Morning Briefings
Expert market analysis delivered every morning. Stay informed with comprehensive research and data-driven insights.
‘It’s Always Something’
Though the stock market is back on record-high ground after a couple of big worries have dissipated, investors remain wary, sentiment readings show. Slowing economic activity has ascended to the top of their worry list. Today, Dr Ed examines how worrisome it is. True, some key recent economic indicators have come in weaker than expected. But that suggests a soft patch, nothing worse. The recent outperformance of four cyclical sectors associated with our bullish themes supports our long-term optimism on the economy. In any event, as long as inflation doesn’t rise problematically in coming months, the Fed Put is on standby. ... Also: Dr Ed reviews “Words of War” (+++).
Industrials, Homebuilders & Dancing Robots
Aircraft-related stock prices have been soaring recently, making the S&P 500 Industrials sector the number-one performer this year to date among the index’s 11 sectors. Jackie examines the reasons and highlights some of the sector’s standout industries and companies. … Also: KB Home’s shares barely reacted when the homebuilder reported disappointing quarterly results. That could mean investors are looking forward to a more hospitable environment for homebuilders, with lower mortgage rates and greater home affordability, notwithstanding what Fed Chair Powell has been telegraphing. … And in our Disruptive Technologies segment, humanoid robots are advancing—and dancing—by leaps and bounds.
On Asia, US Budget Bill & Q2 Earnings
Asian economies dodged a Strait of Hormuz closure after the US bombed Iran’s three major nuke sites on Saturday, June 21. Most of the oil and gas passing through the Strait—which Iran won’t be closing in retaliation for the US airstrikes—is bound for China, India, Japan, and South Korea. The close call was a wake-up call to strengthen their economies with structural reforms, William reports. … Also: Melissa compares and contrasts the Senate and House versions of Trump’s “One Big Beautiful Bill,” pointing out their best and worst aspects. … And: Joe shares industry analysts’ Q2 growth expectations for S&P 500 companies—which suggest a ninth straight quarter of y/y earnings growth.
What’s The Matter With China’s Consumers?
Yes, Trump’s tariffs are hurting China’s economy, but a bigger damper on GDP growth is anemic consumer spending, William reports. China is experiencing deflation and exporting it to the rest of the world. President Xi has tried to revitalize the consumer sector with insufficient measures that don’t get at the root of the problem: Chinese consumers prefer to save than to spend because there’s no social safety net. Moreover, consumer confidence is weak owing to slow wage growth and the property crisis. What needs to be done is no secret: The IMF has outlined the ambitious but feasible reforms it would take to revive China’s consumer sector sustainably. But the recommendations have fallen on deaf presidential ears.
Heatwaves
Saturday night, American bombers obliterated three key nuclear sites in Iran. We think Iran won’t retaliate and will sue for peace. … Meanwhile in the US, foreign tourists might not be crowding the airports as usual. If Trump’s America First blustering is keeping them away, don’t worry about the impact on US GDP—it would be too small to drag down the overall economy. … Dr Ed reviews the recent economic data releases, concluding that the resilient US economy is running neither too hot nor too cold. … The Fed made the right decision last week not to ease interest rates, in our opinion. But one FOMC participant and apparent Trump loyalist begs to differ.
Oil, Housing & Stablecoins
The escalation of war in the Middle East has caused oil prices to spike and thrown prior oil price forecasts out the window. Jackie takes a look at the dynamics affecting oil pricing in light of the recent hostilities. … Also: Rising housing market inventories have been doing a number on homebuilders’ financial results, as Lennar’s Q2 earnings shortfall attests. But better revenues and earnings are expected next year, and the beaten down stocks look poised soon to recover. … And: Is stablecoin the currency of the future? Both US lawmakers and major US banks are preparing for its widespread adoption.
Concentration Here & There
Much ink has been spilled on the Magnificent-7 stocks’ outsized influence over the S&P 500’s performance given the group’s huge share of the index’s capitalization. Are other stock markets of the world similarly weighed down (or buoyed up) by a few corporate behemoths? … That is the case for several stock markets in Asia, William reports, but not Japan’s. … Melissa discusses the European Union’s “steady giants,” which weigh in collectively at a hefty one-fifth of the EU MSCI’s capitalization and actually have outperformed the Mag-7 since 2022. … And Joe shares data on the Mag-7’s fluctuating share of the S&P 500’s capitalization in recent months.
Japan’s Rough Road, China’s Silk Road
Fear of Trump’s tariff impacts has already sapped the life out of Japan’s consumer sector, raising the specter of stagflation and thwarting the Bank of Japan’s tightening plans. If BOJ Governor Ueda fails to navigate the economy away from the shoals, he won’t be the first BOJ head set rolling by the Tokyo political establishment. William takes a look at his conundrum. … Also: China is taking full advantage of what it didn’t wish for, i.e., Trump’s Tariff Turmoil. As heavily tariffed Southeast Asian nations disengage from the US, China has begun framing its Belt and Road initiative—designed to unify the region and expand China’s power—as an alternative to US dependence.
China, Staples & Quantum Computers
Now that China and the US are negotiating nicely, Jackie explores the pain their standoff caused businesses on both sides of the Pacific and the compromises recently struck. Were investors who bet the new deals struck would benefit semi stocks be proven right? … Also: The S&P 500 Consumer Staples sector holds some industries with share price indexes that have surged northward in recent months and others that have surged southward. Today, we look at the two extremes and reasons for their disparate performances. … And: IBM announces a quantum-computing leap: It has discovered a way to make a “fault tolerant” quantum computer that corrects its own mistakes.
On Korea, Europe & US Earnings
With South Korea’s new president promising financial reforms that are bound to reward shareholders, the country’s stock market is sailing on a wave of optimism. The days of the long-standing “Korea discount” may be numbered, William reports. … Also: Melissa examines what the ECB’s recent rate cut telegraphs about the central bank’s intent going forward and the challenges it faces. … And Joe reports that S&P 500 companies’ collective forward earnings hit another record high last week, after not having done so since the week of Trump’s “Liberation Day.” However, analysts’ Q2 earnings sights are still low, despite last week’s uptick.
The Fed Remains On Hold
As investors, central bankers, and economists the world over await the US monetary policy decision to emerge from next week’s FOMC meeting, William and Ed assess where Fed officials’ heads are at. Their recent speeches don’t suggest urgency to ease, and neither do recent economic data releases. Inflation and unemployment, as of now, both are tame. But officials face extreme visibility challenges trying to make out what lies up ahead, as Trump’s unknown tariff impacts fog their views of near-term GDP growth, unemployment, and inflation. … Central banks around the world are navigating in the dark as well, blinded by the uncertain ramifications for their economies of US policy decisions—monetary, fiscal, and trade related.
Americans Are Still Working For A Living
Over the past three and a half years, the US economy has defied the recession expectations of many, remaining uncommonly resilient in the face of stress tests including Fed tightening, an oil price spike, and most recently Trump’s Tariff Turmoil. The economy’s strength despite these formidable challenges supports our base-case Roaring 2020s scenario (to which we assign 75% odds) and our still bullish S&P 500 targets. … A big reason for the economy’s impressive resilience is that the labor market has remained impressively resilient. Americans are working, secure in their prospects to keep working, so their spending hasn’t been slowed by tariff-related uncertainties. … Also: Notably not working is the protagonist of Dr Ed’s latest movie review, “Your Friends & Neighbors” (+).
Essential Minerals, Retail & Crypto
If only the US government had taken the threat of dependence on China’s rare earth minerals more seriously when it had the chance, China wouldn’t hold the trump card now. Jackie recaps the recommendations of a congressional study two years ago. … Also: Dollar store executives describe the budget-conscious consumer they saw last quarter and what Trump’s tariffs mean for their bottom lines. … And in our Disruptive Technologies segment: Major US banks are exploring whether to jointly issue a stablecoin of their own in response to competition from cryptocurrency players.
China’s Currency & Japan’s Stocks
Trump’s Tariff Turmoil has undermined the US’s credit worthiness and unsteadied the dollar. For countries harboring currency-dominance aspirations, that’s been a blessing in disguise. Today, William explains why China’s aspirations for the yuan won’t bear fruit anytime soon. … Also: The opportunity China is jumping on to recast itself as the world’s protector of globalization. … And: Japan’s stock market has been on a tear for the past decade. But whether spreading cracks in its foundation suggest overvaluation is a legitimate concern. Japan faces a stagflationary economic outlook, reform initiatives going nowhere, corporations struggling to reinvent themselves, anemic demand for Japanese bonds, and BOJ tightening plans now in limbo.
Stress Testing A Resilient Economy
How damaging to the US economy are Trump’s on-again, off-again tariff proclamations? The stock market is barely reacting to them anymore, but consumers remain worried about the inflation implications of tariffs, according to “soft” survey data. Even so, they’re still breaking out their billfolds, feeling well supported by the strong labor market. Indeed, the “hard” economic data confirm that the US economy remains remarkably resilient despite Trump’s Tariff Turmoil. Today, Dr. Ed walks us through the data as the US economy deals with Trump’s stress tests. ... Also: Dr. Ed reviews “The Narrow Road to the Deep North” (+).
Defense Tech, Nuclear Power & AI
Defense stocks are bifurcating: The underperforming have-nots are the big DOD contractors, with meager share price gains so far this year, if any. The outperforming haves are innovative defense tech companies redefining not only how war is waged in the AI era but how the DOD procures its weapons systems. Jackie discusses the investor excitement over defense tech. … Also: Nuclear energy is having its day in the sun, again. Trump is all for it, and even European nations are warming to the notion of reviving their nuclear energy industries. … And: If you fear AIs programmed for self-preservation at all costs, stay clear of Claude.
On The Euro, Brexit & US Stock Performance
The Trump administration’s protectionist policies have undermined the US dollar’s strength, but do they put its global supremacy at risk? No, there is no realistic contender among global currencies. Today, Melissa debunks the notion that the euro has a shot at usurping the dollar’s dominance. … Also: With Brexit five years in the past, EU/UK relations seem to be shifting. New agreements suggest the EU is softening its stance toward sharing member-state benefits with the UK. … Also: Joe discusses ytd performance data for major segments of the stock market, highlighting how their performances have diverged over the past few volatile months.
Japan’s Brawl With The Bond Vigilantes
After last week’s portentous Japanese government bond auction, in which demand was so weak as to be off the charts, William explains what went wrong and why. Contributing factors included the BOJ’s halted tightening owing to “tariff haze,” the Prime Minister’s unfortunate remark likening the nation’s fiscal situation to that of Greece, and vestiges of Japan’s economic past. But having Japan-specific causes doesn’t detract from investors’ fear that this auction was a canary in a coal mine, portending more upheaval for global financial markets and more difficulty for global policymakers amid Trump’s Tariff Turmoil. ... Also: The implications of Japan’s economic turmoil for the world at large and the conundrum facing the BOJ right now.
AI’s Worker Displacement, Consumer Spending & Robots
Tech companies are already putting AI to work to ramp up their efficiency and productivity and to pare down their workforces. Non-tech companies are sure to follow. Jackie takes a look at where this evolution stands today and where it’s likely headed. … Also: Home Depot and Hovnanian are two bellwethers of consumer spending trends, and their executives are seeing more cautious home-improvement and home-buying customer behavior. … And in our Disruptive Technology segment: The humanoid robots are advancing.
On US Treasuries, The Big Beauty & S&P 500 Earnings
The headlines were wrong: Global investors in US Treasury bonds didn’t beat a hasty retreat when Moody’s downgraded the US’s debt rating. A “Liz Truss Moment” it wasn’t. Asian investors and policymakers already knew what Moody’s had to say, William reports. So global demand for US dollars remains intact, though the dollar does face risks. … Also: Melissa shares her analysis of Trump’s tax-cut bill, which carries a hefty price tag. … And: Joe recaps data on which way the winds of industry analysts’ net estimate revisions have been blowing (hint: It’s not north).
On China & Euro
Intractable demographic problems are straining China’s economic system and thwarting policymakers’ attempts to battle deflation. Rapidly declining birthrates are providing fewer new consumers, and elderly Chinese are savers, not spenders. Amid these pressures, falling prices “take on a life of their own,” William reports. No wonder China’s annual GDP growth is projected to slow to 2% by the 2030s. … Also: A look at the complicated issue of China’s fentanyl trade—including reasons China isn’t keen on stopping it. … And: The dollar’s recent weakness has revived predictions that the euro might usurp it as reserve currency to the world. But “King Dollar” remains hard to dethrone.
Meltup In Stocks Or Meltdown In Bonds?
Two scenarios to put on your radar: Bond prices might melt down if the Bond Vigilantes are roused by the downgrading of the US’s sovereign debt rating and/or the prospect that Trump’s tax-cut bill worsens the federal budget deficit outlook and/or tariff-related inflation. But a bond market meltdown could force Washington to set the US onto a more sustainable fiscal path—a positive end result for bonds and stocks. … The stock market might already be melting up again. … Also: Consumers are worried about tariff-related inflation coming, sentiment surveys suggest, but they’re spending apace nonetheless. And that’s not just spending on stuff in advance of anticipated tariff-related price hikes; they’ve been eating out a lot too.
Green Projects, Semis & Star Power
President Trump’s policies are regrading industry playing fields across economic sectors. Jackie discusses some of the ramifications for the companies hurt and helped. … If Trump 2.0’s attempts to dismantle Biden’s Inflation Reduction Act succeed, they would pose existential challenges to many green energy projects—$8 billion of which were already canceled during Q1. … But semiconductor makers are beneficiaries of Trump’s trip to Saudi Arabia: Several just got a windfall of new orders from the Middle East. … Also: To power the AI systems of the future, new energy sources will have to be developed, says OpenAI’s Sam Altman. He’s reaching for the stars.
On Asia, India & US Earnings
Today, we look at how Trump 2.0’s trade negotiations are impacting Asian nations’ economic policy decisions. From his seat in Japan, William describes the collective sigh of relief when President Trump slashed tariffs on China Monday and what the news means to Asia’s central banks and financial markets. … Melissa reports that India’s economic policymakers no longer trust their eggs in the global trade basket but aspire to become the world’s third largest economy by boosting domestic demand. Their strategy: stimulate consumer spending and grow India’s creative economy. … Also: Last quarter was another strong one for S&P 500 earnings; Joe shares takeaways from the data.
More On China: Deflation& ‘Made In China 2025’
China’s insidious deflation pressures are now evident in its producer and consumer price data. Government measures to stimulate the economy haven’t addressed the cause of the deflation problem—that the Chinese spend too little and save too much in the absence of adequate social safety nets. China needs to take decisive action in three areas, William explains. But a failure to see the urgency can be costly, as Japan learned the hard way; entrenched deflation can be difficult to root out. … Also: Does China’s ambition to dominate world tech markets pose a clear and present danger to Silicon Valley? Not quite yet.