Daily Research Updates
Morning Briefings
Expert market analysis delivered every morning. Stay informed with comprehensive research and data-driven insights.
On AI’s Impact On Jobs, Bessent’s Iran Options & More FEMO
AI usage in the workplace is starting to become commonplace. As adoption rises, will companies enjoy a productivity heyday and send less productive human workers packing? Melissa looked for early signs of worker displacements by AI, and her findings are encouraging: No labor-market shock looks imminent. … Also: William assesses the geopolitical stakes of a prolonged US/Iran war. The risks include provoking China and sinking Trump’s “grand bargain” trade deal. Needed is a diplomatic off-ramp. … And: With Q2 results in hand for 90% of the S&P 500 companies, Joe shares highlights from aggregate earnings data. Notably, 10 of the 11 S&P 500 sectors grew earnings y/y last quarter, and “Main Street” bested the Mag-6 in earnings beats.
The Bond Vigilantes Are Stirring
The US now pays $1 trillion a year in interest on its $40 trillion federal debt. The Fed is waiting to see if inflation will continue to fall on its own. The BOJ is on the verge of more rate hiking. The outlook for oil prices remains uncertain. That has global bond investors pushing up bond yields higher. William discusses why several governments around the world fear for their currencies. … Japan’s PM may retract her opposition to rate hikes, forced by a collapsing yen and rising inflation. … The Japan MSCI’s rally has solid fundamental underpinnings, Toby writes. But yen weakness hurts the performance in dollars. … Central banks have a new crisis-time lender of last resort, the ECB.
Hawks Versus Owls At The Fed
Today, Ed and Elias share bird’s eye views of the economy from the perches of the hawks and owls on the Fed. The hawks may favor tightening at the FOMC’s September meeting, unconvinced that inflation is on a steady flight path down to the Fed’s 2.0% target. The owls are more confident of inflation’s downward course. July’s subdued inflation readings support their case for holding rates steady in September. But recent labor demand and consumer spending data suggest that the economy is healthy enough for a rate hike, supporting the hawks. August’s data should help clarify whether inflation needs a nudge to return to target or can get there on its own.
AI, Oil & Military Technology
Demand for AI computing continues to exceed supply. That was the reassuring takeaway from three companies’ June-quarter earnings reports that breathed new life into worry-prone AI stocks. Jackie summarizes how the CEO of CoreWeave characterized the strong and rising demand for his company’s cloud computing services. … Also: Oil prices haven’t surged catastrophically as the Iran/US war has dragged on—yet. The measures tethering prices have time limits, though. The longer the war lasts, the higher oil prices could go. … And in our Disruptive Technologies segment, a look at the military uses of drones.
On AI Again & Earnings Again
The AI infrastructure buildout is increasingly being funded by Wall Street’s complex financial concoctions. The deals hinge on projections of AI end-user demand, some of which is unproven so far, and they could fall apart if the projections aren’t met. What then? Would AI go from boom to bust à la the housing market circa 2008? Probably not, says Melissa, though she points out the vulnerabilities in the AI ecosystem posed by creative financial engineering. … Also: Joe assesses the impacts of two big companies’ MTM gains on the S&P 500 companies’ collective Q2 and projected earnings.
On Asian Currencies, Australia & Canada
Asian currencies are in crisis, but the situation isn’t as dire as the Asian Financial Crisis of 1997, writes William. Today, he explores what’s at stake and the reasons that the US Treasury department has intervened to shore up the yen—including self-interest. … Also: Australia’s rate-hike cycle is ending, not with a bang but a shrug. … And: A look at the trade war heating up between the US and Canada, again. … Plus: Canada’s strong stock market this year doesn’t reflect its economy as much as what’s happening in the worlds of energy and finance, Toby observes, given its composition of industries. Earnings have been driving the Canadian market higher, not P/E multiple expansion.
Does The Jobs Report Change Anything?
The Fed’s monetary policy mandate requires consideration of both inflation and labor market conditions. If the former compels a rate hike next month, would the latter stand in the way? That’s the question of the hour after last week’s jobs report, with a headline that telegraphed “weakness.” Elias and Ed argue that the headline numbers looked deceptively weak because of calendar effects and World Cup related distortions. Indeed, most industries posted job gains. In short, the labor market is well balanced. So, no, it shouldn’t stand in the way of the Fed’s tightening in September.
On SpaceX, Copper & Semiconductors
Have SpaceX investors gotten altitude sickness? As SpaceX, the company, continues to shoot for the moon, SpaceX, the stock, has been spiraling. Jackie examines both Elon Musk’s lofty ambitions for the company and investors’ down-to-earth concerns. … Also: The huge data center buildout is driving up demand for the materials used, from construction machinery to metals. Their pricing reflects the soaring demand. So does the Q2 earnings report of copper producer Freeport-McMoRan. … And in our Disruptive Technology segment: The challenge of making semiconductor chips more efficient.
Mostly About AI & A Little Bit About China
Investors have become increasingly discerning when it comes to buying the AI hyperscalers’ stocks. Instead of investing on faith, they’ve been assessing company by company whether future demand might be huge enough to justify the massive capex devoted to data center buildouts. Today, Melissa shares her analysis and reassuring conclusions, informed by individual companies’ capex plans and their revenues expectations based solidly on presold compute contracts. … Also: William discusses the Chinese government’s vigorous defense of its export-heavy economic model. President Xi’s swagger doesn’t bode well for the trade talks he’ll soon be having with President Trump and European leaders.
On The Yen, German Inflation, And The UK
The US Treasury Department is intervening to support the yen in an effort “built to fail,” writes William—which would be alright with Prime Minister Takaichi. Tokyo’s fight against yen bears is “largely theater,” and the US intervention is a “PR-motivated half-measure.” … Also: Germany and the Eurozone broadly have an inflation problem stemming from the war in the Middle East. That gives the hawks on the ECB plenty of ammo, and a September rate hike is likely. … And: A look at Fed Chair Warsh’s ties to the BOE, ideological and otherwise. … Plus: Toby assesses whether the British stock market still deserves its historical valuation discount.
GDP Growth Is AI-Powered & G-Shaped (Not K-Shaped)
Looking solely at Q2’s GDP growth rate, one would think the economy is weakening. Not so, say Ed and Elias. In fact, demand of all types strengthened last quarter, buoyed by brisk consumer spending, thanks to the Baby Boomers, and brisk business investment, thanks to the AI boom. The lower GDP growth rate was a function of surging imports, which aren’t bad news. Imports often rise in response to a strong domestic economy. … Also: As the economic engine heated up last quarter, so did inflation. The same consumer spending and AI capex trends keeping the economy vibrant are also boosting inflation, along with higher energy prices. … And: Ed reviews “Shipwrecked: Nightmare at Sea” (+ + +).
On The Semi Slump, Life Insurers & Plastics
Investors have come down hard on the stocks of semiconductor companies over the past two months. Jackie examines their worries about the industry’s outlook. … Also: Is it right for private equity firms to own life insurance companies and invest the insurers’ assets? That’s happening increasingly, yet critics allege that potential conflicts of interest abound that could put insurers in harm’s way. … And: The Gulf war has disrupted the plastics production pipeline, sending the prices of virgin plastic surging at a time when US plastic recycling capacity is way down.
On AI Regulation, Tariffs Again & Earnings
Chinese open-weight AI models have made rapid inroads into the US market, but they pose risks to US interests, and regulating their use is logistically problematic for the US government. Melissa explores the regulatory challenges and the measures the government can and can’t take in its crackdown on foreign AI. ... Also: New rounds of US tariffs are bound to further destabilize shaky emerging market economies. William examines what various vulnerable economies are in for. … And: Joe shares great earnings news from the S&P 500’s early Q2 reporters.
On Challenges Facing BOJ & ECB And Why Europe Is Appealing
The Bank of Japan isn’t expected to raise its benchmark interest rate this Friday—but should, argues William. Decades of near-zero interest rates have done more economic harm than good, so rate hikes would actually be good for Japan’s stock market. … The European Central Bank is widely expected to raise its key interest rate this week as energy-supply shocks intensify. Europe is a heavy importer of energy, so the Gulf war poses its greatest macro risk and increasingly dictates its rate path. … Toby reports that European equities are trading in that sweet spot investors look for: P/Es are relatively low but forward earnings at a record high, driven by expanding margins.
Bond Vigilantes: Fed Needs To Get Ahead Of Inflation
Recent inflationary developments increase the chance that the FOMC will vote to raise the federal funds rate at this week’s meeting. Today, Ed and Elias examine the hawkish shift and explain why it suggests that a 25bps rate hike this week is more likely than not. … Also: The Fed underestimated the persistence of the 2021-22 inflation shock and won’t be inclined to do so again—lending a hawkish overlay to the Fed’s deliberations. … And: The bond market appears to think a July rate hike is warranted, flagging broader inflationary risks than those represented by energy prices alone. … Ed reviews “Odysseus” (+ +).
On AI, Consumer Credit & Parkinson’s Treatments
Demand for Chinese companies’ open-weight AI models—with free downloadable components for users to customize—is soaring. But US AI providers also offer open-weight models. Jackie discusses the crowded open-weight AI market, where customer demand may not determine the winners as much as government interventions do. … Also: Credit-card company managements were quite pleased with consumer spending and card payment behavior during Q2. A look at the good things they had to say about the health of the consumer. … And: Our new intern Aleksandra Zelatis explains the significance of a potential breakthrough treatment for Parkinson’s disease and how AI helped speed its development.
On UK’s Vigilantes, Persian Gulf Cables, And Fabulous Earnings
Britain’s new prime minister appears to be on a collision course with the Bond Vigilantes. They’re on high alert given his promises of an economic and political overhaul that’s bound to mean debt-bloating fiscal spending. ... Also: The cables that run under the Strait of Hormuz are essential components of the global digital nervous system. William discusses Iran’s threats to weaponize them, which leave Big Tech “with some serious recalibrating to do.” … Also: Joe says the early Q2 reporters, especially the tech companies, have dramatically boosted both earnings growth data for S&P 500 companies in aggregate and analysts’ Q3 and Q4 earnings estimates. He expects those forecasts to continue to rise.
AI In Asia
China’s government is on a mission to dominate global AI. William explains what’s wrong with that picture. “The future of AI isn’t China’s for the taking,” he says, but “it isn’t Silicon Valley’s by default either.” … Also: How concerning is AI-driven inflation? The central banks of South Korea and the US see that question through different lenses. … And: Four Asian stock markets that stand to benefit from the AI boom are valued radically differently. Toby looks at why and how supported their valuations are by earnings.
Fed Rate Hike Still On The Table
Neither the Fed’s dual mandate nor its official 2% inflation target have changed. But from what Kevin Warsh has said since assuming the role of Fed chief in May, his priority appears to be the inflation side of the dual mandate and his target may be underlying inflation rather the PCED inflation rate. Today, Ed and Elias look at the ramifications of such a potential shift in the Fed’s focus and discuss the best measure of underlying inflation. They also assess the latest economic data and explain why they think a rate hike this year is still likely. … Also: Dr Ed reviews “I Swear” (+ +).
On Oil, Financials & Quantum IPOs
Oil industry assets are being destroyed left and right in Russia and the Middle East, the casualties of two ongoing wars. As a result, the world is using more oil than it’s producing, and the Strategic Petroleum Reserve has been depleted to levels nearing the minimum needed for its pumps to work. Jackie examines associated ramifications, ironies, and the pipeline projects being undertaken as an alternative to shipping oil. … Also: Banks, brokers, and asset managers have been reporting stellar second quarters. … And: A look at the leap in quantum-computing-related IPOs—and US government initiatives to accelerate development of quantum technologies.
On AI’s Revenues, Gold’s Outlook & Blockbuster Earnings
Can investors really expect that today’s ravenous demand for AI will keep growing at the clip providers expect over the coming years? AI bears say no, but Ed and Melissa disagree. Her back-of-the-napkin reality check found that Anthropic’s firm’s $150 billion 2030 revenue forecast looks doable. … Also: Ed and William discuss the outlook for gold in the wake of its price drop. If support holds at $4,000 an ounce, they could see a rebound to $5,000 by year-end without any weakness in the dollar. … And: Joe’s data show that analysts’ earnings estimates for S&P 500 companies have shot up over the course of last quarter, which is highly unusual.
On EMs & Iran War 2.0 Plus: South Korea’s AI Bet
The resumed US-Iran war will hit Asian nations hard, William reports, destabilizing weak currencies and struggling economies. The rupiah, rupee, yen, and won all have come under renewed pressure, and another oil-supply shock could further depress currencies, increase dollar debt, and raise bond yields. Developing economies are vulnerable as well to second-round effects like food inflation. … Also: Investors looked to the Nasdaq debut of Korea’s SK Hynix for clues to the AI craze’s durability and Korea’s role in it. When the shares sold off on Monday, doubts were kindled. … Toby cautions against reading too much into the activity of a single stock and argues that the Asian AI trade has solid fundamental underpinnings.
Warsh’s Tasks
The AI boom is fueling the Fed’s hawkishness, as Ed and Elias agree it should, since it’s also fueling inflation currently. Yet Fed Chair Warsh asserted at his confirmation hearing that AI is a disinflationary force. They agree with that as well: It is disinflationary over the long term, which is the crux of our Roaring 2020s economic thesis; but paradoxically, AI is escalating inflation now as rapid demand spurs rapid infrastructure buildout. Once AI adoption is widespread, however, the productivity growth it sparks will propagate disinflationary economic growth. … Also: A look at who will lead Warsh’s five new task forces. … And: Consumers continue to do what they do best.
The Summer of Fun, Margins & Battlefield Charging
World Cup-themed gatherings and parties are sending sales soaring for brewers, restaurants, and even sports-related retailers. But investors aren’t among the revelers. Jackie says the S&P 500 Restaurant industry index’s poor performance has improved over the past month; but the S&P 500 Distillers & Vintners index remains depressed, though cheaply valued. … Also, a look at the S&P 500 industries that have the widest and slimmest profit margins, with a focus on the S&P 500 Semiconductors industry. … And in our Disruptive Technologies segment, innovative technologies that the US military is developing to wirelessly recharge devices in the field.
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.