Weekly Research Briefing: The Stairmaster
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 movement 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. The market is also forecasting that falling demand for labor will add downward pressure to recently rising wages which could help companies offset some of their tariff cost increases. And as the pendulum swings back to employers, expect white collar workers to be back into their offices 5 days a week which should be good news for the commercial office real estate sector as well as all surviving first floor coffee shops and delicatessens.
It is September's FOMC week and the first Fed meeting since the Jackson Hole symposium. Given the weakening in the US job market, the market expects this will be the first cut of many to help the economy find its balance. But how many more cuts will follow: three, four, or five? We will get insight on Wednesday as to how the plotted dots have evolved as the economy has twisted. Also of interest will be how the Fed adjusts their GDP growth outlook and PCE inflation forecast. Last week, core goods prices inside of the CPI grew 0.3% month/month which was the strongest pace this year. And not just beef, coffee and milk, but also apparel and used vehicle prices. But stabilizing goods prices will need to wait. Jobs first.
Oracle surprised the markets last week during and after its earnings release. First, the stock jumped 40% as its forward bookings jumped 359% quarter/quarter or $317 billion to total $455 billion. Pretty unbelievable for a company of its size and market cap. The stock then cooled 10% as the market digested that the vast majority of this increase was from a single customer, OpenAI. While it is great to get the new business in the door and on the books, the market would have preferred to see a bit less customer concentration. For Oracle, the pressure is now on OpenAI to grow its customer base rapidly so that it can pay those large and soon to be annual bills. But these are the early days for AI and it is likely that billions, if not trillions of AI spending will materialize over the next decade. As Oracle said on the call, "AI changes everything".
The S&P 500 index hit another new high…
The market has a new giant which you know as Google…
@KevRGordon: There are now four companies in the S&P 500 with a market cap greater than $3 trillion.
And if you thought the move in the S&P 500 or the Magnificent 7 was great, check out that breakout in the Emerging Market index…
Financial conditions are only getting better for risk-based assets…
Goldman Sachs
Ed Yardeni notes that this is the "sweet spot" which is reflected in the stock prices of the merchants of financial activities…
We are now in the sweet spot of the bull market, in which Financials benefit from increasing M&A and IPO activity triggered by rising stock prices. It's similar to the sky-is-the-limit story for the cloud companies above. Higher stock prices lead to more investment banking activity, which in turn drives the stock prices of Financials higher.
Little surprise that top two stocks leading the DJIA this year are financial companies benefitting from healthy credit and equity markets plus a steepening of the risk-free yield curve…
2025 year to date performance leaders in the Dow 30 through 9/12/2025.
The perfect financial market backdrop has led to the biggest IPO week in four years…
Most importantly, the deals are working and those allocated IPO shares are happy. Next on deck will be StubHub and Netskope. Meanwhile, dozens of other companies are busily filing their paperwork while their boards of directors meet for final approvals.
Goldman Sachs and J.P. Morgan had comments about market activities and the pickup in the financial market flywheel last week…
"There's no question the pickup in deal making is really significant....This week we will do more IPOs and have more IPO activity at Goldman Sachs than we've had since July 2021. So equity issuance this year is up about 15%. But over the last two months it's up 40% year over year. So there continues to be an acceleration. You're certainly seeing a pickup in IPO activity. And on deal making activity, I don't think people really appreciate this. M&A activity is up about 32% year over year. So 32% more volume. But deals bigger than $10 billion—M&A activity is up 100%. So the deal making environment has really accelerated." – Goldman Sachs Group CEO David Solomon
"It's been one of the busiest summers, certainly maybe one of the biggest busiest August we've had in a long time...anything could happen, but we feel there's a lot of animal spirits at the moment. Big M&A is back. It's maybe one of the biggest last few months we've had in a long, long time. There is a strategic imperative to be global, big, diversified, integrate your operations, and there's also a sense that you have a finite window of time to complete large M&A before the regulatory sentiment may shift back. So I think that we're expecting to see large M&A continue until something happens that slows it down." – JPMorgan Chase Co-CEO of Commercial & Investment Bank Douglas Petno
This list of corporate M&A activity last week shows the continued interest in doing deals:
- Teck (TECK) and Anglo American (AAL.uk) confirm to combine through merger of equals valued at ~$53B; Boards of Anglo American and Teck unanimously support and recommend the Merger; Anglo American board also intends to declare a special dividend of $4.5B; Anglo Teck is expected to offer more than 70% copper exposure.
- Chicago-based private equity group GTCR has struck a €4.1bn deal to buy generic drugmaker Zentiva from Advent International, in Europe’s second big private equity-backed generics deal this year. Zentiva is valued at €4.1bn including debt, the people said. The sale will mark a profitable exit for Advent, which bought the former Sanofi unit for €1.9bn seven years ago. The company traces its origins to a centuries-old pharmacy in Prague and operates in 35 countries across Europe.
- CVC Capital Partners is closing in on buying a majority stake in Namecheap, in a deal that values the big domain registrar and web-hosting provider at about $1.5 billion including debt.
- Tega Industries Ltd. (TEGA.in) has agreed to buy control of Omaha-based mining equipment maker Molycop at an enterprise valuation of $1.5 billion, making it the biggest US deal by an Indian company in three years. The Kolkata-based manufacturer of mining and mineral processing gears will acquire the American Industrial Partners-affiliate in consortium with funds managed by Apollo Global Management Inc., it said in a statement to exchanges on Wednesday. Tega Industries will be the controlling holder of Molycop with a 77% stake and Apollo will own the remaining.
- Novartis (NVS) to buy Tourmaline Bio (TRML) for $48/share or about $1.4B in cash. The deal adds pacibekitug, an anti-IL-6 antibody in development for atherosclerotic cardiovascular disease, to its pipeline.
- Cinven and CVC have agreed to sell NewDay’s portfolio of consumer credit receivables to private credit funds and accounts managed by KKR, a leading global investment firm. The transaction effectively separates NewDay’s credit balance sheet from NewDay’s origination and servicing business. KKR will enter into a multi-year forward flow agreement with the NewDay Operating Group in respect of its future origination.
- Cenovus Energy (CVE) has sold its 50% interest in a U.S. refinery business to its joint venture partner Phillips 66 (PSX) for $1.4 billion.
- Vimeo (VMEO) agreed to a $1.38 billion, all-cash takeover by European mobile app developer Bending Spoons. Vimeo investors will receive $7.85 a share, representing a 91% premium over the company’s 60-day, volume-weighted average share price as of the close on Sept. 9. Vimeo was spun off from IAC/InterActive Corp. in 2021. The company has lost nearly 90% of its market value since then, leaving it with a market value of about $797 million and prompting leadership to review strategic options.
- Barrick Mining (ABX.ca) divests its last gold mine in Canada, Hemlo to Carcetti Capital Corp. for up to $1.09B as the metals giant streamlines its portfolio. The divestment means that Barrick will no longer have any active gold mines in Canada, according to information on its website.
- Private equity firm Vector Capital has agreed to buy SingleStore, a database startup backed by the venture arms of Google and Dell Technologies.
- Mandom (4917.jp) to be taken private via MBO at ¥1,960/shr for buyout total ~¥79.3B. ~32% premium over Wed closing price. To be taken private by affiliate of CVC Capital Partners.
Various News Sources
But not every company is a winner as those navigating the violent seas of US tariffs can attest to…
RH Chief Executive Gary Friedman spooked investors late Thursday, saying that he believes "significant inflation" will emerge this year "and accelerate into 2026 and beyond" as the furniture industry reels from tariffs and his company posted quarterly results that missed expectations…
Friedman's call on inflation came as the executive decried potential tariffs on furniture entering the U.S., on top of existing levies on steel and aluminum that are also hitting the industry…
While the goal is returning furniture manufacturing back to the U.S., Friedman said, "most in our industry hope that this investigation surfaces the difficulty of that task."
Manufacturing of high-quality wood or metal furniture "does not exist at scale in America. It would require years of investments in building the facilities and workforce that most in this industry cannot afford to make," Friedman said in the letter.
RH lowered its guidance for the year due to the ongoing tariff uncertainty, calling for $30 million in tariff-related costs in the second half of the year.
Hopefully the management team at Restoration Hardware does not also have a coffee addiction…
Coffee prices in the US have surged more than 20% in the last year, as duties on some of the world’s biggest producers take effect.
While American consumers have in general been shielded from the impact of tariffs, coffee drinkers are feeling the pinch as steep duties on imports from Brazil and Vietnam force sellers to pass on some of the cost.
The levies compound the pain for US coffee retailers, who already faced higher costs after droughts dented global production. One New York City cafe owner who recently had to hike the price of a cup of drip coffee by 50% said: “We have held off on making this change for as long as possible, but… this adjustment is necessary.”
US beef prices have been difficult this year, and new Brazilian tariffs will not make things any easier into the end of this year…
US beef prices are poised to extend their surge, reaching new record highs in the coming months, with restrictions on Brazilian imports further squeezing already tight domestic supplies, according to global meat trader Parker-Migliorini International Llc.
“We could see a shortage in the market,” PMI Foods President Darin Parker said in an interview. “Beef prices could be the egg problem of the Biden administration because of the extreme price increases that would have to come.”…
Prices have risen for eight straight months on a not-seasonally-adjusted basis, with August marking the largest monthly jump in nearly four years, according to the latest US Bureau of Labor Statistics data.
Tight cattle supplies in the world’s largest beef producer are driving the surge. The number of cows processed each week by US meatpackers including Tyson Foods Inc. and JBS NV has fallen nearly 9% from a year earlier this quarter, to levels last seen in 2016. The squeeze reflects the smallest US herd in decades and a recent ban on animal purchases from Mexico over sanitary concerns.
The impact on US consumers has so far been tempered by a surge in imports this year, with purchases from Brazil, the world’s largest beef exporter, almost doubling through July of this year. Brazilian lean beef trimmings are typically blended with fattier US meat to make ground beef and hamburgers.
But in the past few weeks, shipments have come to the brink of a halt after Trump in August slapped an additional 40% tariff on the South American nation’s goods.
And milk prices are currently eyeing all-time highs of $4.20 per gallon with little relief in sight…
In Tioga County, where President Donald Trump won 75 percent of the vote in 2024, farmers are losing patience with the White House’s promise of a quick solution for farm workers. Their urgent need is highlighted by stories like those of a multigenerational dairy farm that sold off all its dairy cows because the owner could not find workers and another where a farmer’s job listings have received no responses.
Farmers in the rural region near the New York border say those stories are not unique.
“The whole thing is screwed up,” said John Painter, a three-time Trump voter who runs an organic dairy farm in Westfield. “We need people to do the jobs Americans are too spoiled to do.”…
The U.S. agricultural workforce fell by 155,000 — about 7 percent — between March and July, according to an analysis of Bureau of Labor Statistics data. That tracks with Pew Research Center data that shows total immigrant labor fell by 750,000 from January through July. The labor shortage piles onto an ongoing economic crisis for farmers exacerbated by dwindling export markets that could leave them with crop surpluses.
“People don’t understand that if we don’t get more labor, our cows don’t get milked and our crops don’t get picked,” said Tim Wood, a dairy farmer and a member of the Pennsylvania Farm Bureau board of directors.
While it might be easy for you to give up coffee, beef and milk, it will be difficult to walk away from health care insurance…
U.S. businesses are facing the biggest health-insurance cost increases in at least 15 years, after already-steep boosts in recent years that have pushed the annual expense for family coverage high enough to equal the price of a small car.
Costs for employer coverage are expected to surge about 9.5% in 2026, according to an estimate from Aon, while an employer survey by WTW suggested 9.2%. Both benefits-consulting firms’ projections, which were provided exclusively to The Wall Street Journal, would represent the fastest rate of increase since at least 2011, when the price tags for employer coverage were far lower than the recent average of roughly $25,500 for a family plan.
Other employer surveys conducted this year have generated similar findings—sharp hikes in health-coverage spending for next year, on top of two years of significant increases…
Insurers say rising premiums for health coverage are driven by the growing cost of healthcare. The causes include higher prices for hospital care, expanding use of services—due in part to higher prevalence of conditions such as cancer in the working-age population—and pricey drugs, including the popular weight-loss and diabetes treatments known as GLP-1s.
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The author has current equity ownership in: J.P. Morgan and Nvidia Corp.
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