Weekly Insights
Weekly Webcasts
Join us every Monday for expert market commentary and analysis. Our weekly webcasts cover key market developments, economic indicators, and investment strategies.
Game Of Thrones: The Mag-7 & The Fed
It has all the drama of “Game of Thrones”: The Magnificent-7 kingdoms, each surrounded by moats, rarely had threatened each other’s monopolies in the past. Now, with the advent of AI, they have been encroaching on each other’s previously sacrosanct fiefdoms, forcing one another to spend ever more to remain in the game. Amid the chaotic disruption, investors’ AI euphoria has given way to AI agita as confidence in the Mag-7 ebbs. Are their earnings inflated by accounting? Will returns justify their capital investments? Our take: AI will have a powerful impact on productivity in the economy. The winners may not be among the Mag-7 at all but the S&P 500’s Impressive 493 and the economy at large. … Today, Dr Ed enlists the help of Google’s Gemini AI assistant to extend the “Game of Thrones” metaphor to this disruption as well as the transition in the Fed’s Iron Throne.
2026: Another Year Of Living Audaciously!
The coming new year looks like another good one for stock investors. Dr Ed is adjusting his subjective odds of various stock market scenarios, including raising the odds of his base-case Roaring 2020s outlook to 60%. Associated assumptions for earnings and valuation levels produce an S&P 500 price target of 7700 by year-end 2026. Alternative scenarios include a bear case, triggered by a recession or recession fears (20% odds), and a stock market meltdown/meltup (trimmed to 20%). … Also discussed: Five winds at the economy’s back that support a continuation of the Roaring 2020s and six potential developments that could blow it off course.
2026 Is Coming!
Our base-case outlook calls for a continuation of the Roaring 2020s scenario next year, with ongoing productivity gains that fuel a robust economy, which propels earnings and the stock market higher. Today, Dr Ed reviews the Roaring 2020s thesis; outlines what he expects 2026 will bring in terms of economic variables, earnings, and the S&P 500; makes portfolio allocation recommendations; and weighs in on the “Impressive-493,” the rising appeal of foreign stock markets, bullish expectations for the dollar and gold, and bearish ones for bitcoin. After the Roaring 2020s? There’s reason to think the 2030s could roar as well.
All About Earnings
The economy and corporate profits have been remarkably resilient in recent years despite numerous formidable challenges. This year continued the remarkable performance, as Trump’s Tariff Turmoil failed to derail earnings or the economy. As a result, the stock market has soared. We remain optimistic on the outlooks for the economy, earnings, and the stock market, supported by a continuation of this year’s remarkable earnings strength into 2026. … However, there are some legitimate concerns regarding AI-related companies’ accounting practices that call into question the quality of S&P 500 earnings generally, given the Tech sector’s outsized earnings share.
Geniuses Of Stablecoin
Now that the GENIUS Act has established a framework for stablecoin issuance with safeguards for consumers, we expect stablecoin usage to proliferate. Because stablecoins are backed by liquid assets such as Treasury bills, their proliferation is likely to affect bond market dynamics. Because stablecoins can be used for transactions, they’re likely to shrink the markets for other cryptocurrencies that can’t be, like bitcoin. Because stablecoins are a new M1 component, they’re likely to reduce the Fed’s control over the money supply. How stablecoin’s uptake will alter monetary policy, interest rates, and the federal debt is hard to predict. Stephen Miran theorizes that stablecoin proliferation will lower the neutral interest rate, requiring the Fed to ease accordingly. We aren’t convinced.
Powell’s Swan Song
The data-dependent Fed is operating as well as possible without the usual economic data releases from government agencies during the shutdown. The shutdown is the latest in a series of unusual challenges Jerome Powell has navigated admirably as Fed chair. When his term ends in May, he’ll no doubt be replaced by a Trump loyalist, who undoubtedly will push the FOMC’s other voting members to provide easy monetary policy. If the chair is outvoted, the resulting internal dissension would be unprecedented and seriously detrimental to the Fed’s credibility. … For now, Powell’s statements during his recent presser suggest that a December rate cut is far from certain.
Inflation: 3.0% Is The New 2.0%
The Fed Put is back. Given the likelihood of two more reductions in the federal funds rate before year-end, we’re reducing the odds of our bullish base-case Roaring 2020s scenario from 55% to 50% and raising the odds of an even more bullish stock market meltup from 25% to 30%. Indeed, the stock market jumped Friday in reaction to a cooler-than-expected inflation report, since it buoys the case for Fed ease. Today, Dr Ed explains why further rate cuts are not needed now with both parts of the Fed’s dual mandate, unemployment and inflation, close to Nirvana. The Fed’s attempt to achieve the “neutral” FFR rate by easing is more likely to drive stock prices higher than to help the labor market.
Halloween Is Coming
Investors’ panic attack Thursday was another of many short-lived frights that haunt bull runs. Our economic analyses help us spot the difference between panic-generated minor pullbacks and scarier downturns like corrections and bear markets. Corrections tend to occur when investors fear a recession that doesn’t happen. Bear markets tend to be caused by recessions. Currently, the economy remains resilient, and a recession is unlikely, in our opinion. Plenty of frightening scenarios have been floating around in recent years, but our confidence in the resilience of the economy has helped us to expose them as phantoms.
Trump Trade Turmoil, Again
The latest US–China aggressions have the financial markets worried about the high stakes of a trade war between the globe’s biggest trading nation and its largest economy. William observes that a disruption to global supply chains would have adverse consequences for earnings, economic growth, and central banks’ pursuit of their mandates. But given the severity of the consequences, we expect a quick de-escalation of the tensions, with both sides willing to negotiate.
Still Roaring
Sunshine during my tour of the West Coast and in the stock market last week. But everyone’s on the lookout for signs of an AI bubble. Jeff Bezos has a positive take on bubbles that makes sense to us: They accelerate funding and hasten AI’s tremendous benefits. Revisiting the BRAIN Revolution and our long-standing confidence in technology and its positive impact on the economy.
Meet Bonnie
Our Roaring 2020s outlook has been on target since the beginning of the decade. Over the past two quarters, GDP growth and consumer spending have been robust, and the recession widely anticipated for three years and as recently as April never showed. The Fed’s September interest-rate cut—made proactively in response to weak payroll stats—was probably a mistake that could stoke price inflation and financial speculation. While unemployment is low, AI is disrupting some areas of the labor market. The Fed’s rate cut won’t help former tech workers now driving for Uber. … The good news: Consumer spending should remain strong as Baby Boomers work down substantial nest eggs and support the spending of their adult progeny.
Is The Fed’s Policy Restrictive?
The Fed’s 25-basis-point cut in the federal funds rate last week doesn’t change our S&P 500 price targets or our subjective probabilities of a meltup (25% odds) or correction (20%) by year-end. Today, Dr Ed explores the reactions to the rate cut in the markets for stocks, bonds, the dollar, and gold as well as the significant takeaways from the FOMC’s September 17 meeting. Notably, the post-meeting Dot Plot and press conference revealed less dovishness than many investors had expected.
Dear Scott
A recent article by Treasury Secretary Scott Bessent takes aim at the Fed for its use of unconventional monetary tools and its mission creep. Today, Dr Ed addresses the Treasury secretary in an open letter, detailing where they agree and diverge on the Fed’s role and what monetary and fiscal policies are needed to sustain the Roaring 2020s scenario that both support. While an original aim of the Fed was to promote financial system stability, Bessent’s push for lower interest rates risks a stock market meltup and upward pressure on inflation and bond yields. … Also potentially destabilizing: The administration’s highly unconventional Genius Act, which would use stablecoins backed by US Treasury bills to increase demand for Treasuries and fund the federal debt.
The Good, The (Not So) Bad & The (Relatively) Ugly
Our Roaring 2020s economic scenario and expectations for inflation and the labor market suggest that the Fed probably shouldn’t cut interest rates this year, although one cut might be warranted if upcoming inflation reports are more subdued than we expect. Yet a rate cut next week, after the FOMC meets Wednesday, is practically a foregone conclusion. Stimulating an economy that doesn’t need stimulation won’t create more workers to address the undersupply that’s constraining the demand for labor, Dr Ed explains. Plus, cutting rates when it’s not necessary could cause stock prices to melt up and destabilize the broader financial system. … Plus, a look at the debt crises attracting Bond Vigilantes’ attention in the UK, France, and Japan.
What Could Possibly Go Wrong (with special guest Jim Lucier of Capital Alpha)
September has a long history of being a tough month for the stock market. This has been particularly true over the past decade, based on the average year-to-date percentage change in the S&P 500 during Septembers (chart). But when September was weak in the past, it often provided buying opportunities for year-end rallies.
The Chair Has Spoken
Fed Chair Powell’s eagerly awaited speech at the Fed’s Jackson Hole Symposium on Friday fanned stock investors’ hope that the FOMC would lower the federal funds rate in September—despite Powell’s hedges and the fact that upcoming data releases will figure into the decision. Notably absent in his speech was mention of the Fed’s need to maintain financial system stability if it is to achieve either goal of its dual mandate. Easing in September could test that stability, test the Fed’s commitment to its 2.0% inflation target, and test the Bond Vigilantes’ patience. But it would be good for the stock market. We’re maintaining our targets for the S&P 500 price index of 6600 by year-end 2025 and 7700 by year-end 2026.
Another Candidate For Fed Chair
Dr Ed is sticking to his guns: He has contended since early last year that the US economy is too resilient and inflation is not close enough to 2.0% for Fed officials to muck around with easing. The widespread expectation that they will ease anyway in September is lifting stocks, and the actual event may cause a stock market meltup. The bond market’s reaction to unwarranted easing is tougher to gauge. If it causes the Bond Vigilantes to drive up yields, the Fed’s reputation as inflation fighters could be shot. Recent inflation data suggest inflation could use some fighting, as Trump’s tariffs may be keeping it elevated above the Fed’s target 2.0% and services inflation remains hot.
Relax, Folks: Jobs Report Was OK
Yes, payroll employment rose less than expected in July, and, yes, revisions pegged it lower than initially thought during May and June. That doesn’t mean demand for labor has slacked off, as the extreme reactions of the financial markets suggested. The payroll weakness says more about the supply of labor than demand for it. Indeed, the two are in balance, which Fed Chief Powell even said last week. Other labor market barometers indicate strength: Hours worked are at a record high; so are wages—even adjusted for inflation. Companies aren’t firing more, though they are hesitating to hire so the duration of unemployment is up. The uncertainties related to Trump’s Tariff Turmoil might account for that.
Update On The Roaring 2020s
Halfway through the decade, our Roaring 2020s investment theme remains on track. The US economy continues to prove remarkably resilient, supported by the robust spending of businesses and consumers, especially Baby Boomers. So far this year, it has been acing the stress tests of Trump’s trade policies. If the final years of the decade pan out as expected, Dr Ed reckons that the S&P 500 price index may be around 10,000 as the 2030s begin. And there’s no reason to expect the roaring to stop then.
Foreigners LOVE American Securities
Like Blanche DuBois, the US Treasury has been dependent on the kindness of strangers, particularly foreign investors. Doomsters warn that foreign investors are losing their confidence in US Treasuries and in the US dollar. Yet, the Treasury’s latest TICS data show that they remain strong buyers of US debt. In addition, they’ve bought a record amount of US equities over the past 12 months. Dr Ed reviews the latest data and discusses the implications.
Trump’s Reign Of Tariffs Ain’t Over
We had expected that Trump’s Tariff Turmoil would have subsided by now, and investors probably assumed the same since the financial markets have been so okay with it all in recent weeks. But the resilience of the economy, the moderation of inflation, and the calmness of the markets seem to have emboldened the President: He has not relented on his tariff war with the world as expected by now but seems to be escalating it again. That’s even though high tariffs are bound to hurt US corporate profit margins, the US economy, and the GOP’s slim majority in Congress after the midterm elections. What now? Dr Ed shares his thoughts and maintains his yearend price target for the S&P 500.
Trump & Bessent Versus Powell & The Bond Vigilantes
President Trump is determined to lower the interest paid on government debt one way or the other. One way is replacing Fed Chair Powell with a Trump loyalist who tries to convince the rest of the FOMC that the federal funds rate must fall, the data be damned. Another involves replacing maturing long-term Treasury bonds with short-term Treasury bills until long-term bond yields fall enough to refinance advantageously. Such “Yield Curve Control” requires the cooperation of US Treasury Secretary Bessent (which Trump has) and the Bond Vigilantes (which he doesn’t). Is it a clever way to lower the federal government’s net interest outlays or is it a catalyst to capital markets turmoil?
Heatwaves
Saturday night, American bombers obliterated three key nuclear sites in Iran. We think Iran won’t retaliate and will sue for peace. … Meanwhile in the US, foreign tourists might not be crowding the airports as usual. If Trump’s America First blustering is keeping them away, don’t worry about the impact on US GDP—it would be too small to drag down the overall economy. … Dr Ed reviews the recent economic data releases, concluding that the resilient US economy is running neither too hot nor too cold. … The Fed made the right decision last week not to ease interest rates, in our opinion. But one FOMC participant and apparent Trump loyalist begs to differ.
Americans Are Still Working For A Living
Over the past three and a half years, the US economy has defied the recession expectations of many, remaining uncommonly resilient in the face of stress tests including Fed tightening, an oil price spike, and most recently Trump’s Tariff Turmoil. The economy’s strength despite these formidable challenges supports our base-case Roaring 2020s scenario (to which we assign 75% odds) and our still bullish S&P 500 targets. … A big reason for the economy’s impressive resilience is that the labor market has remained impressively resilient. Americans are working, secure in their prospects to keep working, so their spending hasn’t been slowed by tariff-related uncertainties.