by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment begins with our key takeaways from the October 28-29 FOMC meeting. We then assess concerns over elevated tech spending and explain why it is unlikely to derail near-term sector momentum. Additional analysis covers the newly agreed US-China trade truce and the implications of stronger-than-expected economic growth in Europe. We conclude with our regular summary of critical international and domestic data releases.

Fed Division: The FOMC’s widely anticipated 25 basis point rate cut at its October meeting laid bare a deepening rift on the committee. The vote revealed a sharp division, with dissents coming from both sides of the debate. Kansas City Fed President Jeff Schmid argued for no cut at all, while Governor Stephen Miran championed a deeper 50-point reduction. This rare public split underscores the central bank’s fundamental challenge of navigating the conflicting demands of its dual mandate to foster both maximum employment and price stability.

• The division was further reinforced at the press conference when Fed Chair Jerome Powell bluntly stated that a December rate cut was not a “foregone conclusion.” This clear, direct remark — a contrast to his usual guardedness and hedged approach regarding policy — suggested he intended to aggressively rein in market expectations as Fed officials themselves still grapple with the proper direction for monetary policy.
• Investor sentiment shifted decisively following the Fed’s announcement as the S&P 500 relinquished its advances and the dollar strengthened. This market move was a direct response to the hawkish undertones of the rate cut, underscored by internal dissent and Chair Powell’s uncharacteristically blunt communication, which together signaled a potential extended pause in the easing cycle.
• Adding significant risk to the policy outlook, the government shutdown is effectively blinding the Federal Reserve, undermining its commitment to being data dependent. The halt to official statistical releases means the central bank must now operate without its most reliable economic indicators. Though Fed officials are referencing private and survey data, these sources are demonstrably less robust and statistically noisier than timely government reports.
• That said, Wednesday’s market decline likely reflects growing conviction that the Fed will not cut rates in December. This shift is clear in the CME FedWatch Tool, which now shows a 70% probability of rates holding steady through year-end, up sharply from 30% just a week ago. Should these rate expectations reverse, it would likely boost equity prices broadly, with particularly significant gains for interest-rate-sensitive sectors.

Big Tech Tests Investors: While this year has seen a surge in AI-related capital expenditures, firms expect this high level of spending to continue into next year. The trend is driven by continued heavy investment in data centers and infrastructure from tech giants like Meta, Microsoft, and Alphabet. Although these companies maintain that the spending is necessary to meet rising demand, there are growing concerns that it could be fueling a market bubble.

• Investor anxiety over soaring capital outlays sparked an immediate pre-market retreat in tech stocks. The trigger seemed to be the staggering scale of AI-related investment: Alphabet, Meta, and Microsoft collectively poured $78 billion into capital expenditures last quarter, an 89% jump from a year earlier. Meta’s guidance for “notably higher” spending further fueled bubble concerns, especially since it is not a major cloud provider serving external clients, making its investments appear riskier.

• That said, drawing a comparison to the tech bubble of the1990s may be premature, given fundamental differences in corporate health. Crucially, the major companies driving the current AI boom — unlike their dot-com predecessors — possess verifiable profits, diversified revenue streams, and massive cash reserves. This robust financial foundation provides a strong buffer against any sharp market downturn, lending momentum and stability to these stocks, at least over the immediate horizon.

US-China Trade Deal: The US and China have agreed to a one-year trade truce, though it falls short of the comprehensive deal many anticipated. The agreement includes a suspension of new trade and investment restrictions. Key concessions included the US agreeing to reduce fentanyl tariffs to 10% and lift certain corporate restrictions, while China committed to resuming soybean purchases and rare earths exports. While this alleviates immediate pressure, it sets the stage for potential renewed tensions next year.

• Although this falls short of the comprehensive deal that markets were anticipating, it serves as a strategic pause. This interim period will likely be used by the US to accelerate the diversification of its critical mineral supply chains away from China, and by Beijing to advance its campaign for technological self-reliance, particularly in chips.
• The truce is likely to sustain equity market support, as it alleviates supply chain strains and safeguards the resilient earnings trajectory seen in recent quarters. However, the underlying uncertainty in US-China trade relations is expected to re-emerge as a major investor concern in 2026.

 Eurozone Resiliency: Third-quarter GDP for the eurozone came in stronger than forecast, growing by 0.2% against a 0.1% consensus. The outperformance was largely due to a surprisingly strong 0.5% expansion in France — its fastest pace since 2023 — which more than offset a stagnation in Germany. France’s resilience amid political uncertainty is likely to bolster investor confidence, supporting the view that the region’s strong equity performance can continue.

Centrist Win in Netherlands: The centrist-liberal D66 party is projected to win the most seats in the Netherlands, narrowly defeating the far-right Freedom Party. This outcome represents a rare setback for right-wing populists in Europe, a movement that has largely gained popularity in recent years. While some speculate this result could inspire similar shifts across Europe, we believe the Dutch vote reflects a deeper trend of rising income inequality eroding loyalty to any specific parties, creating a more volatile political landscape.

Nuclear Testing: The White House has announced plans to resume nuclear weapons testing, a move aimed at modernizing US defenses and countering advancements by strategic competitors China and Russia. This decision follows the recent authorization for South Korea to build nuclear submarines and reflects a broader pivot in the administration’s foreign policy. Despite a stated agenda of conflict resolution, President Trump is simultaneously adopting a more hawkish stance to address rising global tensions.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment begins with our analysis of why the Federal Reserve’s balance sheet may now be more critical than its rate decision. We then examine the surge in tech deals as a potential signal of a longer-term trend. Additional topics will include the growing corporate focus on efficiency-driven earnings, progress in US-China trade talks, and a possible setback in the Israel-Gaza truce. We also provide a summary of key international and domestic data releases.

Fed Meeting Primer: While rate cuts have dominated headlines, the market’s focus appears to be shifting to the Fed’s quantitative tightening. A severe liquidity crunch is underway, fueled by a perfect storm of factors: interbank rates breaching the Fed’s target, the Treasury’s rapid refilling of its General Account, and the depletion of the reverse repo facility (RRP). This aggressive drain on system-wide cash is driving up funding costs and threatens to become the primary headwind, structurally undermining the supportive liquidity environment that has powered the recent equity rally.

• The Fed’s signal to conclude quantitative tightening (QT) aligns with its goal of preempting liquidity stress. A key preparatory dynamic has been the drawdown of the RRP. As the Fed’s overnight repurchase agreement rate became less attractive, investors were incentivized to deploy cash into higher-yielding private markets. This process naturally drains liquidity from the RRP and, by doing so, helps the Fed identify the true, underlying level of demand for bank reserves within the system.

• Furthermore, the Fed had already begun to slow the pace of its balance sheet reduction in April. This deliberate slowdown is intended to extend the tightening cycle, allowing reserves to gradually decline from “abundant” to “ample” levels. The central bank’s objective is to execute this transition smoothly to avoid the kind of market disruptions that characterized the September 2019 repo crisis.
• Foreshadowing the current market stress, Fed Chair Jerome Powell had already signaled earlier this month that the central bank was looking to end its quantitative tightening program, which is likely to reduce much of the funding stress and could potentially pave the way for more rate cuts.
• It’s important to note that even with the tightening of liquidity, market stability has held up comparatively well. This resilience is a result of the Fed’s creation of robust liquidity backstops, encouraging banks to increase reliance on the standing repo facility (SRF) and, to a lesser extent, the discount window for immediate funding. As long as there is no abrupt loss of confidence triggering systemic bank runs, we expect the market impact to remain manageable.

Tech Boost: The AI merger and partnership trend continues to affirm the tech rally’s staying power in the equity market. The most notable deal on Monday was OpenAI’s restructuring, which granted Microsoft a 24% stake in the company. This move will make the company more attractive to investors as it shifts to a for-profit entity. Additionally, Nvidia announced a 2.9% equity stake in Nokia, a deal valued near $1 billion. Recent high-profile deals underscore a new era of resource consolidation and strategic alignment across the tech industry.

• These strategic investments have become critical for tech firms aiming to accelerate growth and secure essential resources. They are primarily driven by the need to quickly improve operational synergies and gain rapid access to proprietary technology and specialized talent.
• Through its strategic partnership with OpenAI, Microsoft has secured a pathway to advancements in artificial general intelligence (AGI) — a transformative step beyond current AI. In a similar vein, NVIDIA’s collaboration with Nokia positions it at the forefront of next-generation wireless technology by involving it in the development of 6G cellular services.
• This flurry of activity is driven by the White House’s agenda to spur AI-driven reindustrialization and build a robust US industrial ecosystem. While this initiative fosters unprecedented collaboration, the inherent structure of the AI sector means it simultaneously risks accelerating market concentration, likely cementing the dominance of a few key technology giants.
• We believe tech stocks maintain significant momentum, a trend likely to persist through 2026. Deal-making is expected to shift into higher gear, fueled by tax incentives such as the interest rate deduction provision from the landmark bill passed in July. Although concerns of an AI bubble are valid, we see little evidence suggesting it will burst in the near term.

Jobs and Earnings: The trend of corporate workforce reduction continues as executives prioritize profitability. This week, UPS beat earnings forecasts, crediting its recent layoffs for boosting margins, while Amazon announced further job cuts to drive efficiency through restructuring and AI. These moves confirm our thesis that in an era of sustained pressure from tariffs and rising costs, aggressive headcount reduction has become a primary corporate strategy for stabilizing and growing earnings.

US Al Alliance: The United States and South Korea are expected to finalize an agreement to strengthen their collaboration in key technologies, including artificial intelligence, quantum computing, and 6G. The deal will establish aligned export controls and reduce regulatory burdens for tech companies. This move reinforces our view that the US is seeking to supplement traditional trade relationships with strategic technology alliances as a primary means of maintaining its global leadership.

US-China Trade: In a sign of easing tensions between Washington and Beijing, China has purchased its first cargoes of soybeans this year, indicating a potential recovery in bilateral trade flows. This move follows President Trump’s announcement that he would allow China to have access to Nvidia’s advanced Blackwell chips. These developments reinforce our view that the two sides are moving toward a broader “grand bargain” agreement, a prospect that is likely to provide crucial support to the market.

Canada Looks for Friends: Canadian Prime Minister Mark Carney is following through on his promise to reduce Canada’s economic dependency on the United States by strengthening ties with Asia. During the ASEAN conference in Malaysia, he pursued a free trade agreement between Canada and the 11-nation bloc. This push comes as Canada faces mounting job losses resulting from a trade dispute with the US, which imposed 10% tariffs after the province of Ontario released an anti-tariff advertisement in American markets.

Israel and Gaza: The ceasefire between Israel and Hamas has been severely tested in recent days. On Tuesday, Israeli Prime Minister Netanyahu ordered strikes on Gaza, accusing Hamas of violating the agreement by attacking Israeli soldiers. Although tensions have since cooled, significant concerns remain that the truce may collapse. A renewed escalation in the region could exert upward pressure on global oil prices.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with a few notes on the recent pullback in global gold prices. We next review several other international and US developments with the potential to affect the financial markets today, including two new deals in the red-hot areas of artificial intelligence and nuclear energy and another high-profile expression of concern that bad loans in the private-credit industry could lead to wider financial problems.

Global Gold Market: As of this writing, gold prices have fallen decisively below the psychologically important $4,000-per-ounce mark for the first time since spiking above that level in early October. As we have warned previously, signs of a thaw in US-China relations have probably taken some safe-haven bid out of the yellow metal, at least temporarily. We remain bullish on gold over the longer term, but a short-term pullback would not be unusual. We see gold’s next significant support levels at about $3,730 and $3,640.

(Source: Yahoo Finance)

US Artificial Intelligence Industry: Renewable energy giant NextEra and Google have struck a deal under which NextEra will restart a 615-megawatt nuclear generating station in Iowa to sell Google electricity over the coming 25 years, mostly for its artificial-intelligence data centers. The nuclear plant, known as the Duane Arnold Energy Center, has been shuttered for the last five years; a reopening is expected to cost about $1.6 billion

• The deal is the latest in a string of such agreements designed to feed the enormous power needs of the AI industry.
• The deals involving nuclear plants are helping foster renewed interest in the technology, which in turn is helping foster strong demand for uranium and boosting the stock prices of uranium miners.

US Nuclear Energy Industry: In another, broader nuclear deal, reports today say the US government and Cameco, the owner of reactor builder Westinghouse, have struck a deal under which the US will provide $80 billion to Westinghouse for land purchases, permitting, and business development costs associated with building about eight modular reactors, a mix of large and small. The $80 billion would be part of the funds Tokyo agreed to invest in the US under its recent trade deal with Washington.

• Consistent with other recent deals, the federal government would get a 20% share of Westinghouse’s profits from the reactors once it has distributed $17.5 billion to its current owners. The US government can also require Westinghouse to go public if its value exceeds $30 billion by 2029 and then convert its profit share into a 20% equity stake in the company.
• Those features will likely keep alive concerns regarding government ownership of productive facilities and possible interference in the operations of private companies.

US Financial Industry: The chief financial officer of banking giant HSBC has issued another high-profile warning about financial risks in the burgeoning private-credit industry. The official stressed that HSBC has very little direct exposure to private-credit firms that may be facing soured loans, but he warned that second- and third-order risks could be important. His comments echo those of JPMorgan CEO Jamie Dimon, who recently warned that the few “cockroaches” seen so far probably point to a broader infestation.

US Monetary Policy: Today, the Fed’s policy committee starts its latest two-day meeting, with its decision due on Wednesday at 2:00 PM ET. Based on interest-rate futures prices, investors widely expect the policymakers to cut their benchmark fed funds rate by 25 basis points to a range of 3.75% to 4.00%. In the policy statement and Chair Powell’s news conference, investors will look for confirmation that the officials will keep cutting rates in the coming months, as we expect.

• Chair Powell also may announce that the Fed will stop shrinking its bond holdings earlier than the year-end date he has suggested previously.
• Investors have recently begun to call for a quicker end to “quantitative tightening” after bank usage of the Fed’s standby repo facility spiked to its highest level since the coronavirus pandemic, pointing to growing funding stress in the financial system.

United States-Japan: President Trump today hosted Japan’s newly installed Prime Minister Sanae Takaichi aboard the US aircraft carrier George Washington at its home port near Tokyo. Importantly, Trump heaped praise on the US-Japan alliance and on the conservative Takaichi, who has vowed to boost cooperation with the US and accelerate Japan’s defense spending hikes. Takaichi still wants to revisit the recent US-Japan trade deal, but today’s good vibes nevertheless are probably playing into investors’ growing sense of reduced geopolitical and trade tensions.

United States-Russia: In a sign that Russia’s top two energy companies are concerned about the Trump administration’s new sanctions on them, Lukoil yesterday said it will sell all its foreign business units as soon as possible. The sale would use a license granted by the US that expires on November 21. Press reports say that Lukoil’s foreign subsidiaries account for approximately 5% of the firm’s earnings before interest, taxes, depreciation, and amortization.

Jamaica: Hurricane Melissa, which spent much of the last week plodding through the Caribbean Sea as a mere tropical storm, has suddenly strengthened to a Category 5 powerhouse and is now bearing down on Jamaica today. The hurricane is expected to cause widespread flooding, intense winds, and significant damage. After striking Jamaica, the storm is expected to hit Cuba and the Bahamas before heading out into the open Atlantic Ocean. It is not expected to affect the US.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with news that US and Chinese officials have struck a “framework” trade deal that President Trump and General Secretary Xi can approve when they meet later this week. Since the deal should help ease US-Chinese tensions, the news has given a big boost to global stock prices so far this morning. We next review several other international and US developments that could affect the financial markets today, including a big midterm election win for Argentina’s libertarian president and new fears that avian flu could boost US price inflation.

United States-China: US Treasury Secretary Bessent and Chinese Vice Premier He said they struck a preliminary trade deal at their latest talks in Kuala Lumpur over the weekend. If so, having the outline of a US-China trade deal could help de-escalate tensions, potentially giving a boost to global risk assets. If President Trump and General Secretary Xi sign off on the deal when they meet on Thursday, officials from both countries would then work to flesh out the details, likely leading to a detailed, final agreement sometime in the coming months.

• Speaking about the preliminary deal in a television interview on Sunday, Bessent said he thought “the threat of the [added]100% tariff [on Chinese imports] has gone away, as has the threat of the immediate imposition of the Chinese initiating a worldwide [rare earths] export control regime.”
• Bessent also hinted that China would commit to restarting large-scale imports of US soybeans. According to Bessent, US soybean farmers are going to be “extremely happy with this deal for this year and for the coming years.”
• We have been arguing that a broad deal that defuses US-China tensions would likely be especially positive for US and Chinese stocks. As of this writing, Chinese stock prices have risen more than 1.0%, while premarket trading suggests US stock prices will rise by more than 0.8%.

United States-Thailand-Malaysia-Cambodia: On the first day of his weeklong trip to Asia, President Trump yesterday said he had struck deals with Thailand, Malaysia, and Cambodia under which they will cooperate with the US on export controls, sanctions and access to critical minerals. However, the deals evidently do not reduce the 19% import tariffs that the Trump administration has already imposed on the countries.

• The deals appear aimed at least in part to weaken China’s ability to leverage its near monopoly on critical minerals and other trade advantages.
• All the same, it’s not clear if the new deals were helpful in reaching the US-China framework deal mentioned above.

United States-Canada: President Trump on Saturday said he’ll impose an additional 10% tariff on imports from Canada to punish it for US television ads placed by the province of Ontario that featured anti-tariff audio by President Reagan. Current US tariffs haven’t been applied to Canadian goods compliant with the US-Mexico-Canada trade deal, so about 85% of Canadian imports are duty-free, with the rest subject to the administration’s new tariff of 35%. It isn’t yet clear whether the new 10% tariff will apply even to USMCA-compliant imports.

Argentina: In legislative elections yesterday, preliminary results show President Milei’s libertarian Liberty Advances party came in first with 40.8% of the vote, beating the Peronist opposition alliance with 31.7%. The results should help calm fears of a Peronist resurgence, which sparked a run on the peso last month and prompted the US to offer a bailout centered on a $20-billion currency swap facility. Reflecting renewed confidence that Milei can keep pushing through his reforms, Argentina stock, bond, and currency values are surging so far today.

US Monetary Policy: The Federal Reserve tomorrow begins its latest two-day policy meeting, with the decision due on Wednesday at 2:00 PM ET. Based on interest-rate futures prices, investors are nearly unanimous in expecting the policymakers to cut their benchmark fed funds rate by 25 basis points to a range of 3.75% to 4.00%. Investors will also be looking for confirmation that the officials will keep loosening policy in the coming months, as we expect, during the policy statement and Chair Powell’s post-decision news conference.

US Consumer Price Inflation: Agriculture and public health officials say avian influenza is surging in commercial flocks and herds this fall, raising the prospect of renewed tight supplies and higher prices for eggs and other farm products. Wholesale turkey prices are reportedly already up 40% year-over-year, just a month before the Thanksgiving holiday. An additional risk this time around is that the US Department of Agriculture may be understaffed to respond to the crisis if the flu continues to spread.

Eurozone: In contrast with the Fed, the European Central Bank’s policy committee is widely expected to hold its benchmark interest rate unchanged at 2.0% when it meets later this week. That would mark the third straight meeting at which the ECB held its benchmark rate steady, reflecting ECB chief Lagarde’s desire to keep rates on hold for an extended period now that the institution has struck a balance between modest economic growth and lower price inflation.

Italy: Prime Minister Meloni’s plan for a 13.5-billion EUR ($15.7 billion) bridge to connect the Italian mainland to Sicily appears to be hitting a legal roadblock after a court questioned whether the mothballed project — which held its first tender in 2005 — can be restarted without a new tender. If Meloni can pull off the project, it is expected to provide a significant boost to Italy’s economy. Since the bridge could also conceivably aid military mobilization, Rome has also floated it as a boost to Italy’s defense spending to help appease US demands.

Japan: As investors, we all fear bear markets. But what about real bears? Because of factors ranging from its declining population to climate change, Japan is suffering from a spate of bear attacks, with a record nine people killed by the animals so far this year, including one killed and four injured just on Friday. We don’t know about you, but we’ll take the occasional bear market in stocks over a bear mauling any day of the week!

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with a discussion about the deepening trade dispute between the US and Canada. Then, we break down what’s at stake as the US and China head back to the negotiating table. Also in today’s report: Washington’s push to maintain calm in Israel, the EU takes aim at an American tech giant, and France debates a new wealth tax. Plus, we’ll give you a quick update on all the key economic data you need to know including the latest CPI data.

Canadian Trade Tensions: The White House has announced the termination of trade talks with Canada, justifying the decision by citing the need to maintain tariffs for economic and national security reasons. This move is widely seen as a direct response to a Canadian advertising campaign that aired last week. The ads, which appeared in several US markets and on social media, invoked the voice and legacy of Ronald Reagan to challenge the tariffs and sway American public opinion.

• The trade standoff between the US and Canada is redefining their relationship following the imposition of tariffs at the start of 2025. The United States has placed tariffs on a number of Canadian goods, specifically targeting the steel and auto industries. In response, Canadian Prime Minister Mark Carney has declared that the country will seek to double its non-US exports, stating that Canada can no longer rely on its southern neighbor as a dependable trade partner.
• This ongoing friction between the two neighbors arises as the US, Canada, and Mexico are in the process of renegotiating the USMCA trade agreement. A key suspected goal of this renegotiation is to forge a unified North American front against China and other trade rivals to protect domestic industries. From this perspective, the White House likely viewed the Canadian ad campaign as undermining that very objective, prompting the decision to terminate talks.
• Although the recent US-Canada dispute represents a setback, we suspect both sides will eventually return to the negotiating table, as significant mutual interests remain at stake. Canada’s economy avoided a recession in recent quarters, and lawmakers are likely to seek ways to build on that momentum. Concurrently, the United States has an incentive to reduce economic uncertainty heading into next year’s midterm elections.
• This response establishes a precedent, signaling the administration’s intent to aggressively counter foreign attempts to influence domestic policy and elections. We should expect a more confrontational stance from the White House, particularly if it believes rival nations are using the midterms to sabotage its policy agenda. Consequently, markets should brace for episodic volatility stemming from trade policy tensions, though these are unlikely to derail the broader market trend.

US-China Trade Truce? On Friday, the US and China are scheduled to hold talks in Malaysia during the ASEAN Summit. The discussions are expected to pave the way for a broader meeting between President Trump and President Xi Jinping at the APEC Summit next Thursday. In advance of these talks, the White House has indicated it may extend the deadline for certain tariff exemptions as a goodwill gesture. Markets have reacted positively to the news, reflecting optimism that the extension could help build momentum toward a more comprehensive trade agreement.

• While the administration’s public focus is on tangible trade outcomes with China — such as an improved agreement, curbing the fentanyl trade, and ending restrictions on rare earth elements — its strategy appears to be driven by broader, unstated geopolitical ambitions.
• One key objective is to enlist China’s help in restraining some of its allies, namely Russia and Iran. The United States hopes Beijing can use its influence to discourage both countries from engaging in hostile actions against US allies and partners, particularly Russia’s ongoing war in Ukraine and Iran’s nuclear ambitions, which are viewed as a direct threat to Israel.
• In exchange for cooperation, China is likely to demand significant concessions from the United States. These would almost certainly include a reversal of the US stance on recognizing Taiwan’s sovereignty and a removal of curbs on technology exports to China.
• We believe the coming week or so will be important for setting market direction. Greater clarity on US-China trade relations should boost confidence and offer support for equities. While we do not anticipate a major deal being finalized in this short timeframe, we suspect there should be measurable progress toward a larger agreement, possibly materializing in early 2026.

Vance Goes to Israel: A White House visit to Israel to oversee the next phase of its peace initiative has been complicated by diplomatic tensions. Vice President Vance sparked controversy by calling a vote to annex the West Bank “stupid,” while the administration has expressed frustration over Israel’s airstrikes and restrictions on humanitarian aid, even as it acknowledges Hamas’s provocations. While we believe the US presence is easing regional tensions, we are closely watching to see whether Washington may be drawn into a deeper role.

EU vs Silicon Valley: The EU has accused Meta of failing to adequately police illegal content on its platforms, signaling a potential fine for violations of the Digital Services Act. This move is likely to provoke a response from the White House, which has previously criticized the EU for unfairly targeting US tech companies with hefty fines. Any retaliatory action by Meta could, in turn, prompt a reaction from Washington, escalating transatlantic trade tensions.

US Arms Race: The United States is taking steps to enhance its weapons capabilities to maintain military dominance against China. On Thursday, the Pentagon agreed to a defense contract with startup Castelion to develop hypersonic missiles. These weapons, which can maneuver while traveling at speeds several times that of sound, are designed to broaden US striking power and modernize its artillery arsenal. This partnership is a key part of a broader initiative to field this game-changing technology.

France Wealth Tax: The French Socialist Party is threatening to topple the government if the prime minister does not include a wealth tax in his budget proposal. The party is a crucial voting bloc, having just sustained the government in a recent no-confidence vote. While the bill is expected to affect only approximately 1,800 households with assets exceeding $100 million, critics warn it could prompt an exodus of wealthy individuals from the country. This debate exemplifies the profound political challenges involved in passing the national budget.

Turkish Courts Intervene: A Turkish court’s dismissal of a case against the main opposition CHP has removed an immediate threat to its leader, Özgür Özel. While this decision spurred a rally in Turkish markets, the underlying political climate remains fraught. The recent conviction of Istanbul Mayor and presidential frontrunner Ekrem İmamoğlu on corruption charges underscores why, despite this legal reprieve, Turkey’s political risk profile remains elevated.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment section opens with an unraveling of the reasons behind the market’s recent breather. This is followed by a crucial look at US monetary policy, specifically analyzing how scant jobs data could constrain the Federal Reserve’s next interest rate decision. We also discuss a major quantum technology breakthrough, the latest in the US-China trade escalation, and North Korea’s weapons advancements. Finally, we provide a concise summary of the day’s essential US and global economic indicators.

Rally Cools: While many companies reported strong earnings, high-profile disappointments from several key players raised red flags. Tesla, for instance, saw record vehicle sales undermined by shrinking profit margins, fueling doubts about its adaptability in a less EV-friendly environment. Similarly, Netflix fell short of earnings targets, largely attributed to a regulatory dispute in Brazil, while Texas Instruments dampened sentiment with a pessimistic forward outlook.

• The market’s narrow focus reflects heightened anxiety over a lack of economic data due to the government shutdown, which has severely hampered the ability to assess the economy’s health. This is particularly concerning amid rising fears about consumer strain and a potential credit crunch. Auto loan troubles at firms like First Brand and Tricolor, coupled with mounting fears that small lenders are carrying a significant amount of bad debt on their books, has largely driven this anxiety.
• Investor confidence in the economy has been heavily reliant on the remarkable resilience of the consumer. Against all odds, consumer spending has consistently defied recessionary warnings, weathering several significant scares over the past three years — from the collapse of Silicon Valley Bank in 2023 to the triggering of the Sahm Rule in 2024 and the ongoing pressures of this year’s trade war.
• Thursday’s market action reflects a market in search of its next catalyst due to the lack of government data. We attribute the recent dip in sentiment to routine profit-taking following several strong quarters and view it as a temporary consolidation. We expect a more definitive market direction to emerge after the upcoming US-China trade talks and the Fed’s policy meeting. We believe that these two catalysts will ultimately provide a supportive backdrop for equities.

Central Bank Data: The Federal Reserve is now operating with a reduced level of vital information following a dispute that led private payroll processor ADP to halt its data sharing. ADP, which tracks payroll for approximately 20% of the US labor force, provided a crucial, high-frequency gauge of the job market. This data loss is particularly challenging now, as the government’s official labor reports are unavailable due to the shutdown, severely complicating the Fed’s ability to accurately assess the job market.

• The dispute stems from comments made by Fed Governor Chris Waller, who cited preliminary ADP estimates — before their public release — to justify his cautious outlook on the economy. This unusual disclosure inadvertently raised concerns (later debunked) that ADP was sharing proprietary client-level information, prompting the company to terminate the data feed.
• This data shortfall arrives at a critical juncture, amplifying a deep policy split among Fed officials regarding their dual mandate. One faction is advocating for accommodative policies to counteract persistent signs of labor market weakness. The opposing group, however, argues that rising price pressures — exacerbated by the effect of tariffs flowing through the economy — demand a cautious stance to prevent fueling inflation, making rate cuts ill-advised at this time.
• The absence of reliable ADP data, which has historically tracked the long-run employment trend despite short-term differences from monthly government figures, makes resolving the Fed’s internal policy debate considerably more difficult. However, clarity is expected tomorrow with the release of the Consumer Price Index (CPI) report. A softer-than-expected inflation reading would likely pave the way for the Fed to pursue another rate cut at its October 28-29 meeting.

Quantum Leaps: Alphabet, Google’s parent company, has announced a quantum computing breakthrough: It has successfully executed a novel algorithm on its “Willow” chip that outperformed the world’s leading classical supercomputers by a staggering 13,000%. This milestone bolsters the conviction that practical quantum technology could be within reach in five years, with near-term applications expected to revolutionize drug discovery and materials science. The achievement also reinforces the US’s dominant technological lead over China.

New US Curbs: The White House is threatening to impose extensive new curbs on software exports to China, a powerful countermeasure to Beijing’s recent restrictions on rare earth elements. This policy debate intensifies trade friction ahead of the preparatory trade talks scheduled for Friday in Malaysia, which precede the anticipated meeting between President Trump and President Xi Jinping in South Korea. Despite trade tensions, we remain optimistic that the two sides will come to an agreement.

Russia Sanctions: Following a recent breakdown in talks with Moscow, the White House is significantly escalating sanctions against Russian oil companies. The US is directly targeting oil giants Rosneft and Lukoil, which together account for 5% of global output. This move has contributed to a broader increase in oil prices. The sanctions are intended to cripple Russia’s ability to finance its war efforts and pressure the Kremlin back to the negotiating table.

US Drug Clash: The United States is intensifying its efforts against organizations it designates as narco-terrorists, extending its operational reach from the Caribbean into the Pacific. This new, more hawkish posture was demonstrated by two recent US military strikes on suspected narcotics vessels. While the current justification is disrupting the drug trade, this escalation in military force could set a precedent for armed intervention for other purposes in the future.

North Korea Weapons: North Korea has announced the successful test of a new hypersonic weapon, signaling significant advances in its weapons technology. These missiles are designed to travel at such high speeds that they are virtually undetectable by current missile defense systems, making them extremely difficult to intercept. The announcement comes as world leaders prepare to gather in South Korea for the APEC conference, a timing that underscores North Korea’s intent to project strength and military prowess to its rivals.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment section opens with a deep dive into the recent drop in gold prices and its stark implications for US-China trade tensions. We then explore the potential pathway to persuading Russia to end the war in Ukraine. Closer to home, a strong earnings season and a landmark AI deal could signal robust market momentum, while in the EU, there is mounting pressure to recalibrate climate strategy. As always, we include a summary of key economic indicators from US and global markets.

Gold Retreat: Precious metals, including gold and silver, sold off as the de-escalation of US-China trade tensions reduced the appeal of safe-haven assets. This decline was amplified by the post-Diwali lull in Indian demand and widespread concern that the metals were overbought, triggering significant profit-taking. While the retreat from gold and silver signals investors are shifting away from safe havens, the lack of a corresponding surge in equities suggests lingering investor caution.

• The market’s hesitation to embrace riskier assets reflects a standoff-ish posture as investors await for more details about US-China trade negotiations. This hesitation persists despite the White House’s upbeat remarks on Tuesday, expressing confidence in reaching a “fantastic deal.” Yet, skepticism lingers, with no meeting date set and the President Trump implying he will only attend if the talks show real promise of progress.
• The White House has indicated that it will seek a deal that includes provisions on rare earth exports, measures to curb the flow of fentanyl, and the resumption of US soybean purchases. In exchange, Washington could offer tariff relief. There has also been speculation that the US could soften its stance on Taiwan, particularly after the president suggested that Beijing is not currently inclined to pursue an invasion.

• We continue to anticipate a meeting between the two sides at the upcoming ASEAN Summit in Malaysia, ahead of the crucial November 1 tariff deadline. Our base case projects a minimal consensus with a commitment to extend negotiations supported by reciprocal minor concessions. Failure to achieve even this minimal step toward de-escalation, however, would likely serve as a negative catalyst, prompting immediate short-term profit taking across various market sectors.
• That said, a successful meeting yielding a “grand bargain” between the world’s two largest economies would be a highly positive event for markets. We believe this agreement would center on Chinese assurances regarding rare earth exports and a commitment to major purchases of American agricultural products. This outcome would provide a significant boost to both Chinese and US equities, with technology stocks and the US agricultural sector poised for the greatest immediate sectoral benefits.

No Putin Meeting: A high-stakes meeting with Russian President Vladimir Putin in Budapest is now off the table, the White House has confirmed. The decision to halt talks comes after Russia offered no reassurances regarding an end to its invasion of Ukraine, leading the US to conclude that the discussion would be unproductive. This cancellation follows reports of internal US debates, including a recent reversal on sending Tomahawk missiles to Ukraine and rumors of possibly pressing Kyiv for more territorial concessions to secure a deal.

• Two structural factors entrench the conflict’s persistence: a strategic imperative for Putin to obtain a definable victory that legitimizes the invasion’s staggering costs, and the Russian economy’s absorption of war-related production as a key driver of growth. Therefore, the war may be prolonged, as its continuation is directly tied to fulfilling these core strategic and economic objectives.
• While the path to ending the war is challenging, the US retains significant leverage. In addition to sanctions relief, a potent bargaining chip is the unsold, frozen Russian state assets, which could be used as a strategic tool in negotiations. Furthermore, Moscow may be incentivized by the potential for a diplomatic off-ramp, specifically the opportunity to re-establish a closer relationship with the US and secure a pathway for re-engagement with the European Union.
• Recent overtures point to potential avenues for de-escalation. For instance, Moscow has recently floated the idea of an Arctic tunnel connecting Russia and the US across the Bering Strait. On the European side, some speculation persists that the conclusion of the conflict could lead to a significant policy shift in Germany. This includes the possibility that a future German government might reconsider the Nord Stream 2 gas pipeline project.
• While the suspension of talks suggests a pushback on the immediate ceasefire timeline, we maintain an optimistic view that the conflict could be resolved by early 2026, if not sooner. A definitive end to hostilities is expected to be a strong catalyst for European equities. Conversely, the anticipated full resumption of Russian energy (oil, gas, and coal) flows to international markets would likely create significant downward pressure on global commodity prices.

Earnings Season: With only a fraction of S&P 500 companies having reported, the earnings beat rate (the percentage of companies surpassing consensus EPS estimates) this quarter is the highest in over four years. This outcome defies even high initial expectations and suggests better-than-anticipated corporate fundamentals. The primary pillars supporting this profit strength are robust consumer spending, expansive investment in AI technology and infrastructure, and the flow-through effects of ongoing federal deficit spending.

US-India Trade Deal: A pending US-India trade agreement aims to dramatically lower tariffs on Indian goods, cutting them from around 50% to 15-16%. The deal is part of a broader strategic bargain. In return for this tariff relief, India will reduce its reliance on Russian oil and increase imports of American non-GMO corn and soymeal. Successfully concluding this pact would mark a significant diplomatic achievement for the White House, demonstrating its capacity to broker deals that advance both economic and foreign policy objectives.

EU Under Pressure: The United States and Qatar have joined forces to pressure the European Union to revise its proposed climate regulations. The push comes as EU lawmakers debate legislation that would fine companies up to 5% of their global revenue for supply chain practices that harm the environment or violate human rights. Washington has warned that the measure could undermine economic growth and jeopardize the trade agreement reached with the EU in July.

Anthropic and Google: A major rival to OpenAI is negotiating a deal with Google for its cloud computing services. The agreement would grant Anthropic access to Google’s Tensor Processing Units (TPUs), which are specifically designed for machine learning workloads. This move comes as one of its largest suppliers, Amazon, is contending with outages of its cloud services. The deal reinforces an industry trend of heavy spending to build AI supply chain resiliency, while also highlighting the intensifying competition for dominance in AI infrastructure.

Japan Stimulus: Newly appointed Japanese Prime Minister Sanae Takaichi is proposing a targeted economic package to counter rising inflation. The proposal, which aims to mitigate rising costs of living, is believed to center on direct subsidies for winter energy bills and grants to local governments. Deliberately avoiding the broad stimulus spending that has unnerved financial markets, Takaichi’s strategy emphasizes targeted expenditures. However, key questions regarding the package’s total cost and financing have yet to be clarified.

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