Daily Research Updates
Morning Briefings
Expert market analysis delivered every morning. Stay informed with comprehensive research and data-driven insights.
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.
‘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.