Swan
Chinese firm DeepSeek has taken the evolution of AI to a new level with its cheaper Language Learning Model. As investors scramble to digest the ramifications for stakeholders in US-made AI, Ed and Eric share their perspective. It’s not a Black Swan event but a Gray Swan, holding potential positives and negatives. Although it disrupts the AI status quo, it should speed the proliferation of AI and the realization of associated productivity gains. … Also: The stock market’s historically high valuation doesn’t worry us. Even if the Mag-7’s P/Es take a hit owing to DeepSeek, we expect that the P/Es of the S&P 493 could go higher. Earnings growth should support valuations. … And: How DeepSeek might affect the Fed’s thinking.
Anatomy Of The Bull Market (Will DeepSeek Sink It?)
The current bull market has been driven mostly by valuation expansion; now valuation is historically high. We expect earnings growth to perpetuate the bull market this year; any more valuation expansion could leave the market vulnerable to a meltdown. Our year-end target for the S&P 500 is 7000, based on a solid rise in earnings with no further valuation expansion. … Much of our optimism rests on the Magnificent-7 remaining magnificent. If they don’t disappoint investors, the S&P 500 likely won’t either given their hefty collective share of the index’s market capitalization. … However, a competitive threat to their magnificence has emerged from China: DeepSeek, with reportedly cheaper AI. Could DeepSeek deep-six the Mag-7? ... Also: Dr Ed reviews “American Primeval” (++).
Trump Makes His Mark& China’s AI Players
Trump’s flurry of executive orders on his first day in office upended the playing fields for various industries in a bunch of fell swoops. Jackie reports on the winners and losers and discusses what the changes will mean for corporate America as regulatory roadblocks disappear, trade policy is overhauled, and federal agencies operate under new rules. Energy policy will now favor oil and gas over green fuels, and government efficiency efforts will benefit high-tech players. … In our Disruptive Technologies segment, a look at China’s AI ambitions and the Chinese competitors that US players are up against.
On Trump 2.0, Global Growth, Argentina & S&P 500 Profit Margins
It’s evident how much policy uncertainty is baked into the dollar’s value from its whipsawing during the first two days of Trump 2.0 in reaction to changed expectations regarding the timing of the new tariffs. Despite concerns of higher prices and a trade war, there's the potential for tariffs to expand manufacturing capacity, which would be disinflationary. … Also: Melissa shares highlights from the IMF’s new global GDP growth projections and discusses why we think the Argentinian stock market is one to watch. … And: Joe recaps data on S&P 500 companies’ forward profit margins, which have been on the rise across most sectors.
Time To Recalibrate Our Three Scenarios?
Expectations for more rate cuts this year than previously expected buoyed both bond and stock markets last week. The prior week was bad for both markets as rate-cut expectations diminished. But last Thursday’s comments by Fed Governor Waller that fueled the turnaround were wrong-headed, in our opinion. If inflation follows the course he expects down to 2.0%, the Fed’s dual mandate would be achieved so it wouldn’t need to ease further. … Upon reassessing our subjective probabilities for three alternative outlooks for the economy and markets, we’re sitting pat. Our base-case scenario (55% chance) remains the Roaring 2020s. … Supporting that scenario: Baby Boomers flush with wealth and spending it. … Dr Ed reviews “Nowhere Special” (+).
California Insurance & Big Bank Earnings
Southern California’s devastating wildfires couldn’t have hit at a worse time. The regional insurance market has been in a dysfunctional state of flux, as some insurers have fled the risky market, others have hiked premiums to account for the risk, and many homeowners have opted to go un- or under-insured as a result. Jackie surveys the damages and what they’ll mean for insurers and residents. … She also recaps takeaways from the big banks’ strong Q4 earnings reports yesterday—an auspicious start to what should be a great earnings season.