Outlook
Today the releases include industrial production, the housing index and factory orders. The biggie is another ADP private sector weekly jobs report today at 8:15 am ET, which we don’t get until after this report is published. We fail to understand how the weekly has so much influence, since last time multiplying it out to monthly was, apparently, wrong.
Then tomorrow is the Fed minutes. Can there be anything we don’t already know? More relevant is comments from Fed Vice-Chair Jefferson, who said inflation is probably okay and “lack of progress appears to be due to tariff effects.” He also said the employment situation does indeed appear more compelling than inflation. Fed Waller also came down on the dovish side, to no effect on Wall Street.
Remember, the BLS said it will deliver the Sept CPI on Friday. Yesterday the excellent Odd Lots at Bloomberg had a piece titled “Inflation and affordability are still everything.” The focus is the Fed speakers naming inflation. They are reflecting comments from folks in their districts about “affordability,” which is also the ostensible reason for the Dems’ electoral sweep in the Nov elections.
We could not agree less. Inflation is (obviously) slow-moving. Where is the 3.5-4% inflation we expected by now? Unemployment and jobs lost are far faster and in our faces NOW. Besides, since when does the elite care about inflation for the bottom half? This is as much about income inequality as inflation per se and nobody, even the Dems, wants to talk about that. Too pinko. Two self-proclaimed socialist mayors is quite enough.
And Trump just relaxed tariffs on some key foods. Another factor: Trump wants that rate cut and imagines the public will like him for getting it (since the public doesn’t know or care about Fed independence). So far the only real loss he has had to face is the Epstein file issue, and he has already TACO’d on that.
And to press the issue another inch, if the Fed were not to cut in Dec, does anyone doubt Trump would fire someone or otherwise disrupt the Fed? He’s going to do it anyway. A hold at the Dec FOMC would just bring it forward. Taking away Fed independence, or trying to, is going to damage the standing of the US in general and the dollar in particular. Everyone at every bank and investment manager on the planet is expecting the Trump assault on the Fed and the dollar going down another 5% (or more) in response while yields go the other way to keep holders and buyers. How much premium does a hedge fund or wealth fund need to offset a deranged US president?
This argument has too big a political component to be trustworthy. More importantly, it’s fighting the tape, the tape being the CME Fed funds betting. As of 9:30 last evening, the probability of the Dec rate cut had moved to 42.9% from 44.4% earlier in the day. So, grain of salt. On the side of the angels—at 8:18 am ET, the probability had inched up to 48.6%.
Finally, if there’s anything Trump watches as much as his poll numbers, it’s the stock market. He thinks he is the driver and a drop is a sign of unpopularity. Nonsense, of course. Trump admits he never invested in equities. Still, unless this rout stops PDQ, we can expect White House drama as he tries to make it go up again, validating his tenure. So far we have a replay of those $2000 tariff refund checks. More is sure to come.
Forecast
Yesterday’s forecast was right–as long as the Fed funds betting has the probability of the Dec rate cut at under 50%, the stock market will be unhappy and the dollar can be firm. We expect this to reverse as the fresh data comes in, maybe even today (which is turnaround Tuesday, anyway). But we can’t count on it.
At the same time, we fear trading it because it can get untied from the dock at any moment and set off downstream with no one on board to row against the current. This is the polite way of saying up shit creek without a paddle.
Reports of sentiment are overly simple—fear and greed, bullish or bearish. Charts are far better but again, the reports are far too simple. To look at a 50-day moving average is not enough. The 200-day has no historical relevance, either. To buy the dollar because the stock market is wobbly is not smart.
Tidbit: Under observation around the world—the House votes to release the Epstein files today. Then it goes to the Senate, probably the same outcome. Then Trump signs it. Yes, a defeat for him because as the guy who controls the Justice Dept, he could have released it without the implicit rebuke by his own cabal members in Congress. And now the trickery begins. As skeptics have been warning all along, by opening new investigations into others (Dems, of course), that puts the files behind the curtain again. We should have expected nothing less.
More warming is the dismissal request to the court today by the legal team of NY Attorney General Letitia James. It’s going down in the history books as the best diatribe against Trump without actually naming him: “This indictment is the product of months of illegal and unethical behavior by government officials, only made possible by the misuse of a federal agency, the disregard of exculpatory evidence, the systematic removal of ethics officials and career prosecutors who stood in the way, and the improper attempt to install an unqualified U.S. Attorney with nothing to offer except undying loyalty. If this brazen, continuous disregard for the law and the Constitution is not outrageous government conduct, nothing is.”
Tidbit: Bloomberg had this summary yesterday:
Tidbit: The NYT had a story yesterday containing some scary data, including that the importers getting hit by tariffs are mostly small businesses, so they are cutting back employment. Whatever the now-outdated Sept jobs number on Thursday, it should start reflecting labor market weakness from this alone (not even considering AI displacement). Rising unemployment, lower consumer spending.
The author says the US economy can be likened to a jenga tower game—it can get taller but will always fall in the end–by definition.
Then comes the other side of the story—the stock market. As with the awful Economist report showing the consumer will bring down the US stock market, somehow the flailing consumer is going to burst the bubble. The reasoning seems to be that since the top 10% do 50% of the consumer spending, they will stop consuming when the stock market falls.
“According to Federal Reserve data, the top 10 percent of American households by wealth owned more than 87 percent of the country’s corporate equities and mutual fund shares as of mid-2025. Those households have benefited from an S&P 500 equity index that has gained more than 74 percent since November 2022, when ChatGPT emerged, according to data from Bloomberg, the news and financial information company.
“That gets to today’s most important economic support: American technology companies. A.I.-focused firms have driven the lion’s share of the stock market’s recent gains, creating wealth and confidence that has boosted consumption.”
We wonder if this is true. Sector analysis is not our strong suit but it seems plenty of others aside from IT Tech have gained, as well. Even energy and biomed, to name a few. See the list (okay, from Google AI):
Here is a list of S&P sectors ordered by their year-to-date price gain as of late October 2025:
- Information technology: +36.12%
- Consumer discretionary: +10.53%
- Communication services: +10.08%
- Health care: +8.96%
- Industrials: +8.13%
- Consumer staples: +4.68%
- Energy: +2.79%
- Utilities: +2.34%
- Real Estate: +1.84%
- Materials: +1.66%
The giant infrastructure investment by the Big Tech names has taken over as the driver of the economy. “In the first half of this year, A.I.-related investments were an even larger contributor to gross domestic product than personal consumption.”
Wait a minute. Does GDP even contain stock prices? No!
Logically, then, we need to look at planned investment by these names and not the consumer, after all. And as an aside, this could be why the Atlanta GDPNow has been showing robust growth, mainly from “gross fixed domestic capital investment.”
“Spending from this small subset of firms provides a private-sector stimulus for the economy, leads equity markets higher and supports consumption by the wealthy. The question investors and economists are increasingly asking is: How long can it last?
“… Wall Street is buying into the taller-tower hopes, at least based on consensus expectations compiled by Bloomberg. Economists estimate that American annual G.D.P. growth next year will be similar to this year’s pace, and that earnings from S&P 500 companies will expand next year by more than 12.5 percent, above this year’s estimated 11.5 percent.”
This article is by an economist. We like the jenga tower analogy but wish for greater clarity—and accuracy. Because a stock rises more than the gain in GDP is not a valid and reasonable comparison. The deduction seems to be that the bubble is not bursting, but if it does, it will be a halt to consumer spending by the rich that will bring down the economy. So ask yourself—does anyone, even the rich, ever really stop spending in the endlessly materialistic American economy? Selling a yacht of several, or one of the private planes, maybe.
Eating at consumption from the bottom (tariffs) and from the top (stock market crash) would mean the whole economy takes a nosedive. Quick, deliver a probability to both things happening at once. Is it greater than 50%? Well, yeah, maybe. It depends on how mad is the madness of crowds.
A commentator we like is the TrendLabs guy Parets who keeps pointing out that it’s not just tech that is soaring—it’s plenty of other sectors, too. And it’s not just the US stock markets hitting new historic highs, but the rest of the world, too. See the chart.
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