Morning Briefings
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Tarrifying BRICS& Stagflating UK
President Trump’s aggressive tariffs on the BRICS nations could backfire. They have breathed new life into the bloc’s ambitions to depend less on US markets and to undercut the US dollar’s significance in global trade. William explores the BRICS’ ideal scenario and why it may not be realistic. … The Bank of England faces a fork in the road: It cut its benchmark interest rate last week even though the UK’s inflation is the highest among the G7 countries. The prospect of stagflation looms. But the path forward should be clearer soon, as a tariff deal with the US has been struck.
Why Are Stock Prices Still Rising?
With recent economic releases on the weak side, why have stock investors been taking the bad news in stride and pushing the S&P 500 ever higher? Dr Ed examines this question, offering four possible explanations: Investors expect the Fed to ease in September, although we’re not totally convinced the Fed will—or should. Recession fears have receded, helping to justify higher valuations. Productivity rebounded during Q2, and subdued unit labor cost increases helped to contain inflation. Finally, the Digital Revolution will continue to drive economic growth—supporting our Roaring 2020s scenario.
On Semis, Consumers & AI Advertising
Another day, another tariff target. President Trump’s news Tuesday that new tariffs on imports of semiconductors are coming soon got a muted negative reaction from semiconductor companies’ investors, who on the whole have been tolerant of Trump’s Tariff Turmoil. Jackie discusses where the industry’s players and investors find themselves at this point in time. … Also: Disney’s and McDonald’s earnings reports shed light on consumer demand trends last quarter. …. In our Disruptive Technologies segment: AI is taking advertising and marketing to a whole new level of targeted relevance, and it’s working.
On US Housing, Canada, & S&P 500 Earnings
The US housing market is haunted by poor affordability, Melissa reports; that’s why sales have been moribund despite supportive household wealth and income statistics. Would-be buyers are spooked by affordability challenges, and would-be sellers are averse to trade their low-rate mortgages for much higher ones. It will take lower interest rates and/or lower home prices to jumpstart sales. … Also: William discusses how Canadian policymakers are thinking about US tariffs. Tariff uncertainty has already stopped the central bank from easing, but prolonged uncertainty might be better than cutting a hasty deal. … Also: Joe assesses the strength of Q2 from the results of the three-fourths of S&P 500 companies that have reported so far.
A Passage To India
Trump’s pivot on India from friend to foe, punctuated by a higher US tariff rate than expected, hit India watchers by surprise. Trump’s dismissal of the country’s importance to the West hurts Prime Minister Modi politically and India economically, William explains. A third of India’s foreign investment comes from the US. But the world’s fifth-largest economy is far from “dead,” as Trump proclaimed. GDP growth has been outpacing China’s, and the nation has big aspirations to position itself at the center of global supply chains and to become a developed nation by 2047.
Relax, Folks: Jobs Report Was OK
Yes, payroll employment rose less than expected in July, and, yes, revisions pegged it lower than initially thought during May and June. That doesn’t mean demand for labor has slacked off, as the extreme reactions of the financial markets suggested. The payroll weakness says more about the supply of labor than demand for it. Indeed, the two are in balance, which Fed Chief Powell even said last week. Other labor market barometers indicate strength: Hours worked are at a record high; so are wages—even adjusted for inflation. Companies aren’t firing more, though they are hesitating to hire so the duration of unemployment is up. The uncertainties related to Trump’s Tariff Turmoil might account for that. ... Also: Dr Ed reviews “Untamed” (+).
On Health Care, Industrials & Robots
The Health Care sector is the S&P 500’s most anemic performer ytd. But its downtrodden valuation might leave lots of room for upside on the slightest good news. And some of its component industries aren’t ailing at all. Jackie examines how Trump 2.0’s legislative initiatives have hurt some Health Care industries and benefited others. … Also: Boeing’s turnaround has sent its share price soaring and lifted the fortunes of its suppliers as well. … And: Humanoid robots are fast becoming smarter, cheaper, and more skilled than ever, as a recent global AI conference showcased.
Big Deals For Europe & Japan? Better Earnings For S&P 500?
While many European officials rue the US/EU trade deal struck last weekend, others accept it as the least bad of the EU’s options. One important benefit, William explains, is that it clears the uncertainty that’s been clouding the way forward for European policymakers and companies. … Japan and the US also have struck a trade deal, but in all uncertain terms. Both countries herald the agreement as a win but are on different pages about what it entails. … And Joe reports that better tariff clarity and strong Q2 earnings have raised analysts’ Q3 revenues and earnings sights for S&P 500 companies, with most sectors enjoying estimate pops.
On Bonds In Japan& Tariffs On South Korea
Japan’s Bond Vigilantes are riling the historically placid Japanese government bond market. Demand for JGBs has tanked, and now the risk of a destabilizing yield curve is likely to stay the Bank of Japan’s hand at its meeting this week, delaying its tightening push. Political uncertainty has the Bond Vigilantes fearing budget-busting fiscal loosening. William explores how Japan got to this point and what may come next. … Also: South Korea’s economy has rebounded impressively despite strong headwinds, and it’s not the only export-dependent Asian nation displaying remarkable resilience in the face of Trump’s Tariff Turmoil.
Update On The Roaring 2020s
Halfway through the decade, our Roaring 2020s investment theme remains on track. The US economy continues to prove remarkably resilient, supported by the robust spending of businesses and consumers, especially Baby Boomers. So far this year, it has been acing the stress tests of Trump’s trade policies. If the final years of the decade pan out as expected, Dr Ed reckons that the S&P 500 price index may be around 10,000 as the 2030s begin. And there’s no reason to expect the roaring to stop then.
On Materials, New Highs & AI Shopping Assistants
Tariffs and a resilient economy have helped boost many metals’ prices. Jackie looks at how that has helped steel producers and other companies that are able to pass along the higher prices to customers. Not all companies are so lucky, however. … Another day, another S&P 500 record. We take a look at the diverse group of industries helping to power the index higher. … And in our Disruptive Technologies segment, we go shopping with AI Assistants.
On 100% Depreciation & Brazil
One of the perks in the One Big Beautiful Bill Act is 100% bonus depreciation. Melissa analyzes why this tax break might have less of a macroeconomic impact than some anticipate. Bonus depreciation changes when an asset is expensed, not how much of it is expensed. That said, a small tax break is better than no tax break at all. We believe capital-intensive industries will benefit. … William looks at why Brazil continues to underperform, despite robust trade with China. The country needs to address its skyrocketing inflation and crushing debt levels, especially now, when it’s likely to get caught in the crosshairs of Trump’s Tariff Turmoil. … Q2 earnings season is underway and Joe reports that the traditional earnings hook is forming. More unexpected: Earnings forecasts for the second half of this year are rising.
Less-Grand Bargain with China & The View from Abroad on Powell Mess
President Donald Trump reversed course and allowed Nvidia to resume sales of its H20 chips into China. Could this change of heart indicate that the President is willing to bend on other trade matters as well? William explores whether the President might accept a “less-grand bargain” that can appease both US and Chinese politicians. … Meanwhile, foreign investors and analysts are growing uneasy about Trump's recent threats to fire Fed Chair Jerome Powell. Here’s what folks on the outside looking into the US are saying. … We don’t believe President Trump will fire Powell. But, just in case, we examine the credibility crisis that could ensue if he does.
Foreigners LOVE American Securities
Like Blanche DuBois, the US Treasury has been dependent on the kindness of strangers, particularly foreign investors. Doomsters warn that foreign investors are losing their confidence in US Treasuries and in the US dollar. Yet, the Treasury's latest TICS data show that they remain strong buyers of US debt. In addition, they’ve bought a record amount of US equities over the past 12 months. Dr Ed reviews the latest data and discusses the implications. … Also, Dr Ed reviews “The Children Act” (+).
On Banking, Trucking & AI Financial Analysis
The big banks reported strong earnings, but most of their stocks have struggled to keep up—perhaps because the good news is already priced in. Restructurings in recent years at Citigroup and Wells Fargo may give both banks new room to grow, Jackie reports ...Meanwhile, the freight slump rolls on: J.B. Hunt’s Q2 margins were squeezed by rising costs, and now the trucker faces demand uncertainty as Trump’s tariffs reshape supply chains. ...Disruptive Technologies examines AI programs that perform financial analysis. Wall Street's wizards should take note.
On Japanese Bond Vigilantes, Trump’s Method & Earnings Surprises
Japanese bond yields have risen to their highest in decades as monetary policies and fiscal initiatives conflict at a time rife with uncertainties related to the nation’s elections and US tariffs. William discusses the forces that are rousing the Bond Vigilantes of Japan. … Also: Melissa finds method in Trump’s tariff madness, sharing six reasons that Trump’s accelerated tariff aggressions might make sense for the United States—balanced by detractors’ arguments. … And Joe’s Q2 earnings revisions data suggest that estimate reductions may be overdone, so, he says, don’t be surprised if Q2 reporting season brings big earnings surprises.
On The Dollar, BRICS & Hong Kong’s Currency
The BRICS has expanded well beyond the original four developing nations that the bloc was named for, but it hasn’t gained might in the process. On the contrary, says William, bulking up has backfired, putting the BRICS’ aspirations to rival the Group of Seven further from reach. … Also: The Hong Kong Monetary Authority has been struggling to keep the city’s currency pegged to the US dollar amid China’s deflation, Trump’s trade wars, and the Fed’s uncertain direction. Lately, it has been draining liquidity to shore up the currency—and hurting the local economy in the process. Are the peg’s days numbered?
Trump’s Reign Of Tariffs Ain’t Over
We had expected that Trump’s Tariff Turmoil would have subsided by now, and investors probably assumed the same since the financial markets have been so okay with it all in recent weeks. But the resilience of the economy, the moderation of inflation, and the calmness of the markets seem to have emboldened the President: He has not relented on his tariff war with the world as expected by now but seems to be escalating it again. That’s even though high tariffs are bound to hurt US corporate profit margins, the US economy, and the GOP’s slim majority in Congress after the midterm elections. What now? Dr Ed shares his thoughts and maintains his yearend price target for the S&P 500. ... Also: Dr Ed reviews “Outrageous” (+ + +).
On Banks, Crypto & Nuclear Fusion
Banks and brokerages are beneficiaries of Trump 2.0 policies, particularly the reduced regulations they’ll be bound by. The S&P 500’s Investment Banking & Brokerage industry and its Diversified Banks industry have record-high earnings expectations and the ytd share price outperformances to show for it, Jackie reports. The Regional Banks index can’t boast that. But trading at a much lower P/E and with rosy earnings rebound prospects, Regional Banks may be the more interesting play. … Also: Cryptocurrency companies want to break into traditional banking; three so far have applied for US banking charters. … And: Scientists are making headway harnessing nuclear fusion as an energy resource.
On China’s CBDC, Europe & Earnings
Digital currencies are coming, but the US and China are taking opposite stances on the form they’ll take. Trump favors stablecoins issued by private-sector companies and forbids the US from pursuing a central bank digital currency (CBDC). Xi wants to take China’s CBDC global, hoping the digital yuan (a.k.a. e-CNY) will give the dollar a run for its money. William discusses why China’s initiative won’t be the dollar-killer Xi hopes. … Melissa briefs us on how the EU’s economy and markets are doing and the challenges facing ECB policymakers. … Joe reports that analysts’ confidence in the outlook for S&P 500 companies is back; they’ve stopped their tariff-related estimate slashing.
On US Labor Market& Tariffying Vietnam
The labor market has held up well in the face of Trump’s Tariff Turmoil, and the financial markets were cheered by June’s higher-than-expected payroll employment. But Ed sees more weakness than strength June’s employment report. The fact that our Earned Income Proxy derived from the data was flat suggests that June’s consumer spending likely weakened too. Nevertheless, consumer spending and employment should improve during the second half of this year as retiring Baby Boomers continue to spend their nest eggs. … Also: Vietnam, the first nation to accept President Trump’s tariff terms, is embarking on ambitious economic reforms. William discusses the long to-do list.
Trump & Bessent Versus Powell & The Bond Vigilantes
President Trump is determined to lower the interest paid on government debt one way or the other. One way is replacing Fed Chair Powell with a Trump loyalist who tries to convince the rest of the FOMC that the federal funds rate must fall, the data be damned. Another involves replacing maturing long-term Treasury bonds with short-term Treasury bills until long-term bond yields fall enough to refinance advantageously. Such “Yield Curve Control” requires the cooperation of US Treasury Secretary Bessent (which Trump has) and the Bond Vigilantes (which he doesn’t). Is it a clever way to lower the federal government’s net interest outlays or is it a catalyst to capital markets turmoil? ... Also: Dr Ed reviews “The Four Seasons” (++).
On Travel, Semis & AI’s IQ
While Americans have been traveling a lot and by all modes available, the flight paths of travel industries’ stock indexes so far this year are all over the map. Jackie explores what’s up—and down. … Also: The S&P 500 Semiconductor stock price index has been volatile this year, knocked akilter by the tariff turmoil. Yet analysts’ expectations for company fundamentals have been steady and impressively so, with nearly 40% earnings growth expected this year and 30% next. The caveat is a historically high P/E. … And in our Disruptive Technology segment: The debate over how intelligent artificial intelligence realistically can ever become.
Gold & S&P 500 Earnings
Monetary authorities around the world are stocking their national reserves with gold, driving up the metal’s price. De-dollarization is on the agendas of nations that are US adversaries for sure. The move to gold started after the US froze Russia’s reserves when the country invaded Ukraine in early 2022. President Trump has contributed to the move with his debt-defying fiscal policy and attacks on the Fed’s independence. William examines these trends and asks: Is the dollar’s supremacy at risk? … Also: Joe chronicles the wild rollercoaster rides of three stock groups during the year’s first half: the S&P 500, the Magnificent-7, and the “S&P 493.”
On Global Bond Markets & Latin America
When Trump’s Big, Beautiful Bill passes, it will likely make deficits larger and increase the debt over the next 10 years. The US bond market hasn’t been batting an eye. Was former US Vice President Dick Cheney right when he said in 2002 that federal budget deficits don’t matter? They’ll certainly matter if too much US government debt triggers a financial crises, which continues to be a no-show, William points out. … Latin American markets are coming into favor as global investors seek shelter from trade risks and Middle East uncertainties. Their several advantages include low valuations and rich natural resources, including rare earth minerals.