Morning Briefings
Expert market analysis delivered every morning. Stay informed with comprehensive research and data-driven insights.
On Nvidia, Stablecoins & AI Shopping Agents
Nvidia has been seeding its future demand by investing huge sums in companies that will likely grow into big purchasers of Nvidia chips. Will the investments bear the hoped-for fruit? Jackie has the story. … Also: The Genius Act brings guardrails and clarity to the stablecoin market, but some say the legislation doesn’t go far enough—leaving investors without guaranteed reimbursement if issuers fail. … And in our Disruptive Technologies segment: E-commerce evolves yet again with the arrival of AI shopping agents.
On CBO Outlook, Korea’s Troubles & S&P 500 Earnings
The Congressional Budget Office envisions a late-cycle slowdown of the US economy, with sharply lower labor force growth and budget deficits rising as GDP growth slows. Melissa shares highlights from the CBO’s September forecast and the BLS’s recent report on the shrinking share of foreign-born workers in the US labor force. … Also: South Korea’s economy is not up to meeting Trump’s tariff demands, William reports; an economic collapse is a real danger if they remain in force. … Joe reports that analysts’ estimate revisions activity for S&P 500 companies has staged a sudden, strong, and broad rebound—supporting the stock market’s recent strength.
On Japan’s Politics & China’s Alibaba
Two recent shockers have unnerved Japanese investors—the resignation of Japan’s Prime Minister Ishiba and the tapering of the BOJ’s stock market supporting ETF purchases. Bond Vigilantes, fearing that Japan’s huge debt will only swell under Ishiba’s successor, have driven 20-year government bond yields to a 25-year high, William reports. Neither frontrunner for the PM job is an economic reformer; either would likely continue the same old easy-money policies that have sapped Japan’s animal spirits. … And in a surprising twist, Jack Ma—the Alibaba co-founder who vanished after criticizing the Chinese government—is back and leading the government’s charge to dominate global AI markets.
Is The Fed’s Policy Restrictive?
The Fed’s 25-basis-point cut in the federal funds rate last week doesn’t change our S&P 500 price targets or our subjective probabilities of a meltup (25% odds) or correction (20%) by year-end. Today, Dr Ed explores the reactions to the rate cut in the markets for stocks, bonds, the dollar, and gold as well as the significant takeaways from the FOMC’s September 17 meeting. Notably, the post-meeting Dot Plot and press conference revealed less dovishness than many investors had expected. … Also: Dr Ed opines on the weird notion of an indeterminable “neutral” federal funds rate used to determine the restrictiveness of Fed monetary policy.
On Rates, Tesla & Labor Market Shifts
The Fed decided to do yesterday exactly what was expected of it. So its 25-basis-point drop in the federal funds rate barely moved the needle in Wednesday’s trading. But anticipation of the move has helped interest-rate-sensitive stocks outperform the broader market ytd. … Tesla’s board of directors has a bold plan to boost its market capitalization to $8 trillion, and it rests on the efforts of one man. Will CEO Elon Musk come through for Tesla? Jackie examines the marks he needs to hit to earn a ginormous payout. … Is artificial intelligence replacing recent college grads in the labor market, or are there other reasons for their difficulty breaking into their chosen careers?
On China’s Troubles, Slippery Oil& The Magnificent-7
It may not be as feasible as some think for China’s government to achieve its 5% annual GDP growth goal given formidable headwinds, including slow-moving economic reforms and the impact of US tariffs. William discusses the challenges that China faces and why Chinese equities investors who are counting on President Xi to save the day may be disappointed. … Melissa looks at supply and demand dynamics in the global oil market, explaining that the oil price may languish until excess supply is sopped up by demand. … The Magnificient-7 has staged an impressive comeback, Joe reports, with a record-high collective market capitalization and ytd performance that beats the S&P 500’s.
Indonesia Is Cautionary Tale For Emerging Markets
For many emerging markets around the world, Trump’s tariffs on their exports to the US are stressing economies that already were facing formidable challenges, William reports. The President of Indonesia has been making moves that undermine Bank Indonesia’s independence—shaking investors’ confidence, roiling the country’s financial markets, and risking destabilizing capital flight. Economic mismanagement in Indonesia also has triggered civil unrest. Other vulnerable economies, made more so by the US tariffs, include Brazil, India, South Africa, Turkey, Argentina, South Africa, and Thailand. Each is battling its own set of headwinds, but all seem to be in the same boat in a turbulent sea.
Dear Scott
A recent article by Treasury Secretary Scott Bessent takes aim at the Fed for its use of unconventional monetary tools and its mission creep. Today, Dr Ed addresses the Treasury secretary in an open letter, detailing where they agree and diverge on the Fed’s role and what monetary and fiscal policies are needed to sustain the Roaring 2020s scenario that both support. While an original aim of the Fed was to promote financial system stability, Bessent’s push for lower interest rates risks a stock market meltup and upward pressure on inflation and bond yields. … Also potentially destabilizing: The administration’s highly unconventional Genius Act, which would use stablecoins backed by US Treasury bills to increase demand for Treasuries and fund the federal debt.
The Eurozone’s Economy
It’s nice to buy stocks at relatively low valuations, but only if they aren’t cheap for a reason. European stock markets may be climbing a wall of worry that’s about to get steeper given a weakening economic and financial foundation, the likelihood that the European Central Bank will opt not to cut interest rates further, and several country-specific fiscal and political problems. Melissa discusses these and other reasons that Europe’s low relative valuations might not be going higher anytime soon. Investors would be well advised to proceed with caution and focus on European stocks with earnings growth rather than just low forward P/Es.
On Global Bond Yields & A Japanese Canary
Global debt markets are in disarray, with Bond Vigilantes driving up yields in various nations—including two that lost their leaders this week, France and Japan. William discusses global investors’ uncertainties regarding both countries as well as how President Trump’s actions have roiled financial markets the world over. … Also, Joe has great news: The S&P 500’s forward earnings have hit record highs for 16 straight weeks now. And participation is broad, with most sectors’ forward earnings—and stock price indexes—around their record highs. Plus, Joe reckons that Q3 earnings should grow y/y for all the sectors but one.
India Needs More Reforms
India’s economy is generating some serious steam—GDP is growing at a fast and accelerating clip, industrial production is at a record high, and inflation has dropped below the central bank’s target. But the stats don’t tell the whole story: William reports that India is in dire need of structural reforms to address unemployment and broaden the benefits of rapid growth to the entire economy. Without these and other reforms recommended by the OECD, the country is ill prepared to shoulder Trump’s 50% tariffs on exports to the US.
The Good, The (Not So) Bad & The (Relatively) Ugly
Our Roaring 2020s economic scenario and expectations for inflation and the labor market suggest that the Fed probably shouldn’t cut interest rates this year, although one cut might be warranted if upcoming inflation reports are more subdued than we expect. Yet a rate cut next week, after the FOMC meets Wednesday, is practically a foregone conclusion. Stimulating an economy that doesn’t need stimulation won’t create more workers to address the undersupply that’s constraining the demand for labor, Dr Ed explains. Plus, cutting rates when it’s not necessary could cause stock prices to melt up and destabilize the broader financial system. ... Plus, a look at the debt crises attracting Bond Vigilantes’ attention in the UK, France, and Japan. ... Also: Dr Ed reviews “Happy Face” (+ +).
On Retailers, Crypto SPACs & Green Sailing
If consumers are as depressed as sinking sentiment surveys suggest, you’d never know it by the stellar July-quarter results that retailers from all walks of the industry have been reporting. Jackie summarizes key points from the earnings reports of several. … A new kind of special purpose acquisition company has been born; its special purpose: to acquire not companies but cryptocurrencies. … And in our Disruptive Technologies segment: They may sail the ocean blue, but big shippers are going green. They’re starting to propel ships via alternative fuels, cutting their CO2 emissions dramatically.
On Europe’s Declining Influence, China’s Auto Glut& More Great US Earnings
Internal discord among the EU’s member nations portends fragmentation and waning geopolitical influence, reports Melissa. … China’s EV industry, BYD in particular, had been booming until recently. Now it faces formidable headwinds from within the country and without; William discusses. … Joe’s data on consensus expectations for S&P 500 companies’ aggregate Q3 earnings suggest that investors can look forward to a third straight quarter of above-trend, double-digit-percentage y/y growth.
Europe’s Debt Trap
A new wave of sovereign risk is washing over European economies, with the UK and France most vulnerable as they navigate fiscal fragility, political instability, and cratering bond market confidence. Will the UK and France need bailouts from the IMF’s limited funds? Are they “too big to save”? William examines how each country got to this point of debt reckoning and how Trump’s tariffs have upped the stakes. The Bond Vigilantes, he warns, smell blood. … Also: Not only in Europe have Trump’s actions—his tariffs and attempts to abolish the Fed’s independence—rained problems on world economies.
Nvidia, Data Centers& The MIT AI Report
Nvidia investors were underwhelmed by yesterday’s impressive earnings report with surging revenue growth; its shares sold off in after-market trading. Jackie looks at what's been driving the performance of the company and its stock. … Also: AI-related stocks have been surging, so why have data center REITs—which own the buildings where AI resides—been sinking? Read on. … And: some takeaways that investors may have missed in MIT’s recent report on how generative AI is changing the ways companies do business. So far, the impacts have been disruptive mainly in tech and media, but the promise of future transformative effects remains.
On US Labor Market, The Dollar In Asia & SMidCaps
The balance of risks in the US labor market is shifting, as Fed Chair Powell discussed at the Fed’s Jackson Hole Symposium last Friday. Today, Melissa breaks the labor market down into its moving parts, identifying the areas of strength and weakness with reference to Powell’s views. … Also: Don’t short-change the US dollar; its global supremacy is secure for solid reasons that William explains. …And: Joe discusses the wild ride that sent US stock market indexes plummeting and soaring so far this year and where it has deposited the major ones at this point in time.
Trump's Tariffs Unsettle Japan & Latin America
The potential for lower US interest rates, a weaker dollar, and Trump Tariff Turmoil have created one big headache for Bank of Japan Governor Kazuo Ueda. William explores how Japan’s central bank will weigh the need to stimulate its economy to offset declining exports with the need to continue normalizing interest rates. If the Fed cuts rates and the BOJ hikes them, the yen-carry trade could be at risk. … Latin America faces its own Trump Tariff Turmoil. Our southern neighbors are increasingly sending their exports to China and would suffer if tariffs trigger a global economic slowdown. Diversifying their export base could be part of the solution.
The Chair Has Spoken
Fed Chair Powell’s eagerly awaited speech at the Fed’s Jackson Hole Symposium on Friday fanned stock investors’ hope that the FOMC would lower the federal funds rate in September—despite Powell’s hedges and the fact that upcoming data releases will figure into the decision. Notably absent in his speech was mention of the Fed’s need to maintain financial system stability if it is to achieve either goal of its dual mandate. Easing in September could test that stability, test the Fed’s commitment to its 2.0% inflation target, and test the Bond Vigilantes’ patience. But it would be good for the stock market. We’re maintaining our targets for the S&P 500 price index of 6600 by year-end 2025 and 7700 by year-end 2026. ... Also: Dr Ed reviews “Grizzly Man” (+ + +).
On Retailers, Small Caps & AI Powered Brains
Retailers’ earnings reports offer a window into recent consumer behavior. Tariff-related uncertainty hasn’t slowed consumer discretionary spending and perhaps has buoyed it, but consumers do seem reluctant to make big purchases requiring financing, Jackie reports. … Also: Small-cap stocks have been outpacing their larger counterparts in recent weeks for the first time in a long while. A look at why. … And: Brain-computer interfaces, controlled by thought, aren’t just the stuff of sci-fi: Sam Altman, Elon Musk, and others have firms working on implantable AI devices that operate alongside human brains. The merging of humans and AI is inevitable, says Altman; but when it happens, will humans retain the upper hand?
On China’s Economy & S&P 500’s Record Earnings
China’s stock market has been strong, up 20% since April, as investors appear to be downplaying the potential consequences of the tariff war with the US. But with China’s weak economic underpinnings, we’re not so sure that’s wise. William discusses the reasons Chinese stocks may be overvalued, the governmental decisions that led to China’s economic predicament, and the challenges ahead for Team Xi. … Also: “Stunning” is Joe’s word for the degree by which S&P 500 companies that have reported Q2 results so far (most of them) collectively overshot analysts’ earnings estimates: nearly 9%!
Talking Fed Heads
To cut or not to cut? Fed Chair Powell’s speech at the annual Jackson Hole symposium on Friday may hint at which way he’s leaning. The stakes of the FOMC’s September 16-17 meeting decision could hardly be higher: The economic support for a federal funds rate cut is dubious amid a resilient economy, Dr Ed maintains, and unwarranted cutting could invite the Bond Vigilantes, a stock market meltup, and financial system destabilization. Yet the Trump administration is pushing hard for a rate cut, and investors widely expect one. William parses the viewpoints of individual FOMC members and a dovish Trump loyalist who looks likely to be on the committee in September—making at least three rate-cut advocates at the table.
Another Candidate For Fed Chair
Dr Ed is sticking to his guns: He has contended since early last year that the US economy is too resilient and inflation is not close enough to 2.0% for Fed officials to muck around with easing. The widespread expectation that they will ease anyway in September is lifting stocks, and the actual event may cause a stock market meltup. The bond market’s reaction to unwarranted easing is tougher to gauge. If it causes the Bond Vigilantes to drive up yields, the Fed’s reputation as inflation fighters could be shot. Recent inflation data suggest inflation could use some fighting, as Trump’s tariffs may be keeping it elevated above the Fed’s target 2.0% and services inflation remains hot. ... Also: Dr Ed reviews “The Gilded Age” (+ +).
On the Farm, Rare Earth Minerals & Optical Semiconductors
Farmers in America’s Heartland are hurting as crop prices are dirt cheap. Supplies are high, and international demand has receded in the wake of Trump’s tariffs. Jackie discusses their situation. … Also: The US/China trade deal waiting to be struck holds high stakes for both sides, which sits well with neither. As China races to produce high-end semiconductors at home, the US is scrambling to do the same for rare earth minerals. … AI data centers are notorious energy hogs. Researchers are exploring ways to transmit information using light instead of electricity and capturing an array of benefits.
On Trump's Fed, Global Inflation & S&P 500 Earnings
President Trump appointed Stephen Miran, a Trump loyalist and chair of the Council of Economic Advisers, to fulfill the remaining days of Fed Governor Adriana Kugler’s term. William explores Miran’s historical stances, including his calls for lower interest rates, reforming the Fed, a weak dollar, and aggressive tariffs and trade policies. … Global inflation has decelerated sharply from elevated pandemic-era levels, but it has been relatively sticky recently. Melissa parses the data to see what’s keeping inflation aloft and whether tariffs are having an impact. … Analysts’ net earnings revisions for the S&P 500 are increasingly positive, Joe reports. They’ve grown more optimistic about earnings in the Communications Services, Information Technology, Financials, Utilities, and Industrials sectors.