Weekly Research Briefing: Markets Reflected In Nature

Goldman (Garrett): SPX is +14% year to date in 2025. Only 4 other instances where SPX [was] up this much at this point in the calendar (25y lookback). Past performance not indicative of future returns, but just proof things can get a bit "silly":
-2024 was +20.3% (closed the year +24%)
-2021 was +17.7% (closed the year +28.8%)
-2019 was +17.1% (closed the year +28.7%)
-2013 was +15.9% (closed the year +26.4%)

Incoming US labor market signals for September are sending a worrying sign of intensifying weakness. The ADP report showed a 32k contraction in private payrolls in September––the worst this year—and August was also revised to show a small decline (from +54k to -3k). The contraction is all the more worrying because it was quite widespread across industries. While the average absolute miss on first prints between ADP and BLS private payrolls over the last year has been large (more than 80k), the cumulative change in ADP first prints over the prior six months has been close (within 20k) to the revised BLS figures. All this bodes negatively for the BLS report when it gets released.

The report usually shows September and October as the strong hiring intention months as retail and transport industries prepare for the holiday season.

In today's report, hiring intentions for September look abnormally low @ 117k vs 403k (2024) and 459k (2019). The lack of hiring intention is concentrated in the Retail industry 96k vs 276k (2024) and 299k (2019) and Transport industry with no hiring intention vs 125k (2024) and 150k (2019).

According to Challenger Amazon shows no seasonal hiring plans vs 250k in 2024. UPS shows no seasonal hiring plans vs 125k in 2024. Macy's and Burlington stores are showing no hiring intentions.

U.S. holiday online sales are expected to grow at a slower pace this year, according to projections by data firm Adobe Analytics released on Monday, as macroeconomic uncertainty continues to pressure consumer spending. Adobe expects U.S. online sales to rise 5.3% to $253.4 billion between November 1 and December 31, this year, compared with an 8.7% rise last year…

The holiday shopping period, a key driver of sales for retailers at the end of the year, will be even more critical this year as shifting trade policies under the Trump administration and persistent inflation take a toll on consumer spending.

"You have consumers dealing with a lot in the broader economy," said Vivek Pandya, director at Adobe Digital Insights. "We anticipate them taking advantage of these major sales moments, and we still see them leaning on the online sector as an area to get better deals."

Looking at annualized month-over-month growth rates shows that 60% of items in the CPI basket are growing faster than 3%, see chart below. Is a second inflation mountain emerging?

"Looking ahead, we continue to navigate a challenging environment as we’re still dealing with persistent inflation and tariffs, both of which have drifted higher than our original expectations… Our previous outlook for core inflation was approximately 4%, but that has moved slightly higher, primarily due to increased costs in animal proteins such as beef, pork, and turkey. On tariffs, while we still expect our gross exposure to be approximately 3% of cost of goods sold, changes to country-specific tariff rates have nudged our estimate higher. Our larger exposures to steel, aluminum, and China-related tariffs are unchanged. Combined, our total inflation was previously approximately 7% but has now nudged higher to be in the low 7% range.” - Conagra Brands CEO Sean Connolly ‬‬

@bespokeinvest: Stocks facing the mass consumer market are having a rough run. Down 11.5% since the end of Q2 in pretty much a straight line down. $WMT $TGT $COST $BJ $DG $DLTR $FIVE

About 1,360 home sales a day, or 41,300 a month, are in FEMA flood zones and need flood insurance to get a mortgage, according to the National Association of Realtors. The vast majority of those homebuyers turn to the federal flood plan. Every day the NFIP is out of commission potentially represents hundreds of millions of dollars in failed home closings.

President Trump’s latest round of tariffs aimed at wood, furniture and other household furnishings could drive up the cost of building and owning homes, further weighing on an already weak housing sector…

Analysts said the steep levies could aggravate the nationwide housing shortage by slowing the pace of new home construction. The higher costs, as well as hefty tariffs on steel and aluminum that went into effect in June, could also dampen any jolt the housing market might have derived as the Federal Reserve begins to lower interest rates. Mr. Trump has spent months demanding lower rates to help bring down mortgage rates.

“These tariffs are really hard to understand given that the president has said to his supporters, ‘I want to bring down inflation, I want to bring down interest rates, I want to help create an ownership society for you and your other friends and family members,’” said Anirban Basu, chief economist at the Associated Builders and Contractors, a national construction trade association.

In two weeks, the United States will begin charging a 10 percent tariff on imported timber and lumber, as well as a 25 percent tariff on kitchen cabinets, bathroom vanities and upholstered furniture. On Jan. 1, tariffs on cabinets and vanities will increase to 50 percent, and upholstered furniture tariffs will jump to 30 percent.

"Faltering demand, high supply and declining economic growth combined in September to produce the biggest one-month drop in the average U.S. multifamily rent in almost three years."

Immigrants make up a substantial portion of the renter population in South Florida, said Juan Arias, director of market analytics at the data company CoStar Group, adding that 70% of immigrants who have arrived since 2010 are renters.

“All of this immigration crackdown is a net negative to the entire multifamily world,” he said.

In July, the family of four at Doral Landings East fled their four-bedroom rental home because of immigration issues, according to their landlord. They had stopped paying their $4,000 in rent because they had diverted so much of their cash to pay for legal help, the landlord said. The family left with most of their furniture and belongings inside.

Vanesa Eguillor, the homeowner’s real-estate broker, who has worked in the area for 20 years, said, “I’ve never seen anything like that.”

The S&P 500 3Q earnings season will kick off the week of October 13th. Large Financials including C, JPM, and WFC will report on Tuesday, October 14th. By October 31st, 68% of S&P 500 companies representing 72% of market cap will have reported results. NVDA, the largest company in the market, is scheduled to report on November 19th.

Tariffs were likely a larger headwind to profits in 3Q than they were during 2Q. In part due to initial implementation lags, customs duties totaled $69 billion during 2Q but that figure rose to $93 billion during 3Q, equating to roughly 2.4% of total US corporate 2024 profits during the quarter.

Back in 2018, many Sharpies were made abroad. That’s when Chris Peterson, who was the CFO of Sharpie maker Newell Brands, challenged his team to answer a question: How could they keep Newell from becoming obsolete compared with factories in Asia?

“I felt like we had an opportunity to dramatically improve our U.S. manufacturing,” he said.

Peterson is now the CEO. And these days, most Sharpies—in all 93 colors—are made at this 37-year-old factory. Newell did it without reducing the employee count, and without raising prices. But to get to this place took close to $2 billion in investments across the company, thousands of hours of training and a total overhaul of the production process.

The result is a playbook for making low-cost, high-volume products domestically, albeit one that requires long-term planning and a lot of investment.

It's been a long time since I've been this sucked into an app. Such was the situation I found myself in last night with OpenAI's new version of Sora. Once I got access, I found it nearly impossible to put it down. I just kept wanting to remix everything I scrolled past. Yes, it was incredibly dumb. Yet highly amusing! And technically, very interesting, albeit in mildly troubling ways. But everyone else will write about that aspect, and rightfully so. My angle here is simply that OpenAI remains so good at creating these types of viral products. Underlying tech aside, that team continues to seem to know how to productize better than anyone else in the space.

Case in point: Meta launched a similar foray just days before in the form of "Vibes". Now, did they rush it out the door to get ahead of this Sora 2 launch? Hard to say for sure, but it sure feels that way. The product, if you even want to call it that, is so half-baked and obtuse to use that it's more like an employment quiz. Can you figure out how to create a fun AI video in under 5 minutes? If so, you're hired. Your starting salary is one million dollars. Oh, you worked at OpenAI? Your starting salary is one hundred million dollars.

By contrast, the Sora app is so stupidly simple to use. Hence why I can't open it up without getting sucked in for at least a half and hour as I remix everything and anything that pops into my head. Is this useful to anyone? I mean, hopefully not. But maybe hearing JFK admit that his favorite movie is the Care Bears sparks joy in someone. I will settle for a chuckle.

We are seeing elevated levels of AI infrastructure spend from both sides of the ecosystem in 2025. In our June report analyzing the impact of AI on industry profit pools, we identified a shift in investor focus over 1H25 that caused investors to question the return profile of outsized AI spend levels over both medium- and long-term durations. Since then, the leading five public Western-based hyperscalers’ capex (AMZN, MSFT, GOOGL, META & ORCL) has inflected higher through the year to now what we estimate as an aggregate of $381bn for CY2025 (+68% increase YoY).

Musk’s gamble is playing out in real time in Memphis. Among the locals, his arrival has kindled hopes of an economic renaissance, but it has also stoked controversy. Musk’s data centers will probably bring in only a few hundred jobs to Memphis while consuming millions of gallons of water a day and more electricity than is needed to power all the city’s homes. Natural-gas turbines powering the data centers have brought pollution and controversy over their use—xAI has argued that many of the structures are temporary and don’t require a permit. Some residents question plans for the utility to issue rebates to xAI for building the new power structures it needs.

Musk’s pitch to Memphis is that he is building infrastructure that will benefit the city. The company has promised to construct a giant wastewater recycling facility, to be used in its cooling system, that would help reduce demand on the Memphis aquifer. The company has also donated funds to Memphis schools and other organizations and hired workers to go around the city and pick up trash.

“In one year, xAI has become the second largest taxpayer in the city and county after FedEx,” said Bill Dunavant III, a Memphis businessman who sits on the board of directors of the city’s chamber of commerce.

Critics say the project is a big risk and could leave residents with pollution caused by the natural-gas turbines and higher electricity bills stemming from the extreme demand on power.

“Memphis is desperate,” said Batsell Booker, a 65 year-old retired firefighter who lives in the neighborhood next to Colossus. “And this is not the first time that they have been so desperate for companies. They come in and promise them the world.”

Gas turbines don’t typically feature on a list of climate solutions. After all, these fast-spinning devices weighing hundreds of tons burn methane to generate electricity, emitting carbon dioxide in the process.

But there aren’t yet cheap enough batteries to ease the peaks and troughs of renewables, and gas can help provide grid stability while reducing carbon intensity and air pollution compared to relying on coal. There’s a problem, though: The world is experiencing a turbine shortage.

Three companies control 70% of the global market for gas turbines and they remain skeptical about whether the recent surge in demand for turbines will last long enough to recoup investments needed to build new manufacturing capacity.

Wait times for orders have increased from two years to five or more. The shortage has contributed to the cost of building gas power plants in the US increasing from $800 per kilowatt in 2021 to as much as $2,800 per kilowatt today…

$400 billion worth of planned gas-fired power plants through 2030 are in jeopardy of delay or cancellation because of the lack of capacity to meet future turbine orders

Companies borrowed a record $207 billion in the US investment-grade market in September, more than Wall Street’s top underwriter of the debt Bank of America Corp., had expected.

Last month’s haul ranked as the fifth-largest monthly total on record, and the second largest outside the Covid era, according to data compiled by Bloomberg. Falling borrowing costs and a seemingly insatiable demand from investors chasing still-attractive bond yields are encouraging corporations to pull forward their plans to raise money to refinance bonds maturing in coming years, fund acquisitions and spend on their capital.

As dealmaking across sectors globally picks up at a record-setting pace, Mead expects a good portion of the mergers and acquisitions activity as well as AI build out will likely be financed in the high-grade market, boosting overall sales volumes over the years. Oracle Corp. borrowed $18 billion high-grade bonds in September, the market’s second-largest deal this year, as the software maker ramps up its spending to meet the needs of the artificial intelligence boom.

• Fifth Third Bancorp (FITB) is buying Comerica (CMA) in an all-stock $10.9B deal, valuing CMA at $82.88/shr, a 20% premium to its 10-day VWAP. The merger will create the 9th-largest US bank with ~$288B in assets, set to close end of Q1 2026.
• Axcelis Technologies (ACLS) and Veeco Instruments (VECO), semiconductor equipment companies, agreed to merge in an all-stock transaction, creating a combined company with an enterprise value of $4.4 billion. Axcelis investors will own 58% of the combined company with Veeco shareholders owning the rest. The combined company will be the fourth largest U.S. wafer fabrication company and will have a total addressable market of over $5 billion.
• White Mountains Insurance Group, Ltd. (WTM) announced today that it has signed a definitive agreement to sell a controlling interest in Bamboo, a data-enabled insurance distribution platform providing homeowners' insurance and related products to the residential property market in California and Texas, to funds advised by CVC Capital Partners ("CVC"). The transaction values Bamboo at $1.75 billion.
• Ares Infrastructure Opportunities fund acquires 49% of a 10-asset portfolio from EDP Renováveis, S.A. totaling 1.63GW for EV of $2.9B. The total estimated enterprise value for 100% of the portfolio amounts to approximately $2.9 billion. The transaction comprises a diversified portfolio of 10 assets that aggregates to 1,632 MW of capacity, including 1,030 MW of solar, 402 MW of wind and 200 MW of storage capacity across four U.S. power markets.
• Heidrick & Struggles International (HSII) surged 20% on Monday, after the executive search firm agreed to be taken private in a deal by a consortium of investors, including Advent International and Corvex Private Equity. The consortium will acquire all of the Chicago-based firm's outstanding shares for $59 apiece, valuing Heidrick & Struggles at $1.3 billion.

3M Co. is considering selling billions of dollars of assets from its industrials operations as it looks to carve out low-growth businesses, according to people familiar with the matter.

The conglomerate has been speaking with Goldman Sachs Group Inc. as it reviews potential divestments, said the people, who asked not to be identified because they weren’t authorized to speak publicly.

3M’s safety and industrials unit, which generated about $11 billion in revenue last year, encompasses businesses such as aftermarket auto products, personal safety equipment and industrial adhesives and tapes, among others.

Agriculture company Corteva is mulling a breakup that would separate its seed and pesticide businesses into two separate companies, according to people familiar with the matter. The company has a market value of around $50 billion and could unveil its plans soon, assuming the talks don’t hit any last-minute snags, the people said.

Corporate unwindings have taken center stage in 2025, with companies including Kraft Heinz and Warner Bros. Discovery bowing to investor pressure to do so. Corteva itself was the result of a spinout from chemicals conglomerate DowDuPont in 2019. Its share price has climbed nearly 150% since then, including more than 25% so far this year.

The company supplies farmers growing everything from soybeans in Iowa to corn in Brazil with weed and pest-killing chemicals and the biotech seeds designed to withstand them. Corteva and its top agriculture rival, Bayer, sell roughly 70% of all corn and soybean seeds planted in the U.S., according to federal data.

Corteva’s signature seed brand Pioneer is one of the most recognizable names to American farmers. Corteva is seen by investors as one of the best-performing companies in U.S. agriculture, partly because of the success of its Enlist-branded soybeans that make up most of the U.S. market.

Used EVs are a stealth incursion into the market, they’re how electric cars are going to come to dominate the U.S. fleet. While GM and Ford are icing their EV investments/production, and as the conventional wisdom has people deciding on hybrids, the supposed best of both worlds, everybody is ignoring the obvious…

EVs REQUIRE ALMOST NO MAINTENANCE!

If you follow the news, used EVs are selling prodigiously, at below the price of equivalently aged used gasoline vehicles.

Now in the past, you didn’t want to buy a used EV, the technology was moving too fast. Which is why those with bucks lease their electric cars…I mean what are the innovations right around the corner, how long are the companies going to support the software?

But we’ve hit maturity in batteries. In excess of 300 miles per charge is de rigueur, never mind the Chinese offering more for less with a new technology.

Now as a result of this belief in innovation, a zillion cars are coming into the market after the expiration of three year leases. And they’ve become too attractive to pass up. That’s how cheap they are. And people who would never have considered an electric car are purchasing them. And once they drive them and don’t encounter the endless repairs of a typical used car…

Word of mouth will spread and everybody will want a used electric vehicle.