Weekly Research Briefing: Tricks or Treats

@AugurInfinity: Global equities rallied, with nearly 60% of the equity benchmarks have reached all-time highs in the last month.

@bespokeinvest: Here’s our “Other 20” list of the largest stocks that don’t have AI as a direct catalyst. These stocks have outperformed the S&P on the year as well…

29% of the companies in the S&P 500 have reported actual results for Q3 2025 to date. Of these companies, 87% have reported actual EPS above estimates, which is above the 5-year average of 78% and above the 10-year average of 75%...

To date, the market is rewarding positive earnings surprises reported by S&P 500 companies more than average and punishing negative EPS surprises reported by S&P 500 companies more than average.

Companies that have reported positive earnings surprises for Q3 2025 have seen an average price increase of +1.6% two days before the earnings release through two days after the earnings release. This percentage increase is above the 5-year average price increase of +0.9% during this same window for companies reporting positive earnings surprises.

Companies that have reported negative earnings surprises for Q3 2025 have seen an average price decrease of -3.5% two days before the earnings release through two days after the earnings. This percentage decrease is larger than the 5-year average price decrease of -2.6% during this same window for companies reporting negative earnings surprises.

"while the guidance raise rate is hardly at an extreme, the 8.3% exceeds two-thirds of prior earnings seasons at this point. More noteworthy is the share of guidance raises as just 1.3% of companies reporting have cut guidance. That's in the bottom 1% of results historically."

“...there is more stability in real estate in Tier 1 cities in China. So that’s a positive signal. And secondly...the pickup of the financial markets in Continental China and Hong Kong, which is also, yes, a good sign. And for the first week of October, which was the Golden Week in Continental China, we saw quite strong and dynamic business. We can’t extrapolate this for the whole quarter, but nonetheless, it is encouraging.” — Hermes EVP Finance Eric du Halgouët

“On your question regarding the Chinese cluster, what we are seeing is that we’re getting very close from stabilization. So we are low single-digit negative, but improving a lot on the whole cluster, and this is done through 2 things. First, Chinese locally are now growing mid- to high single digit. And second, the Chinese tourist part of the purchases is improving a lot, but still double-digit decline. So that’s around where we get in terms of Chinese.” – LVMH CFO Cecile Cabanis

"By geography, our growth was led by China, which was up high single digits...So I’m really pleased with what’s happening in China. We thought it would soften it did not, it actually accelerated.” — 3M CEO William Brown

“Credit quality continues to remain strong with a net charge-off ratio of only 22 basis points.” — The PNC Financial Services Group CEO William Demchak

"Our loan portfolio is diverse, and we see no significant weakening in any specific portfolio sectors or geography...We expect net charge-offs to average loans will come in at between 15 and 25 basis points for the full year 2025.” — Hancock Whitney CFO Michael Achary

“When I look at the delinquency trends, the delinquency trends are also performing in a very normal fashion in terms of early buckets. I’m not seeing any signs of a change in that direction or in that normalcy.” – Citigroup CFO Mark Mason

“We’re seeing really no deterioration on the C&I side at all...everything looks stable from the 6-month to 12-month out forecasting. So we feel very good about the contours of our book overall.” – Citizens Financial Group Chair of Commercial Banking Donald McCree

JPMORGAN: “.. rising delinquencies on some loans are raising concerns about lower-income households. For example, the 60+ day delinquency rate on subprime auto loans reported by Fitch has recently hit a record high ..”

WYNDHAM HOTELS: “.. Chat, Perplexity, Gemini are reshaping how guests book hotels and it is presenting a unique opportunity for us to continue to reduce our dependency on OTAs ...”

“This time last year, we were processing 9.7 trillion tokens a month across our products and APIs [application programming interfaces],” Alphabet’s Google said in a May blog post, referring to units of AI usage. “Now, we’re processing over 480 trillion—50 times more.”

Google was just getting warmed up. “Since then we have doubled that number, now processing over 980 trillion monthly tokens, a remarkable increase,” the tech giant said in July during its second-quarter earnings call.

This month, Google said the figure had reached 1.3 quadrillion…

AI computing will increase “by a billion X,” technology company Nvidia CEO Jensen Huang said last month on the “BG2” podcast. “That’s the part that most people haven’t completely internalized,” Huang said. “…This is the industrial revolution.”

Should all of this go exactly according to plan, the AI boom will keep booming. Citi forecasts that AI revenue will grow nearly 80% annually over the next five years, reaching $780 billion in 2030, compared with $43 billion this year.

But even then, returns in AI may be very highly concentrated, eventually leaving many contenders out in the cold.

“In venture capital, 6% of investments result in 60% of returns,” venture capitalist Vinod Khosla told me, alluding to a 2015 blog post from a16z that cited three decades worth of data from investor Horsley Bridge. “In AI, I think it will be half that percentage resulting in more than 60% of returns.”

Current investment in AI-related enterprises is large, but the productivity boost that we forecast will come from the deployment of AI applications should more than support this investment. While the incremental spend on AI relative to pre-AI spending levels is currently running at $277bn (3-month annualized pace), we estimate an $8tn present-discounted value for the capital revenue unlocked by AI productivity gains in the US, with plausible estimates ranging from $5tn-$19tn.

Apollo Group Partner Dave Stangis: "The gap between what AI is demanding and what we have everywhere in the world on the grid in terms of generation and transmission is huge and will not be closed in our lifetime...So what is happening around the world, there’s no doubt about it, is what you might call energy addition. The world is scrambling to add every source of power."

But a new study from researchers at Lawrence Berkeley National Laboratory and the consulting group Brattle suggests that, counterintuitively, more electricity demand can actually lower prices. Between 2019 and 2024, the researchers calculated, states with spikes in electricity demand saw lower prices overall. Instead, they found that the biggest factors behind rising rates were the cost of poles, wires and other electrical equipment — as well as the cost of safeguarding that infrastructure against future disasters.

“It’s contrary to what we’re seeing in the headlines today,” said Ryan Hledik, principal at Brattle and a member of the research team. “This is a much more nuanced issue than just, ‘We have a new data center, so rates will go up.’”

North Dakota, for example, which experienced an almost 40 percent increase in electricity demand thanks in part to an explosion of data centers, saw inflation-adjusted prices fall by around 3 cents per kilowatt-hour. Virginia, one of the country’s data center hubs, had a 14 percent increase in demand and a price drop of 1 cent per kilowatt-hour. California, on the other hand, which lost a few percentage points in demand, saw prices rise by more than 6 cents per kilowatt-hour.

That runs counter to traditional wisdom. Economics 101 teaches students that if demand rises, prices tend to go up. But electricity isn’t like any other economic market. Most of the costs in the system aren’t from pushing electrons through the grid, or what experts call variable costs. Instead, the largest costs are fixed costs — that is, maintaining the massive system of poles and wires that keeps electricity flowing. That system is getting old and is under increasing pressures from wildfires, hurricanes and other extreme weather.

More power customers, therefore, means more ways to divvy up those fixed costs.

”Moving to the quarter, this is an exciting time for the firm and our investors. The deal dam is finally breaking, and we have a bunch of secular tailwinds driving us forward as well” - Blackstone President & COO Jonathan Gray

“IB fees were up 16% year-on-year, reflecting a pickup in activity across products with particular strength in equity underwriting as the IPO market was active. Our pipeline remains robust and the outlook, along with the market backdrop and client sentiment, continues to be upbeat...I think it was the busiest summer we’ve had in like a long time in terms of announced M&A activity.” – JPMorgan Chase CFO Jeremy Barnum

“Investment Banking activity has meaningfully improved after several years of muted volumes. Capital markets reopened and supported underwriting issuance across both debt and equity products.” – Morgan Stanley CFO Sharon Yeshaya

“I think one of the things to frame is that we’re in an environment at the moment where CEOs think that the opportunity to get things done strategically is now possible after being in a period of time where they felt it was not possible. And so that’s turning them all to focusing strategically. ...I think that we are going to see a very constructive M&A environment through the end of the year into 2026. I’d expect 2026 to be a stronger M&A environment unless there’s some macro disruption.” – Goldman Sachs CEO David Solomon

"U.S. M&A deal activity increased in September, going up 11.2% with 1,146 announcements compared to 1,031 in August. Aggregate M&A spending increased as well. In September 41.8% more was spent on deals compared to August."

Keurig Dr Pepper has struck a deal with private-equity firms to provide capital to its beverage and coffee businesses, which will eventually separate into two public companies…

As part of the deal, KKR and Apollo Global Management will invest $3 billion toward Keurig Dr Pepper’s beverage division, which supports products like Dr Pepper and 7UP, the company said Monday. The two will receive preferred stock in Keurig Dr Pepper, which has a conversion price of $37.25 a share and pays a preferred annual dividend.

The two firms, with participation from Goldman Sachs, will provide $4 billion toward a partnership with Keurig Dr Pepper’s coffee business and a joint venture for global manufacturing of its pod business…

The deal comes after Keurig Dr Pepper said it would acquire Peet’s Coffee owner JDE Peet’s for $18 billion in August… The deal is transformational for Keurig Dr Pepper, and would serve to unwind the 2018 transaction that united coffee company Keurig and beverage company Dr Pepper. At the time, the transaction was the world’s largest in the nonalcoholic drinks industry.

“I got to visit about 3 dozen of our commercial clients and the quarter-to-quarter went to the client, we referred to as outlook ‘nauseously optimistic.’ The tariff uncertainty absolutely continues to weigh on any clients that are exposed. That said, I would tell you, in general, people are more optimistic than they were in the second quarter.” — Fifth Third Bancorp CEO Timothy Spence

“...when I talk with customers, especially on the industrial side, and if you think about investing, building new factories, putting more CapEx, there is a bit of a wait-and-see mode with our customers. They’re just hesitant to have clarity on what exactly are the final rules. Should I put my factory in this country or another one. Even in our domain, think about it, the rules are still not finalized in terms of the rates of tariffs, for example, will they be or not. So I do see this hesitancy at the customer base, and I see it mainly on the industrial side.” — Texas Instruments CEO Haviv Ilan

Illinois Tool Works $ITW: “We saw continued slowdown on the CapEx side. Really, we would believe on the basis of the tariff uncertainty in Q2, ultimately having a spillover effect in terms of CapEx demand into Q3.” – Chistopher O’Herlihy, CEO

"Repair and remodeling (R&R) continued struggling in 3Q25 based on our channel checks. Both our professional remodeling and kitchen/bath survey indices hit new cycle lows, so not expecting a ton of optimism as earnings start rolling through for bellwethers in that space."

“Well, certainly, I think our exposure to higher household income cohort has enhanced our relative position versus carriers that are catering to a more stressed, lower-to-middle income environment. So we’ll see, as everybody else reports. I can only speak for Delta and the strength that we’ve seen and continuing to accelerate as we head into the fourth quarter.” – Delta Air Lines President Glen William Hauenstein

@carlquintanilla.bsky.social: Two headlines. Two economies. Same day. Poetic.

The U.S. unemployment rate for people aged 20 to 24 was 9.2% in August, more than double the overall rate. If a weaker job market continues, it could lead more of these renters to seek roommates or move back with their family, rather than get their own place…

National rent prices edged slightly higher for part of this year, buoyed by price rises in the Northeast and Midwest where new supply has been limited. But last month, national average rent fell 0.3% from August, the steepest September drop in more than 15 years, according to data firm CoStar.

Landlords in many major metro areas are slashing prices. Those in the Sunbelt and Mountain West states are offering the deepest rent reductions, especially in cities like Austin, Denver and Phoenix.

Multifamily owners and analysts anticipated that 2025 would be the year that surplus supply balanced out and they regained their pricing power.

Instead, landlords are now betting on the ability to raise rents by the end of 2026, or at least sometime in 2027.

CPI Housing (rent and OER) was 0.15% MM and 3.2% annualized over the last 3 months, which is unusually low. The 2019 average was 0.29% MM and 3.4% for the whole year.
A lower housing inflation rate has been widely expected for years, but a pace *this* low is probably noise.

“So what we’ve seen from the consumer is a continued focus on value, a shift to trading down, maybe it’s smaller package sizes, a focus on own brands...We see an increased usage in coupons. We see them sticking closer to their shopping list, maybe not buying that extra item, that extra bottle of whatever.” — Albertsons Companies CEO Susan Morris

“Look, I think the North America consumption decelerated. So that’s correct. We are -- we probably entered the year at about a strong 2%, 2.4% value consumption. We’re now a weaker 2. So 1.8%, 1.9%...I do believe that for the next 2 quarters, the consumption will be around the 1.5% to 2% range.” — The Procter & Gamble Company CFO Andre Schulten

“Consumers, especially low to middle income households are adapting to the economic environment by adjusting how they shop, making more frequent trips with fewer items per basket choosing larger pack sizes to maximize value and stretching meals across a number of occasions. In addition, they continue to cook at home more often and shop the perimeter for fresh foods to help lower overall meal costs.” – McCormick COO Brendan Foley

“I think what we did want to point out was we’ve definitely been seeing a slowing across restaurant industry sales to start our fourth quarter, and that’s just a factor that’s out there.” – Domino’s Pizza CFO Sandeep Reddy

Carter’s said it would close about 150 stores in North America and reduce its office workforce by about 15%, cutting roughly 300 positions as tariffs drag down its earnings.

Carter’s on Monday said it expects to incur a pretax earnings impact from additional tariffs imposed by the Trump administration of about $200 million to $250 million a year.

The baby-apparel company said it would close about 150 stores in North America after their leases expire over the next three years, up from its previous target of some 100 stores. The stores collectively represent about $110 million in annual sales over the last 12 months, Carter’s said.

For the third quarter, Carter’s reported net income of $11.6 million, or 32 cents a share, down from $58.3 million, or $1.62 a share, the year prior. Net sales fell 0.1% to $757.8 million.

The care economy is seeing prices rise more rapidly due to pockets of labor shortages – immigrants play a larger role in the care economy. Day care and childcare costs increased 1.7% during the month, the most since September 2023, and the third highest on record. Elder care at home jumped 7% during the month, its fastest on record. The data dates to 2006.

“And Erika, just add to that, medical, we spent $3 billion or so in medical. That’s going to be up 10% next year. And so when you look at some of these things, and we know that already and maybe we think it actually might be up another 10% in 2027 for a whole bunch of different reasons.” – JPMorgan Chase CEO Jamie Dimon

@DataArbor: How much are the rates for small health insurers going to change in your state?

During the first quarter of 2025, Iowa’s gross domestic product dropped by 6.1 percent, more than any other state aside from neighboring Nebraska.

Manufacturing, which drives 17 percent of Iowa’s economic output, has been hit with higher production costs in part because of steep tariffs on inputs like aluminum and steel. Meatpacking plants, which help make Iowa the nation’s leading pork producer, rely heavily on foreign-born workers, hundreds of thousands of whom saw their legal status stripped away by the president. Mr. Trump’s war on renewable energy also threatens the wind industry that produces more than half of Iowa’s electricity.

Some of the state’s troubles, like bad weather, high interest rates, an aging and shrinking rural population, and global commodity prices, are beyond the president’s control. But new economic policies have magnified the state’s woes, according to economists, agricultural groups and some business leaders.

“This is as challenging as I’ve seen it,” Kirk Leeds, the chief executive of the Iowa Soybean Association, said. “We’ve got uncertainties beyond compare.”…

For now, times are tough. Iowa is the country’s largest producer of corn and second-largest producer of soybeans. America exports as much as half its soybeans, and the vast majority of that had gone to China — $12.6 billion worth last year.

But this year, China stopped purchasing soybeans from the United States to retaliate against Mr. Trump’s tariffs. American producers have spent decades working with people in China on how to use soy in animal feed, part of an effort to build up that growing market. Mr. Leeds said he has traveled to the country 25 times and used dollars paid by Iowa farmers to foster strong bonds with Chinese importers.

“I’m not exactly sure how we repair some of these relationships,” Mr. Leeds said.

For decades, researchers around the world have been developing a technique that uses light and sound to produce images of the inside of the body. (Its roots go back even farther: Alexander Graham Bell was the first to try to generate sound from light back in 1880.) A team over at the California Institute of Technology has developed a functional photo acoustic tomography system that can scan and image the entire breast in less than 15 seconds.

Here’s how it works: The patient lays face down on a table placing one breast at a time into a recess filled with warm water. A scanner below the table sends a short pulse laser light into the tissue where it converts into ultrasonic energy, explains Lihong Wang, a professor of medical engineering and electrical engineering who helms the team at Caltech and is one of the leading researchers in the field of photoacoustics.

“We use ultrasound to provide spatial information,” he said, and “we use light to provide molecular information.”

An algorithm takes the raw data and turns it into a high-resolution, high-contrast image that, when combined with machine learning, can give radiologists more visibility into suspicious lesions. According to early clinical results Wang and his team published this summer, when they tested the technology on 39 patients, it performed as well as or better than conventional imaging techniques. The results suggest it may be especially promising on dense breast tissue, which can be difficult to image — hence all the squeezing — and often lead to false positives and unnecessary biopsies.

The process involves no radiation (unlike X-rays) and no intravenous, heavy metal-based contrast solution (unlike MRIs). And it’s pain-free.

The Caltech team needs to test the technology on more patients before it can be commercialized and submitted for clearance to the Food and Drug Administration. The hope is that it could one day replace the traditional mammogram as a regular screening tool.

“Our Willow chip has achieved the first-ever verifiable quantum advantage. Willow ran the algorithm - which we’ve named Quantum Echoes - 13,000x faster than the best classical algorithm on one of the world’s fastest supercomputers...This breakthrough is a significant step toward the first real-world application of quantum computing, and we’re excited to see where it leads.” — Alphabet CEO Sundar Pichai

“Congrats. Looks like quantum computing is becoming relevant.” — Tesla CEO Elon Musk.