Daily Research Updates
Morning Briefings
Expert market analysis delivered every morning. Stay informed with comprehensive research and data-driven insights.
On Positive Earnings Revisions, Japan’s Challenges & Valuing AI IPOs
Joe reports that newly released July data on industry analysts’ earnings estimate revisions show that for all 11 S&P 500 sectors, the net direction was up. That sign of rising sights for earnings broadly across the economy is rare and last seen after the pandemic lockdowns ended. … Also: William reports that the Bank of Japan may pause its quantitative tightening given Japan’s flagging economy. That should reassure investors worried about the stock market repercussions of the BOJ’s selling its ETF holdings. … Also: Melissa examines prospective valuations of two AI providers planning IPOs, Anthropic and OpenAI.
UK Lags While Spain Leads
With the UK about to get a new prime minister yet again, the Bond Vigilantes are on high alert. The prospective successor to the role, Andy Burnham, may find himself in an “economic straightjacket,” William says, damned if he does and damned if he doesn’t succumb to fiscal loosening. … Also: Spain is dramatically outperforming the other European economies, growing GDP an estimated three times faster than the Eurozone average. … Toby points out that Spain has AI exposure that the rest of Europe lacks, and its companies are delivering on the earnings front.
Making Sense Of A Strange Jobs Report
The June jobs report was widely characterized as weak. Ed and Elias don’t see it that way. The disappointing headline gain reflected a misleading statistical distortion. June’s decline in Leisure & Hospitality was attributable to an early Memorial Day, which boosted May’s gain. With the support of multiple underlying strengths, the labor market remains resilient, as demand slightly exceeds supply. The Fed’s tightening bias—prioritizing its inflation mandate over its labor market one—therefore remains appropriate, with a July rate hike still possible. … Ed reviews “Disclosure Day” (- -).
On Consumers, Earnings & New Semiconductors
Don’t be concerned about the New York Fed’s recent study of household debt and credit, says Jackie. The high rate of consumer credit delinquencies reported reflects data inaccuracies. All other indications suggest today’s consumer is the picture of financial health. … Also: A look at next year’s earnings growth prospects for various S&P 500 sectors and industries. The Information Technology sector is expected to lead the pack again, as energy- and supply-shocked sectors (Energy, Materials) lag behind, and two Health Care industries accelerate growth at a remarkable pace. … And in our Disruptive Technologies segment, novel semiconductor structures, with transistors stacked vertically, promise increased speed and efficiency.
On Chinese AI Competition & Poland As AI Play
Companies’ AI bills can quickly get out of control with token pricing and AI agents assigning themselves work. Increasingly, US firms are cutting ties with the likes of Claude in favor of vastly cheaper Chinese models. How much of the US AI market Chinese competitors capture could determine the fates of Claude, Gemini, and ChatGPT, Melissa says. Today, she explains the decision calculus that has corporate America rethinking how to use AI most cost effectively and where to buy it from. … Also: Poland is an unlikely Silicon Valley, but its economy is fast becoming a tech powerhouse. William discusses how Poland’s AI ambitions could be just what its economy needs.
On China’s Property Meltdown & Asia’s AI Meltup
China’s property market is spiraling again, William reports. Falling home prices and land-sale revenue are compounding three domestic headwinds: deflation, weak spending, and shaky local finances. A negative feedback loop is escalating the problems, and the government’s fixes don’t address them head on. … Also: The stock markets of South Korea and Taiwan are so concentrated in a few big AI exposed tech companies that they’ve been riding the roller coaster of investor sentiment toward AI. But Toby says they’re two of the world’s best performing stock markets ytd notwithstanding their volatility. And they’ve got the earnings growth outlooks to back their rallies up.
Update On The ‘G-Shaped’ Versus ‘K-Shaped’ Economy Debate
Consumer spending has been remarkably resilient, growing for the past two years faster than consumers’ disposable incomes have and depressing their saving rate. Current trends point to a negative saving rate by 2030. But that’s nothing to worry about, explain Ed and Elias. What we have isn’t a “K-shaped” economy, with the affluent spending briskly and everyone else struggling to make ends meet, as many assume. It’s a “G-shaped” economy—generational factors explain the data anomaly. The massive ranks of retired Baby Boomers, with no paychecks anymore but plenty of assets and leisure time, are keeping spending aloft. … Also: Ed reviews “The Sheep Detectives” (+).
On SpaceX, Google & Tesla's Patent Filing
Shortly after its IPO, SpaceX now has sold a $25 billion bond offering, with no shortage of takers. Today, Jackie examines the reasons that the company, after racking up major losses last year, was granted investment-grade ratings on the new debt. … Also: Alphabet has recently been on a losing streak in the stock market and so has the Communication Services sector broadly. Multiple factors have weighed both down, including a drop in Alphabet’s prospective 2027 growth owing to its huge Q1-2026 MTM accounting gain. Will the stock’s DJIA inclusion reverse its bad luck? … And: Tesla has filed for a new patent on what sounds like a mobile, modular AI data center, the Megapod.
On AI Revenues, China’s Oil Demand & MTM In Earnings
Whether the AI boom is a bubble that could burst if the hyperscalers are overbuilding datacenter infrastructure hinges on end-user demand for AI services. Melissa has devised a back-of-the-envelope way for investors to get a handle on whether two big AI providers that have contracted with the hyperscalers for compute capacity have promised the moon or will realize the revenue to honor those commitments. … Also: China’s falling demand for oil helped to contain oil prices during the war-induced supply shock, and William says it’s a trend that will outlast the war, benefiting the global economy. … And Joe says the accounting rule with Q1 effects that caused S&P 500 forward earnings to soar may not be a one-time thing.
On Challenges Facing Mexico & Brazil
Mexico’s economy faces a lot of headwinds at this point: sluggish growth and rising inflation, a central bank that’s divided on how to address stagflation, geopolitical and trade-related uncertainties, a sliding peso, a surging budget deficit, a Moody’s debt downgrade to just one tier above junk, and a domestic investment picture that William calls “quietly alarming.” Defeating stagflation and boosting confidence will be an uphill climb. … Also: Brazil’s central bank has signaled more interest-rate cuts even as it forecasts high and climbing inflation. It’s a bold bet that the inflation problem will prove temporary. But another rate cut could entrench it and jeopardize the bank’s credibility.
Will the Real Kevin Warsh Please Stand Up?
Kevin Warsh’s first press conference as Fed chair after last week’s FOMC meeting settled a question that the markets had been debating for a year: Which Warsh would show up? In the past, Ed and Elias explain, Warsh hawkishly prioritized fighting inflation, but he presented himself as a dove when auditioning for the Fed chairmanship. Would Chair Warsh be some new hybrid? The hawk won: The FOMC swung to a tightening bias as expected, and Warsh’s rhetoric was hawkish point for point. The bottom line: Investors would be well advised to position for a chair who will advocate for raising rates if the data demand it, not for lowering them just because the President demands it. … Also: Ed reviews “The Drama” (+ + +).
Musk’s Lunar Economy, Data Centers & Industrials
Today, Jackie explores SpaceX’s extraterrestrial plans to build AI data centers in space, establish a lunar economy, and develop new trillion-dollar markets on the Moon, Mars, and beyond. Revolutionizing earthly travel with super-sonic aircraft is on the company’s to-do list as well. … Plus: Entrepreneurial upstarts and established companies alike also envision next-gen data centers operating in outer space, as well as the oceans. … And: The furious pace of AI data center construction has benefited the S&P Industrials sector this year; that and company restructurings have helped the index outperform ytd.
On Hyperscalers’ Growth & China’s Persistent Deflation
The bigger the Big Four AI hyperscalers get, the harder it will be for them to keep up the same pace of revenue growth they’re enjoying today. But is AI such a disruptive game-changer that Amazon, Google, Meta, and Microsoft actually can keep growing and growing apace? Today, Melissa weighs the arguments on both sides of that question. The bullish case is solid, but there are risks to the bullish scenario. … Also: President Xi says China has defeated deflation, but May data tell a different story. William explains the festering problems causing prices to drop and why vanquishing deflation won’t be easy.
Some Consequences Of A Strong Dollar
The Bank of Japan is widely expected to raise its benchmark rate this week despite the government’s wishes. But what it will do going forward is highly uncertain. William discusses the bank’s fork in the road at this time of stagflation. … Also: If and when the Fed tightens, so will the chokehold the strong dollar might have on economies around the world, especially emerging economies with weak currencies. William surveys the potential damage. … And: Toby weighs in on emerging markets’ stocks, which have outperformed this year notwithstanding the dollar’s strength yet still trade at very low valuations relative to US stocks.
Hawks Versus Doves Debate At The Fed
This week’s FOMC meeting will be the first over which Kevin Warsh, President Trump’s dovish appointee, presides as Fed chair. Will he succeed in dissuading the hawkishly leaning committee from moving to a tightening bias? Today, Ed and Elias set out both the dovish and hawkish points that the committee no doubt will discuss in what’s bound to be a heated debate. … Also: Warsh steps into his new role planning to implement big changes at the Fed. Elias describes how Warsh views the Fed’s role, the reforms he has in store, and the potential ramifications for Wall Street.
On Soccer, Trucking & Digital Deposits
The largest Word Cup soccer tournament ever held will kick off massive spending in the US, one of its host countries this year. Numerous industries stand to benefit, Jackie reports, as global tourists flock in and spend on hotels, airline tickets, food, drink, and souvenirs. … Also: Two trucking stocks that have travelled north an impressive 50% ytd made abrupt U-turns yesterday when Amazon announced it would be entering their market. … And in our Disruptive Technologies segment: Competitive pressures from cryptocurrencies are forcing big banks to accept digital deposits. They’ll be launching a tokenized digital deposit network next year to keep deposits in the banking system and subject to banking regulations.
On Private Credit, SoftBank & Earnings Breadth
Today, Melissa revisits the disruption of the private-credit market. The potential problems she identified in March have not escalated and don’t signify financial system risk. But AI is disrupting the industry in bad ways and good. And investors are becoming painfully aware of the gating measures designed to protect investors by preventing forced liquidation of funds but also blocking the exit doors. … Also: Willam discusses the fall and rise of SoftBank, now Japan’s largest company, and its founder. … Finally, Joe reports that analysts’ estimates have kept marching upward this year, instead of falling as usual, and that the happy trend is broadening to more sectors.
On Challenges Facing Europe & Canada
The Eurozone is grappling with stagflation, and the ECB is determined to subdue inflation with rate hikes, which it failed to do aggressively enough in 2022. But the stakes are higher today, the decision complicated by trade/geopolitical pressures and uncertainties, and tightening more than the struggling economy can take is a risk. William discusses the challenge facing the ECB and the potential fallout from rate hikes. … Also: Canada is determined to wean itself off exports to the US, but that’s easier said than done. The vast US market absorbs the majority of Canada’s exports, and the resilient American consumer has been lifting Canada out of an economic morass.
The Hires-Exceed-Fires Economy
The strength of May’s employment report surprised many, debunking the notion that the US labor market is mired in “low-hire, low-fire” stagnation. But it confirmed the views of Ed and Elias. They expect demand for labor to continue to improve and supply to remain structurally constrained. This should keep unemployment low, boost productivity, and sustain wage growth. That shouldn’t cause an inflationary wage-price spiral over the long term; the AI-sparked productivity boom should keep unit labor costs in check, in line with our longer-term Roaring 2020s hypothesis. But near-term risks remain: The AI buildout is inflationary, and higher wage growth could add price pressure before offsetting productivity gains materialize. … Also: Elias discusses five economic impacts of AI.
On Consumer Strength & Bitcoin Weakness
Consumer spending has remained resilient in the face of higher gas prices and inflation generally, thanks much to a resilient job market. Jackie recaps recent employment data and discusses Q1 consumer behavior as described by the top brass of three retailers serving different customer niches. … In our Disruptive Technologies segment, a look at the sagging value of bitcoin and sagging investor confidence in Strategy, a small company that’s a play on the cryptocurrency. Investors were shaken by the company’s recent bitcoin asset sales and wonder about an encore.
On Q1 Earnings, AI Investors & China's Latest Clampdown
An accounting rule inflated the S&P 500 companies’ aggregate Q1 EPS to a record high and catapulted their collective y/y EPS growth to nearly 30%. Without the non-operating gains, Joe reports, the index’s EPS still grew 20% y/y but not to a record high. Several Mag-7 companies’ earnings were boosted as a result. Joe backs out the paper gains. … Also: Melissa discusses AI use in investment decision-making. It’s not just a research support tool anymore. … And: William discusses how China stifles the innovation it hopes to foster.
On Tumbling Asian Currencies & Stagflating Australia
Today, William discusses how a more hawkish US central bank and stronger US dollar hammer Asian economies. Besides driving down the value of their currencies, it makes them more vulnerable to excessive inflation and poses problems for their monetary and fiscal policymakers. … Also: He explains how the Australian economy, resilient for 30 years, was “undone by its own success” as structural advantages became liabilities over time. Stagflation now looms, putting the central bank in a tough spot. … And Toby gives a “boots on the ground” assessment of the stock market in his native Australia.
Fed Turning Hawkish
Today, Dr Ed and Elias set out the case for the Fed to tighten sooner rather than later. Unlike the consensus, which doesn’t expect a rate hike until late this year at the earliest, we see the FOMC raising the federal funds rate in July, after pivoting to a tightening bias at its meeting this month. That would be appropriate given the resilient economy, stable labor market, and rising inflation. Indeed, recent statements by various Fed officials suggest that a hawkish recalibration is underway. … Also: A sanguine take on recent consumer debt and credit statistics. They’re not cause for alarm, initial appearances to the contrary. … And Dr Ed reviews “Pressure” (+ +).
On CPUs, Oil & Securing Rare Earths
Agentic AI is proliferating, and to run AI agents requires way more CPU semiconductor chips than running chat boxes. Demand for CPUs is expected to skyrocket as a result, shifting the architecture of data centers. Today, Jackie examines the players and recent industry developments, including NVIDIA’s foray into the stand-alone CPU space. … Also: Oil prices have dropped on hopes that the US and Iran are nearing an agreement that will reopen the Strait of Hormuz. But if it doesn’t reopen soon, oil markets will be in dire straits. … And: Weaning America from dependence on rare earth minerals from China.
On AI’s Complex Pricing, South Korea’s Good Fortune, And S&P 500 NERIs
Pricing for AI services is becoming increasingly complex as AI becomes increasingly agentic. That takes much more computational power than fetching answers. Melissa discusses how AI pricing works, surmising that the winning AI providers won’t be those with the smartest models but those that use “tokens” the most cost effectively. … Also: William discusses the vulnerability of the South Korean stock market and economy. They’ve been soaring on the wings of AI with little underlying broad support. … And: Joe shares his takeaways from updates of our Net Earnings Revisions Index and Net Revenues Revisions Index.