Insights Weekly Research Briefing
The White House last week decided to lower tariffs on food imports in order to fight inflation and improve food affordability. And so now the rising cost of living in America has now become an issue for the Oval Office. Going forward, expect to see lower price pressure on bananas, beef, coffee, and other agricultural goods. Now if the executive office wanted to go for full victory, they could move to get rid of all tariffs and lower the prices of all goods and services.
You just knew that the US government shutdown would end when the planes stopped flying. Well, with the FlightAware Misery Map index hitting 75% across several major airports on Sunday, members of the US Senate had decided that they had seen enough. Welcome to the 'K-shaped' world that we live in in which commercial and private jet air travel is more important than missed paychecks and food availability. Now let's see how quickly we can return to normal.
Aside from baseball and the soaring Nikkei, there has been a lot of news in the markets. Mega cap earnings gave us a lot of data to look at for our AI cloud spending models. The other company quarterly reports provided pieces for our 'K-shaped' economic puzzle. The Fed cut rates by 25 basis points but pulled back from saying that there was more in store for December which caused a pullback in the Treasury market.
This is a monster week for the financial markets. Mega earnings, the FOMC meeting and a possible China trade deal. As I type, the S&P 500 is making all-time new highs along with almost 2/3'rds of the worlds equity markets. That is one big slice of pie. Seasonally speaking, right now is the best time to own the S&P 500 for the next 3 months so the market has a big wind at its back.
The above vineyard that I visited this weekend looked a lot like my 2025 market watch page. Mostly green with only a speck of red. The only YTD crimson on my screen right now is crude oil, the US dollar, tariff impacted consumer/industrial companies and HHS affected healthcare stocks. Multiple shades of green everywhere else.
Today's capital markets are not sitting on the porch. Electronic Arts will be the largest buyout deal ever at $55 billion. The largest buyout in 2021, Medline, is looking to file its IPO in October for $50 billion which would make it the largest IPO of 2025. And alarm and security vendor, Verisure Plc is looking to go public next week making it one of Europe's largest IPO's in years at €13-14 billion.
The S&P 500 continues to get a good workout as a new all-time high mark was set again last week. The fuel for the upward move continues to be a mix of stellar credit markets, falling US Treasury yields, and AI capex spending optimism. The weakening labor picture has nearly guaranteed the beginning of a new Fed Fund rate cut cycle. The market is expecting that goods inflation will take a backseat while the Fed sets all of its attention on trying to rally employment growth.
Friday's jobs data left no uncertainty about what the Fed's next move will be. Get out the scissors. Only 22,000 nonfarm payroll jobs were created in August and the downward June revision creating the first negative job growth month since COVID. While goods producing jobs continued to shrink, it was the pillars of job growth, healthcare and social services, which slowed the most.
In his last Jackson Hole symposium as chairman, Jerome Powell discussed all of the current influences on the Fed's dual mandate. But in his summary, he did open the door toward a potential lowering of rates if the risks to employment continue to grow. And so, the September jobs numbers will be very closely watched by all. If they arrive weaker, there will be a September cut. The bond market has already made this call and is betting on three rate cuts through January.