Morning Briefings
Expert market analysis delivered every morning. Stay informed with comprehensive research and data-driven insights.
On The Fed, The ECB& Growing Earnings
Fed officials presume that Trump 2.0’s tariffs will lead to one-time price increases. But should the Fed look through “transitory” inflation effects, or are they underweighting the risks of sustained inflationary pressure? … Melissa reports that Trump 2.0’s policies toward Europe have spurred fiscal measures there that take the European Central Bank off the hook for supporting the economy; no one expects the ECB to ease further anymore. … And: Joe reports that the S&P 500 companies should post “back-to-trend” y/y earnings growth this quarter.
Meet Scott Bessent
The actions of Treasury Secretary Scott Bessent will be key to how the financial markets react to Trump 2.0’s economic agenda. Today, Eric shares insights into Bessent’s beliefs and proposals, which may have overly concerned investors recently. Bessent would take a gradual approach to lowering the budget deficit and the dollar, mindful not to stir up market volatility. The dollar’s global dominance is not at risk, nor is the Fed’s independence. … Investors can also relax about the Fed’s decision to slow its balance-sheet paring. It doesn’t represent monetary easing or the end of QT. It’s just a practical measure to lift pressure on reserve balances and should barely affect Treasury yields.
The Fed’s Economic Forecast Versus The Consensus & Ours
Investors clearly fear a recession is coming—that’s what the recent stock market correction suggests. The consensus of economists probably puts the prospect of a recession at 35% (as we now do). Fed officials likely expect to avert a recession by lowering interest rates; FOMC meeting participants dropped their GDP projections last week to 1.7% this year. As for us, we see a fork in the road. One way leads to stagflation, which includes the possibility of a recession (35% odds). But our base case remains the Roaring 2020s (65%), in which a tech-led productivity boom lifts profit margins, propels GDP, suppresses inflation, and fuels wage growth and consumers’ buying power. ... Also: Dr Ed reviews “I’m Still Here” (+ +).
China, War & AI
The Chinese government has unveiled a wide-ranging plan to lift its economic growth, this time by propping up consumption instead of trade. Jackie summarizes the many diverse initiatives to put more power in the pockets of Chinese consumers. … Also: When the US quietly reversed its official position on the independence of Taiwan, an enraged China reacted with a show of military might. Melissa explores the disconcerting notion of a World War III triggered by these tensions. … And: In which industries and professions might AI displace jobs?
Global Rotation
With the US stock market underperforming many international equities markets, we’ve been warming to a “Go Global” stance—though we don’t advise a major shift given the possibility of a punishing global trade war. Today, Eric assesses the stock market fundamentals in major economies. We still aren’t keen on China. … Also: Melissa reports on the green shoots evident in European and Asian economies. … And: Joe reports that February’s net earnings estimate revisions by analysts were downward in the extreme, sending the S&P 500’s NERI index to a 25-month low. Such rapid NERI deterioration suggests analysts have shaved estimates broadly for reasons beyond company fundamentals. They may be getting the tariff memo!
Trump 2.0 & Global Capital Markets
Foreign investors held 37% of US equities last quarter. They’ve clearly sold some of that in the wake of the Trump 2.0 uncertainties. But might the US’s perceived beggar-thy-neighbor policies actually reverse the tide of inflows into US assets? Eric explains why that fear is unlikely. … Also: While a goal of Trump 2.0 policy is to lower US Treasury bond yields, the administration’s protectionism may work against that goal. US protectionism has motivated foreign economies, specifically China and Germany, to stimulate their domestic demand via deficit-financed fiscal easing, driving up their bond yields—which may limit how low US yields can go.
The Bull Versus The Bear Case
Will all the Trump turmoil deepen the recent stock market correction into a bear market? Very few bear markets have occurred without accompanying recessions. If no recession looms, today’s historically stretched valuations could be sustained, Dr Ed says. But the Trump factor is unpredictable, and a trade war could cause a recession. Would Trump pivot before that point, pressured by the Stock Market Vigilantes? … Read on for Ed’s balanced assessment of both the bear and bull market cases. … And an unsettling question for the future: Might the “Roaring 2020s” give way to a repeat of the 1930s, “The New Global Disorder of the 2030s”? It’s all up to Trump. ... Also: Dr Ed pans “Paradise” (- -).
Lowering Our S&P 500 Targets
It has dawned on Wall Street (and us!) that President Trump’s tariffs aren’t negotiating chips to help the US lower tariffs around the world, promoting free trade. They’re trade barriers, triggering other countries to respond in kind, and they jeopardize US inflation and economic growth. We expect Mr. Trump to relent lest he cause a recession that reverses the GOP majority in Congress during the 2026 mid-term elections. But in response to the now heightened risk of stagflation, we are lowering our S&P 500 valuation expectations and year-end price targets. … Also: Eric discusses the potential for Fed rate cuts this year based on the latest inflation data.
On Japan, Crude Oil & Earnings
Yes, there’s been upward pressure on Japanese interest rates and the yen at a time of downward pressure on US rates and the dollar. But no, Eric explains, we’re not worried about a repeat of last year’s carry-trade havoc in global markets. Resting our minds are recent Japanese and US economic data and signs that yen-funded carry trade positions aren’t huge. … Also: Melissa explains why we expect the price of oil to remain in a narrow range as countervailing forces pressure it in both directions. … And: Joe reassures us that the recent plunge in S&P 500 companies’ aggregate Q1 earnings growth expectations is typical as quarters wind down.
Going Global Slowly
While we’ve long favored US stocks over global ones, recent developments in Germany and China have made us more sanguine on investing in economies abroad. We’re maintaining our “Stay Home” investment approach but lightening up on the degree with which we would underweight the MSCI All Country World ex US index relative to the MSCI US index. Eric explains the changes in the macroeconomic and political backdrops of the EU and China that have decreased our bearishness on equity markets outside the US.
High Noise-To-Signal RatiosUnnerving Stock Investors
It’s getting harder to make out the shape of the economy through the fog of Trump 2.0’s firings and tariffs. Indeed, one regional Fed bank sees real GDP contracting this quarter, another sees it expanding, and bad weather has distorted signals from several economic indicators. No wonder the stock market’s default position is risk-off and stocks have been correcting. We’ve lost some confidence that the economy will avoid a recession, raising the odds of one to 35%, up from 20%, last week. And we’re wondering whether Trump Tariff Turmoil 2.0 might trigger a rare kind of flash crash unaccompanied by a recession. … Also: Dr Ed reviews “A Complete Unknown” (+ +).
China, Tariffs & Quantum Computing
China’s response to the US’s tariffs on Chinese imports was muted, Jackie reports, involving limited new restrictions and tariffs on certain US goods. China has too weak an economy to risk a bolder retaliation. But the country did announce new economic goals that suggest bold new stimulus spending to help pull its economy up by its bootstraps. … Also: What a few American CEOs in tariff-affected industries have said about the impacts on their companies. … And: Development of ever better quantum computing capabilities is turning out to be a game changer for the big guys—Amazon, Google, and Microsoft—while most startups in the space remain unprofitable.
Trump Turmoil Raises Odds Of A Recession
Trump 2.0’s head-spinning barrage of executives orders, firings, and tariffs have rattled investors, shaken confidence in the economy, and inflamed inflation fears. The pain of these decisive actions is being felt now, while the benefits of his other policies are further off. As a result, we’re revising our subjective odds of two of our three outlooks. We’re not changing the 55% probably assigned to our base-case Roaring 2020s scenario, but we now see less chance of a stock-market meltup/meltdown scenario (10%) and higher odds of a recession and bear market (35%). … Also: Melissa examines why the copper price has been rallying notwithstanding stagnant global economic growth.
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.