The S&P 500 finished positive in what’s typically the weakest month of the year for investors, bucking decades of history to the benefit of the bulls. The index advanced more than 3.5 percent in September on account of earnings momentum, the start of a Fed rate-cutting cycle, and continued enthusiasm around artificial intelligence.
That resilience now carries stocks into the final and best quarter of the year. Since 1950, the S&P 500 has averaged a 4.2 percent gain from October to December, with positive returns 80 percent of the time. When the quarter ends higher, the average gain increases to 7 percent.
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“Seasonal headwinds didn’t materialize this month, and investors may now turn their attention to the historically strong fourth quarter,” said Adam Turnquist, chief technical strategist for LPL Financial.
Seasonality looks even more favorable when you account for market peaks.
Since 1980, the S&P 500 has topped out in the fourth quarter 71 percent of the time, and in December half the time, according to DataTrek Research.
That suggests September’s rally was a prelude to more of the same.
Meanwhile, the fundamental backdrop remains just as robust. Wall Street analysts have been raising — rather than cutting — earnings estimates for 2025 and 2026, which is unusual for this time of year.
While it’s true that Big Tech has made the market extremely top-heavy, earnings growth for the sector is nonetheless expected to outpace the broader index by a wide margin.
The Fed offers another tailwind through the end of the year. Markets see overwhelming odds for rate cuts in October and December, and with job growth slowing and core CPI holding steady, policymakers have cover to ease without stoking inflation fears.
If Friday’s jobs report publishes within range of expectations and earnings continue to deliver, history and fundamentals will remain aligned for a strong finish.
Opening Bell Daily sat down with famed Big Short investor Vincent Daniel, co-founder of Seawolf Capital, to discuss the risks in today’s AI-fueled market, and what history will say about this generation of asset allocators. You can subscribe to his team’s newly launched Substack.
Q: You identified fragility in the system in 2008 that most investors overlooked. Where do you see the most under-appreciated risks today?
In our view, the most under-appreciated risk was and will always be excessive leverage, particularly leverage that is hidden or not appreciated by the market. The most concerning sources of excessive leverage are sovereign credit and market related leverage.
Admittedly, sovereign fiscal woes and never-ending budget deficits are well known but markets have been conditioned to shrug off this risk — this complacency is misguided.
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We have learned to express our discomfort in fiscal largesse and probable monetary debasement by buying gold and other tangible assets such as platinum, silver and yes, bitcoin.
Increasingly, investors of all types are utilizing leverage to seek enhanced returns on invested capital. The tools institutional investors use to obtain such leverage are derivatives such as options and futures and collateral based structured financing. A benign regulatory environment and low volatility levels have substantially increased the underlying leverage dynamic.
When this hidden risk presents itself is anybody’s guess but history would suggest such problems arise when the Fed raises interest rates and reduces the supply of liquidity to markets.
The true edge for investors in the AI and information-democratization era is patience and duration.
Thankfully, technology has made quality investment products, tools and analysis available at reasonable prices. Those to which we subscribe do better jobs meeting our needs than legacy high-cost incumbents, at a fraction of the cost.
Accordingly, the knowledge gap between the institutional investor and the retail investor has never been smaller.
For a host of reasons — market structure dynamics, policy responses, leverage capabilities — AI and other technological improvements have exacerbated the momentum-like characteristics the market already displays, creating enormous inefficiencies that can be exploited over time.
Our contrarian ways naturally lead us to find opportunities in names and sectors that do not attract investor capital or, for some reason or another, are severely out of favor. Sorting through and finding hidden gems in the proverbial Investment Land of Misfit Toys is our edge.
Q: In 50 years, what will history look back on and say investors got wrong today, just as so many misunderstood housing in 2008?
Forgive me as my mind tends to go dark when answering these types of question. I’ll try to keep it simple and PG-rated.
In 50 years investors will be astounded by the market’s complacency regarding chronic fiscal deficits, particularly the fixed income markets.
We also believe investors — and regulators — will be more skittish about utilizing derivative contracts to obtain significant leverage.
Also, non-bitcoin cryptocurrencies will be viewed in a similar light as legacy fads such as tulips, Cabbage Patch Kids and Tickle Me Elmo Dolls. Lastly, investors will be amazed at how long it took for the K-shaped economy to have an impact on economic policy and equity markets.
Federal regulators are scrutinizing a growing number of companies that have embraced so-called crypto-treasury strategies this year, after unusual trading patterns in their shares caught their attention.
The corporate trend has exploded in recent months, with hundreds of companies investing in crypto this year. Crypto-treasury strategies, popularized by Strategy (formerly MicroStrategy), involve raising funds through stock or debt sales specifically to buy Bitcoin and other cryptocurrencies. For some of these companies, this scheme is no longer a side experiment; some are making investing in crypto the centerpiece of their corporate strategy.
For example, Strategy, which was founded in 1989, was best known as a business intelligence and software company before it pivoted to its current crypto-heavy corporate strategy in 2020 when it invested $250 million in Bitcoin. This past February, it dropped the Micro from its name.
The Wall Street Journal reported Thursday, citing unnamed sources, that both the U.S. Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) have reached out to several firms. People familiar with the matter told the newspaper that regulators are concerned about unusually high trading volumes and sharp stock-price gains ahead of public announcements about the crypto purchases.
SEC officials warned companies they could have potentially violated the Regulation Fair Disclosure rule, which prohibits public companies from selectively sharing non-public information with analysts and investors who might trade on it. Lawyers told the Journal that letters from FINRA often signal the beginning of probes into potential insider trading.
The SEC did not immediately respond to a request for comment from Gizmodo, while FINRA declined to comment.
For many firms, pivoting to a crypto-treasury involves quietly gauging interest from outside investors willing to privately finance their crypto purchases. These investors are usually required to sign nondisclosure agreements, keeping the companies’ identities secret until official announcements are made. But since some stocks spiked in the days leading up to the news of crypto purchases, it seems some info on these investments may have leaked.
According to the Journal, citing crypto-advisory firm Architect Partners, 212 new companies have announced plans to raise roughly $102 billion for crypto purchases so far this year.
The Wall Street Journal said it’s still unclear whether regulators plan to take action against the companies or investors.
The paper noted that SEC Chair Paul Atkins recently criticized the commission’s past tactics, saying it had “weaponized” its enforcement to stifle crypto.
Given the Trump administration’s pro-crypto policies, a lax reaction from the SEC wouldn’t be too shocking. The president has been very friendly with the industry, which has helped him make a fortune himself.
However, David Goldreich, a finance professor at the University of Toronto’s Rotman School of Management, says stock splits are sometimes seen by investors as a positive signal. “When the manager does a split, it is reasonable to interpret it as management is confident that the future is looking good,” he said. He said if executives at a company are expecting a rough patch that could hurt the price of its shares, it’s unlikely they will want to split them, but if they are optimistic about future growth, a split might be more likely.
Goldreich said companies sometimes split their shares to keep their share price within what is seen as a “normal range,” which he puts at between $50 and $100 per share.
Stock splits make shares cheaper, not more valuable
Stock splits don’t create any shareholder value, they only divide the ownership of a company into smaller pieces. If you own 100 shares in a company with a share price of $10 each and it splits it shares two-for-one, you double the number of shares you own, not the value of your holdings. Your investment in dollar terms remains the same. Instead of owning 100 shares with a price of $10 per share worth a total of $1,000, you now own 200 shares at a price of $5 per share—the total worth is still $1,000.
When grocery retailer Loblaw Cos. Ltd. split its stock last month on a four-for-one basis, it said it was doing it to ensure its shares remained accessible to retail investors and its employees that participate in its employee share ownership plan, and to improve liquidity. Loblaw shares were trading for more than $200 a piece before the split, making it a pricey purchase for small individual investors looking to buy a position of 100 shares in the company.
Will Gornall, an associate professor at UBC’s Sauder School of Business, uses the analogy of a pizza when explaining how a stock split works. If you have three pieces of pizza and they are split two-for-one, you end up with six pieces of pizza, but the total amount of pizza you have is the same, the pieces are just smaller. “It’s not really changing the fundamentals of the company in any way, just like if you slice the pizza differently, you’re not creating more pizza,” Gornall said. “The amount of pizza hasn’t changed, but now you have more slices.”
It’s the same for stocks.
Chipmaker Nvidia, which split its stock 10-for-one last year, said it was doing it to make its stock more accessible to employees and investors. Shares in Nvidia were trading for about US$1,200 each before the split last year. The move brought the share price down to about US$120 per share immediately after the split, but the overall shareholder value of the company was unchanged.
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How stock splits affect dividends and taxes
Goldreich added that when dividend-paying companies split their shares, they generally adjust their dividend to match the split to keep things constant. But if a company keeps the same payment per share after the split, it effectively increases the dividends paid to shareholders. If that happens in a two-for-one share split, “essentially what they’re doing is they’re doubling the dividends,” Goldreich said.
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There are also adjustments that have to be made when it comes to taxes when you sell shares that have been split since you bought them. For example, if you bought 100 shares for $10 each and they split two-for-one, your cost for the shares when calculating the capital gain when you sell them needs to be adjusted. While you paid $10 per share when you bought them, the adjusted cost after the two-for-one split becomes $5 per share because you now hold twice the number of shares. That means if you sold the shares after the split for $10 each, you would realize a $5 gain per share.
Goldreich said the key thing to remember is that there is no free money with stock splits. While you may have more shares in a company, that doesn’t mean your investment is worth any more. “You can’t magically become richer,” he said.
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The stock market is a long game, not a guessing game.
That’s according to Charles Schwab (SCHW) CEO Rick Wurster, who repeated the adage “it’s about time in the market, as opposed to timing the market” on Yahoo Finance’s Opening Bid.
Wurster explained that clients often call asking if now is the moment to cash out after the market’s relentless climb. In most cases, he pushes back on the urge to jump in and out of stocks.
“The hard part about timing the market is you’ve got to be right twice,” he said. “You’ve got to get out at the right time, and then you’ve got to be able to get back in at the right time, and that’s very hard to do.”
The market’s massive rally has been driven by a handful of Big Tech names known as the “Magnificent Seven.” Strong earnings, hefty cash flows, and surging demand for artificial intelligence have propelled Microsoft (MSFT), Alphabet (GOOG, GOOGL), and Nvidia (NVDA) to record valuations, helping push indexes to new highs.
As of Wednesday, the S&P 500 (^GSPC) is up nearly 13% year to date, while the Nasdaq (^IXIC) has gained over 16%. The Dow Jones Industrial Average (^DJI) has lagged slightly, rising above 8% over the same period.
“Their fundamentals have been so strong,” Wurster said. “There’s real robustness to their businesses. So I think that’s been fueling the market higher, and our clients love it.”
He added that Schwab’s investors are also more active than in recent years. “Our clients are really engaged,” Wurster noted, with trading up 30% compared to last year. Margin balances are at an “all-time high,” he said, and more customers are using options to ride the rally.
That enthusiasm, however, comes with caution.
“I would describe our clients as happy because their balances have never been higher, but a little bit nervous about the elevation of the market,” Wurster said, describing his recent visits to 15 Schwab branches across the country.
Charles Schwab CEO Rick Wurster speaks during a Reuters NEXT Newsmaker event in New York City on May 1. (Reuters/Kylie Cooper) ·REUTERS / Reuters
Also on investors’ minds are the Federal Reserve’s next moves, including forthcoming rate cuts. In part, that may be why markets are continuing to hit new highs, Wurster added.
That nervousness isn’t misplaced. RSM chief economist Joe Brusuelas previously told Yahoo Finance that the market’s rally has been unusually concentrated, or what he described as “frothy,” with just a few megacap stocks accounting for much of the gains. If those leaders stumble, the broader indexes could quickly give back ground.
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Sterling Stock Picker’s standout feature is its North Star guidance engine, a proprietary tech that cuts through the noise to offer clear recommendations — buy, sell, hold, or avoid — based on real performance metrics. For even more support, Finley, your personal AI financial coach, is always available to provide market insight, risk analysis, and plain-language answers to portfolio questions.
From day one, users can build a diversified portfolio with minimal friction. Begin with a 5-minute risk tolerance quiz, then get personalized stock recommendations based on data-driven analysis. Want to focus on value-aligned investments or high-growth opportunities? You can filter stocks by performance, values, and sector — all backed by financial and technical insight, the company says.
Disclosure: Our goal is to feature products and services that we think you’ll find interesting and useful. If you purchase them, Entrepreneur may get a small share of the revenue from the sale from our commerce partners.
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This Candlestick Trading and Analysis Masterclass bundle, priced at just $29.99 for a limited time, includes six trading courses from U.S.-based full-time trader and educator Travis Rose. With more than 12 hours of content and a 4.5/5-star instructor rating, Rose focuses on reducing the learning curve for new traders by sharing exactly what he wishes he knew starting out.
You’ll learn to decode candlestick patterns, build risk-aware trading plans, and read price action using volume and order flow. Beyond charting, the courses also cover swing trading, options trading basics, and strategies to identify key reversal points. Quizzes, downloadable resources, and real trading examples help reinforce the material as you go.
New data shows Americans are feeling increasingly concerned about the state of the economy. A survey reveals that consumer sentiment fell in September for the second consecutive month. CBS News senior business and technology correspondent Jo Ling Kent has more.
U.S. financial markets were steady Tuesday after President Trump said he had removed Lisa Cook from the Federal Reserve’s Board of Governors, an unprecedented move that analysts say could rattle investors.
As of 9:45 a.m. EST, the S&P 500 was down 2 points, or 0.1%. Meanwhile, the Dow Jones industrial Average gained 2 points. The tech heavy Nasdaq Composite shed 56 points. But this muted start to morning trading in the U.S. contrasted with sharp declines on global markets, as investors digested news of a potential Fed shakeup that could reshape the composition of the Board of Governors.
The nonplussed start to morning trading came as investors digested news of a potential Fed shakeup that could reshape the composition of the Board of Governors.
Mr. Trump made his announcement in a letter posted on Truth Social on Monday evening, accusing Cook of mortgage fraud. The president said the move was “effective immediately.”
Mr. Trump was repeating allegations against Cook first leveled earlier this month by Federal Housing Finance Agency Director Bill Pulte. The senior housing official, who runs the agency that regulates mortgage giants Fannie Mae and Freddie Mac, alleged earlier this week that Cook falsified bank and property records to “obtain more favorable loan terms.”
“I have determined that there is sufficient cause to remove you from your position,” Mr. Trump wrote on Monday in the letter addressed to Cook. The president had previously called on the Fed official to resign.
Cook responded to the Monday post with a statement saying that Mr. Trump has no authority to fire her and that she will not resign, setting up a potential legal showdown that will test the president’s authority to fire a member of the central bank. Under the Federal Reserve Act, the president can only remove a Fed official “for cause.” Fed board members serve for 14-year terms.
Mr. Trump “purported to fire me ‘for cause’ when no cause exists under the law, and he has no authority to do so. I will not resign. I will continue to carry out my duties to help the American economy as I have been doing since 2022,” Cook said in a statement.
Global markets tumbled after the President’s announcement. In Asian trading, most benchmarks declined. Germany’s DAX lost 0.3%, while the CAC 40 in Paris slumped 1.4%. Britain’s FTSE 100 gave up 0.5%.
Meanwhile, U.S. Treasury yields were mixed, with longer-term yields rising and lower-term yields edging lower. The 30-year Treasury yield rose to 4.92% on Tuesday morning, up two basis points from 4.90%. The yield on the 10-year Treasury also inched higher to 4.93%.
While Mr. Trump’s move to fire Cook could be a source of unease for investors, it did not appear to shake their faith in a September rate cut. Traders see an 86% chance that the central bank will cut interest rates by a quarter of a percentage point, according to data from CME Group this morning.
Ulrike Hoffmann-Burchardi, CIO Americas and global head of equities at UBS Global Wealth Management expects the Fed to lower rates by a total of 1 percentage point over the central bank’s next four meetings.
During a speech last week at the Jackson Hole, Wyoming economic forum Fed Chair Jerome Powell signaled a rate cut could be on the horizon. The Fed will “proceed carefully,”Powell said, but added that the shifting balance of risks “may warrant adjusting our policy stance.”
Mary Cunningham is a reporter for CBS MoneyWatch. Before joining the business and finance vertical, she worked at “60 Minutes,” CBSNews.com and CBS News 24/7 as part of the CBS News Associate Program.
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Investors have ridden an incredible recovery from the April 2 “Liberation Day” tariff surprises. Since the April 8 low, the Nasdaq Composite(NASDAQINDEX: ^IXIC) has appreciated an incredible 40%. And of course, that recovery has taken place amid a decade-long bull market in technology growth stocks.
It’s easy to understand why. Society is becoming more digital and automated. The last 10 years have seen the emergence of cloud computing, streaming video, digital advertising, the pandemic-era boom in electronic devices and work-from-home, all topped off by the introduction of generative artificial intelligence (AI) marked by the unveiling of ChatGPT in late 2022.
However, after a long tech bull market, technology growth stocks have reached a worrying valuation level relative to other stocks, and today’s relative overvaluation mirrors an infamous period in stock market history.
In several ways, technology stock performance and valuations are currently mirroring the extremes of the dot-com boom of the late 1990s. Unfortunately, we all know how that period ended, with a terrible “bust” that sent the Nasdaq tumbling three years in a row, eventually culminating in a 78% drawdown from the March 10, 2000, peak.
Technology innovation can be very exciting; however, that excitement often finds itself in the form of high valuations. According to data published on Charlie Bilello’s State of the Markets blog, the technology sector’s recent outperformance has now exceeded that of the height of the dot-com bubble:
Graph showing tech sector performance relative to S&P 500 since 1990.
The relative outperformance isn’t the only mirror to the dot-com era. Back then, tech stocks also became very large, leading to an outperformance of large stocks relative to small stocks. Similarly, tech stocks are often growth stocks with high multiples, reflecting enthusiasm over their future prospects. This is in contrast to value stocks, which trade at low multiples, usually due to their more modest growth prospects.
As you can see below, the outperformance of large stocks to small stocks, as well as growth stocks to value stocks, is at highs last seen during the dot-com boom.
Given that higher-valued tech stocks now make up a larger portion of the index, the Schiller price-to-earnings (P/E) ratio, which adjusts for cyclicality in earnings over 10 years, while not quite at the levels of 1999, has crept up to the highest level since 1999, roughly matching the level from 2021:
As we all know, 2022 was also a terrible year for tech stocks. While it didn’t see a multiyear crash akin to the dot-com bust, 2022 saw the Nasdaq decline 33.1% on the year. Of course, at the end of 2022, ChatGPT came out, somewhat saving the tech sector as the AI revolution kicked off.
Thus, when compared to history, tech stocks are at worrying levels. Given the similarities to the 1999 dot-com bubble and the 2021 pandemic bubble, some may think it’s time to panic and sell; however, there are also a few counter-narratives to consider.
The first is that, unlike in 1999, today’s technology giants are mostly truly diversified, cash-rich behemoths that account for a greater and greater percentage of today’s gross domestic product (GDP). While the late 1990s certainly had its leaders — including Microsoft(NASDAQ: MSFT), the only market leader that is in the same position today as then — they weren’t really anything like today’s tech giants, with robust cloud businesses, global scale, diversified income streams, and tremendous amounts of cash.
While market concentration in the top three weightings tends to occur before market downturns, index weighting concentration appears to be somewhat of a long-term trend now, increasing beyond prior highs in 1999 and 2008 since 2019.
Image source: Charlie Bilello State of the Markets blog.
Thus, it seems a higher weighting of the “Magnificent Seven” stocks could be a feature of today’s economy, rather than an aberration.
While it’s true that some of today’s large companies are overvalued, given their underlying strength and resilience, it’s perhaps not abnormal for them to garner higher-than-normal valuation multiples.
It’s important to know that while taking note of market levels is important, it is extremely difficult to time market downturns. Famed investor Peter Lynch once said, “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.”
So, one shouldn’t abandon one’s long-term investing plan just because overall market levels may be frothy. That being said, if you need a certain amount of cash in the next one to two years, it may be a good idea to keep that money in cash or Treasury bills until then, rather than the stock market.
Furthermore, if you have a regular, methodical investing plan, stick to it. But if you are consistently adding to your portfolio every month or quarter, you may want to look at small caps, non-tech sectors, and value stocks today, rather than adding to large technology companies.
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FILE – In this Jan. 2, 2020, file photo traders monitor stock prices at the New York Stock Exchange. The U.S. stock market opens at 9:30 a.m. EST on Thursday, Jan. 9. (AP Photo/Mark Lennihan, File)Associated Press
Albert Edwards warns of a tech stock bubble amid high valuations.
The tech sector is now 37% of the US stock market, surpassing the dot-com era peak.
But rising bond yields will eventually stop the rally, Edwards said.
Like the high market valuation levels he warns about, Société Générale strategist Albert Edwards‘ bearish missives don’t tend to serve well as near-term market timing tools.
He acknowledges as much.
“An equity investor who heeded my words of caution on the US Tech ‘bubble’ will by now have taken to sticking pins in plasticine models of me,” Edwards wrote in an August 21 note to clients. “Indeed, my ankle has been hurting for over six months and although the physio says it is tendonitis, I strongly suspect otherwise.”
But there’s no denying that Edwards, a stark contrarian amid the pervasively bullish attitude on Wall Street these days, has some concerning observations about where the market sits — particularly with respect to tech stocks, and in the context of government bond yields.
Building on his argument that the market is in a bubble, he highlighted in his latest note that the tech sector now makes up 37% of the total US market, which is higher than at the peak of the dot-com bubble in 2000. Over the last few years, investors have piled into tech amid the frenzied excitement about AI.
SOCIETE GENERALE
Another metric showing that the tech sector has historically high valuations is a falling free cash flow yield. This means that current market prices are high relative to cash flow after expenses as tech firms dump money into AI development. The sector has a free cash flow yield of around two. This is also reflected in the S&P 500’s low dividend yield of 1.2%.
Meanwhile, long-term government bond yields have surged at the same time as the tech rally, and offer virtually risk-free yields of over 4%.
The ratio of 10-year Treasury yields to the market’s dividend yield has climbed to dot-com era levels.
SOCIETE GENERALE
Historically, rising bond yields have weighed on stock valuations, but that hasn’t seemed to be the case so far in this market. Edwards says it’s only a matter of time until that changes.
“Only the other day, interest rates were rock bottom and equity bulls were telling us that sky high equity valuations were justified by TINA — There Is No Alternative,” he wrote. “But that TINA magic no longer works, now that interest rates are so much higher. So, how come the equity market is able to shrug off the relentless rise in long bond yields by feeding off news of strong profits from a handful of mega-cap tech stocks and the promise of more to come?”
“Surely we can all agree that rising bond yields will break the equity market at some point? But when?” he continued, adding: “Goodbye to the post-GFC TINA world when equities yielded almost as much as bonds and hello to an ever more stretched elastic band which will surely eventually snap.”
Bond yields could be on the way down after Federal Reserve Chair Jerome Powell took on a dovish tone in his speech in Jackson Hole, Wyoming, on Friday. Lower rates are typically bullish for stocks, and the S&P 500 rallied around 1.5% on Friday after Powell’s remarks.
However, it remains unclear how much the central bank will slash rates in the year ahead and how the labor market, consumer spending, and inflation will fare as the economy digests higher tariff rates.
So for now, as he wrote on Thursday, Edwards will keep wondering: “How big could this bubble get?”
Federal Reserve Chair Jerome Powell gave a speech that sent all three stock indexes soaring. Traders excavated clues of an interest rate coming. Archie Hall, U.S. economics editor for The Economist, joins “The Takeout” to discuss.
When Jensen Huang, the chief executive of the chipmaker Nvidia, met with Donald Trump in the White House last week, he had reason to be cheerful. Most of Nvidia’s chips, which are widely used to train generative artificial-intelligence models, are manufactured in Asia. Earlier this year, it pledged to increase production in the United States, and on Wednesday Trump announced that chip companies that promise to build products in the United States would be exempt from some hefty new tariffs on semiconductors that his Administration is preparing to impose. The next day, Nvidia’s stock hit a new all-time high, and its market capitalization reached $4.4 trillion, making it the world’s most valuable company, ahead of Microsoft, which is also heavily involved in A.I.
Welcome to the A.I. boom, or should I say the A.I. bubble? It has been more than a quarter of a century since the bursting of the great dot-com bubble, during which hundreds of unprofitable internet startups issued stock on the Nasdaq, and the share prices of many tech companies rose into the stratosphere. In March and April of 2000, tech stocks plummeted; subsequently many, but by no means all, of the internet startups went out of business. There has been some discussion on Wall Street in the past few months about whether the current surge in tech is following a similar trajectory. In a research paper entitled “25 Years On; Lessons from the Bursting of the Technology Bubble,” which was published in March, a team of investment analysts from Goldman Sachs argued that it wasn’t: “While enthusiasm for technology stocks has risen sharply in recent years, this has not represented a bubble because the price appreciation has been justified by strong profit fundamentals.” The analysts pointed to the earnings power of the so-called Magnificent Seven companies: Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla. Between the first quarter of 2022 and the first quarter of this year, Nvidia’s revenues quintupled, and its after-tax profits rose more than tenfold.
The Goldman paper also provided a salutary history lesson. Between 1995 and 2000, it pointed out, the tech-heavy Nasdaq index rose fivefold, and at the peak of the market a widely used valuation measure for the stocks that trade on it—the price-to-earnings ratio, or “P/E”—topped a hundred and fifty, a level not seen before or since then. By comparison, the five-year period from March, 2020, to March, 2025, had been relatively tame. It’s true, the Nasdaq had roughly doubled, and the P/E ratio had gone up considerably; but it hadn’t got anywhere near three figures.
Having written extensively on the dot-com boom and bust, I found some of Goldman’s analysis persuasive. Many people have either forgotten, or are too young to remember, the extremes reached during the dot-com years. In the logic of speculative hysterias—from the seventeenth-century “tulipmania” in Holland to the rise of Pets.com—greed, FOMO, and the greater-fool theory of investing eventually combine to banish caution, common sense, and financial gravity. Back in March, there was plenty of FOMO and trend-following on Wall Street, but it hadn’t reached the levels of the late nineties. Five months on, however, echoes of the dot-com era are getting louder.
Consider Palantir Technologies, whose A.I. software is used by the Pentagon, the C.I.A., and ICE, not to mention by many commercial companies. A couple of days before Huang visited the White House, Palantir released a positive earnings report. By the end of the week, according to the Yahoo Finance database, the market was valuing the company at more than six hundred times its earnings from the past twelve months, and at about a hundred and thirty times its sales in that same time span. Even during the late nineties, figures like these would have raised eyebrows.
Eye-popping I.P.O.s, another feature of the dot-com era, are also making a comeback. At the end of July, Figma, a firm that makes software used by internet developers, and which has added A.I. features to its suite of products, issued stock on the New York Stock Exchange at thirty-three dollars a share. When trading started, the price jumped to eighty-five. It closed the day at $115.50—a two-hundred-and-fifty-per-cent gain on the offering price. Watching this market action, I was reminded of August 9, 1995, when Netscape, which made the Netscape Navigator web browser, went public. Its stock was priced at twenty-eight dollars, rose to seventy-five, and closed at $58.25. In percentage terms, this leap was smaller than the first-day rise in Figma’s stock, but it’s often described as the beginning of the dot-com bubble.
It should be noted that, since Figma’s I.P.O., its stock has fallen back to below eighty dollars. This could be interpreted as a sign of sanity prevailing, but, given that the shares are still trading at more than double the offering price, other privately owned A.I. companies will be encouraged to enter the stock market. Renaissance Capital, a research firm that specializes in I.P.O.s, lists eight prominent candidates: OpenAI, Anthropic, Cohere, Databricks, SymphonyAI, Waymo, Scale AI, and Perplexity. Almost all of these companies are unicorns: they have been valued at more than a billion dollars in fund-raising deals with venture capitalists and other early investors. But, across the country, according to the research firm Tracxn, there are about seven thousand smaller and lesser-known A.I. companies, more than a thousand of which have already received Series A funding from external backers to finance their operations.
The ready availability of early-stage funding means that a necessary condition for a dot-com-style bubble is in place. So are three more: excitement among investors about a pathbreaking technology—generative A.I. clearly has the potential to impact great swaths of the economy; a Wall Street production line staffed by investment bankers eager to earn fees for organizing I.P.O.s; and accommodative policy. Last month, the Trump Administration announced an “AI Action Plan,” which aims to remove barriers to the deployment of the new technology and to deter individual states from introducing “burdensome” regulatory A.I. laws. The Federal Reserve, meanwhile, appears to be preparing to cut interest rates next month, which could give another boost to the markets.
There are, however, some important differences between now and the nineties, one of which is that the online economy is no longer a vast open plain on which enterprising individuals can propose to build castles to the sky. It is a redoubt of monopoly capitalism, in which Big Tech dominates the horizon. During the dot-com era, or its early stages, anyway, small startups could reasonably hope to exploit first-mover advantage, gain early traction, and create durable business franchises. In the A.I. economy, it seems possible that many of the rewards will go to top firms that can afford to build and maintain large A.I. models and can use their market power and financial might to ward off, or buy out, potential competitors. A vigorous antitrust policy could perhaps prevent this from happening, but, as the Wall Street Journalreported last week, the Administration’s pledge to pursue such a policy is now under threat from lobbyists and power brokers with close ties to the President. If investors decide that monopolies are the future of the A.I.-driven economy, the outcome in the stock market could well mean further gains for existing industry giants rather than a broad-based bubble.
All of this is uncertain, of course. The A.I. boom is still in the stage of building out infrastructure—training large language models, building data centers, and so on. A.I. applications are just beginning to diffuse throughout the economy, and nobody knows for sure just how transformative, and profitable, the technology will be. In this environment, many investors are following the time-honored gold-rush strategy of buying the shovel-makers and big mine owners. But history teaches us that even this strategy is far from risk-free. In an interesting analysis that was posted on the financial-news platform Seeking Alpha, an analyst identified as KCI Research compared Nvidia to Cisco Systems, one of the firms whose stock went parabolic in 1998-99. Just as Nvidia’s G.P.U.s (graphics-processing units) are now widely regarded as must-have components of A.I. infrastructure, Cisco’s routers and other network equipment were viewed as essential components of the internet build-out; for a time, demand for them seemed virtually unlimited. Like Nvidia, Cisco was an innovative and highly profitable company. But, in April of 2000, its stock dropped by almost forty per cent, and a year later it had fallen by about eighty per cent. A quarter of a century on, it still hasn’t recovered the high it hit in early 2000, although, lately, it has come close.
The Nvidia-Cisco comparison was a useful reminder of a dictum from the pioneering stock analyst Benjamin Graham, who was a mentor to Warren Buffett: in the short run, the stock market is a voting machine, but in the long run it is a weighing machine that weighs the cash flows that companies generate. Ironically, the Nvidia-Cisco analogy also inadvertently demonstrated how long the short run can last for, and how dangerous it can be to predict its end date. The analysis was posted in February of last year. Since then, Nvidia’s stock price has risen by another hundred and fifty per cent. ♦
Tech giants Apple and Amazon delivered better-than-expected quarterly earnings this week, showcasing resilient growth despite ongoing challenges from tariffs and intensifying competition in artificial intelligence. Both companies beat Wall Street estimates but revealed underlying concerns that tempered investor enthusiasm.
Apple’s Record-Breaking Quarter
Apple reported exceptional third-quarter fiscal 2025 results on Thursday, with revenue surging 10% year-over-year to $94 billion, marking the company’s largest quarterly revenue growth since December 2021. The iPhone maker posted earnings per share of $1.57, significantly exceeding analysts’ expectations of $1.43.
“Today Apple is proud to report a June quarter revenue record with double-digit growth in iPhone, Mac, and Services and growth around the world, in every geographic segment,” said CEO Tim Cook during the earnings call.
China Sales: $15.37 billion (up 4% YoY), beating expectations
Gross Margin: 46.5% vs. 45.9% expected
The standout performer was the iPhone business, with Cook revealing that the iPhone 16 models showed “strong double-digit” growth compared to their predecessors. The company also reached a milestone, shipping its 3 billionth iPhone during the quarter.
However, not all product lines performed equally well. iPad revenue fell to $6.58 billion, missing expectations of $7.24 billion, while the wearables division also saw a year-over-year decline to $7.40 billion.
Amazon’s Mixed Results Spark Concerns
Amazon reported second-quarter results that exceeded expectations but disappointed investors with lighter-than-expected operating income guidance. The e-commerce giant posted earnings per share of $1.68, beating the $1.33 estimate, while revenue reached $167.7 billion, surpassing the $162.09 billion forecast.
Despite the strong numbers, Amazon shares slid more than 7% in after-hours trading as the company provided cautious guidance for the third quarter, projecting operating income between $15.5 billion and $20 billion. CEO Andy Jassy attempted to reassure investors about AWS’s “pretty significant” leadership position in cloud computing.
AI Investments and Competition
Both companies are heavily investing in artificial intelligence capabilities. Amazon has committed to spending up to $100 billion this year on AI infrastructure, including data centers and software development. Meanwhile, Apple faces criticism for its slower AI rollout compared to competitors.
Cook hinted at potential acquisitions, stating Apple is “open to M&A that accelerates our roadmap” and confirmed the company would “significantly grow” its AI investments. Industry analysts have suggested Apple should consider acquiring AI startups to catch up with rivals.
Tariff Impact and Future Outlook
Tariff concerns loomed large in both earnings reports. Apple incurred $800 million in tariff costs during Q3, lower than its initial $900 million estimate. Looking ahead, Cook warned that tariff costs could reach $1.1 billion in the September quarter if policies remain unchanged.
Amazon similarly cited “tariff and trade policies” and “recessionary fears” as factors that could affect future guidance. However, Jassy noted that tariffs haven’t significantly dented demand or driven up prices so far this year.
Looking Ahead
For the upcoming quarter, Apple expects mid- to high-single-digit revenue growth with gross margins between 46% and 47%, including tariff impacts. The company’s services segment faces a potential $20 billion threat if a federal judge rules against Google’s exclusivity deals in an ongoing antitrust case.
Amazon forecast third-quarter revenue between $174 billion and $179.5 billion, representing 10% to 13% year-over-year growth. The company’s cloud division, while still growing, showed signs of deceleration with three consecutive quarters of revenue misses.
Both tech giants demonstrate resilience in navigating a complex landscape of regulatory challenges, AI competition, and economic uncertainty. However, investors remain cautious about the sustainability of growth amid these headwinds, particularly as the companies face increasing pressure to deliver returns on their massive AI investments.
We’re now just days away from the ’24 elections, and what a race it’s been. Polls have been all over the place, and both parties can make legitimate claims to holding the advantage as we approach Tuesday’s vote.
Amidst the political drama, the stock market has remained robust, with the S&P 500 surging 20% year-to-date. Historically, the index tends to perform well in election years, but this year has been exceptional, making it the most bullish election-year market in decades. A mix of macroeconomic factors, especially expectations of further Fed rate cuts, has fueled strong investor confidence.
Morgan Stanley’s analysts are embracing this momentum, picking out stocks they believe are primed for gains regardless of the election outcome. They’ve zeroed in on two specific stocks poised for substantial growth in the coming year – including one with a potential upside as high as 670%.
As if that weren’t compelling enough, according to the TipRanks database, both stocks are also rated as Strong Buys by the analyst consensus. Let’s see what’s driving this optimism among market experts.
Tenaya Therapeutics (TNYA)
We’ll start with Tenaya Therapeutics, a research-oriented biopharmaceutical company that is focused on developing and producing new therapeutic drugs for the treatment of heart disease. Tenaya is targeting its approach on the underlying causes of heart disease, including rare genetic disorders. The company’s approach includes gene therapies, cellular regeneration, and precision medicines.
Heart disease is the world’s leading cause of death among adults, making its treatment an important niche. Tenaya currently has two primary drug candidates under investigation, TN-201 and TN-401, for the treatment of MYBPC3-associated hypertrophic cardiomyopathy and PKP2-associated arrhythmogenic right ventricular cardiomyopathy, respectively.
The leading candidate, TN-201, is currently undergoing a Phase 1b human clinical trial. The study is focused on safety and tolerability and will enroll up to 24 adults. Data from the first patient cohort in the study are expected to be released in December, presenting a significant milestone for the stock. Meanwhile, enrollment is ongoing for the second cohort.
The second candidate, TN-401, entered its Phase 1 RIDGE-1 trial earlier this year. This global, open-label, dose-escalation study, which will continue patient dosing through Q4 2024, aims to evaluate the safety, tolerability, and effectiveness of a single intravenous dose of TN-401.
Morgan Stanley analyst Michael Ulz views TNYA as a compelling investment, with TN-201 as the primary value driver. Ulz notes, “Interim Ph1b MyPEAK-1 data for TN-201 in nHCM are expected in [December] and represent a key catalyst for Tenaya’s lead program. We see a favorable risk/reward on initial data, which could provide early de-risking, followed by more robust data in 2025.”
“We view favorable trends on cardiac biomarkers and uninterpretable protein expression data as the most likely scenario,” Ulz added. “We believe investors would view the data as positive and suggestive of benefit… Under this scenario we would expect TNYA shares to trade up +100%.”
To this end, Ulz rates TNYA shares an Overweight (i.e. Buy), while his $15 price target offers a whopping ~670% upside from current levels. (To watch Ulz’s track record, click here)
The consensus view here shows that Morgan Stanley’s bullish take is no outlier. TNYA stock has a unanimous Strong Buy consensus rating, based on 7 recent positive analyst reviews. The stock’s $1.94 trading price and $20.20 average target price together suggest an impressive upside of 941% on the 12-month horizon. (See TNYA stock forecast)
Royalty Pharma (RPRX)
The next Morgan Stanley pick we’ll look at is Royalty Pharma, a company that gives investors an interesting way to put money into the biotech sector. Royalty Pharma operates as a royalty company; that is, it purchases ownership rights in biopharmaceutical products and earns royalties on sales and profits. Royalty Pharma has built up a pipeline of such opportunities, designed to generate and maintain a steady stream of revenues.
This royalty strategy has led the company to put together a solid portfolio of assets. Royalty Pharma boasts rights in more than 35 approved products, and backs that up with rights in another 17 drug candidates still in the development stage. Of this total lineup, 15 products are considered ‘blockbusters,’ generating more than $1 billion in annual sales. And for the long term, the company’s portfolio has an average duration of 13 years. In the five-year period from 2018 to 2023, Royalty Pharma deployed an average annual capital of $2 billion, and in calendar year 2023, Royalty Pharma brought in $3 billion in total portfolio receipts.
In its last reported quarter (2Q24), Royalty Pharma reported portfolio receipts (revenue) of $608 million, marking a 12% year-over-year increase, though this came in $18 million below consensus. The company raised its 2024 portfolio receipts guidance to a range of $2.7 billion to $2.775 billion, up from a previous forecast of $2.6 to $2.7 billion. Additionally, the company posted an EPS of $0.96, reflecting a 13% increase year-over-year, slightly shy of the consensus estimate of $0.99.
Checking in with the Morgan Stanley view, we find analyst Terence Flynn taking an upbeat view of the company and its prospects for the long-term.
“RPRX has one of the highest top line growth rates in our coverage and is trading at a discount. In our view the company’s growth profile and diversified portfolio deserves at least an in-line multiple and hence our Overweight rating. We acknowledge that RPRX must continue to deploy capital towards new deals given patent/royalty expiries in order to sustain HSD growth, but management has a strong historical track record on this front. We see two areas of potential upside to estimates that could meaningfully move the needle – AMGN’s Olpasiran/ NOVN’s Pelacarsen for ACVD and JNJ’s Tremfya for psoriasis/IBD,” Flynn opined.
Flynn’s Overweight (i.e. Buy) rating is backed by a $51 price target, suggesting a potential one-year upside of 88%. (To watch Flynn’s track record, click here)
Morgan Stanley isn’t alone in this positive outlook. Royalty Pharma enjoys unanimous support, with 5 Buy ratings and a Strong Buy consensus. Currently priced at $27.10, the stock’s average price target of $44.40 implies a ~64% upside in the coming months. (See RPRX stock forecast)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
Share prices were up 5% in after-hours trading on Thursday after the strong earnings beat.
Amazon (AMZN/NASDAQ): Earnings per share of $1.43 (versus $0.14 predicted) and revenues of $134.4 billion (versus $131.5 billion predicted).
Amazon Web Services (AWS) remains the golden goose, even though very few of Amazon’s retail customers know it exists. Revenues climbed 19% during the quarter, and totalled $27.4 billion. Amazon’s advertising revenues were another highlighted area of the report, as they were up 19%. Overall operating profits grew 56% year over year to $17.4 billion, mostly credited to the 27,000 jobs cut by the company since 2022.
Founder, executive chairman and former president and CEO of Amazon, Jeff Bezos was in the headlines this week in his role as owner of the Washington Post. He refused to allow the Post’s editorial team to print their endorsement of Kamala Harris for president, and it was met with widespread outrage from Post readers. As of Tuesday, more than 250,000 subscriptions were cancelled as a result.
Fortunately for Bezos, he purchased the Washington Post (one of the world’s premier news brands) for “chump change”—$250 million (roughly a mere 1.2% of his net worth). So, if he drives it into the ground, I don’t think he’ll shed tears.
No doubt co-founder and CEO of Tesla, Elon Musk, is making similar calculations with his luxury purchase two years ago of Twitter (which he rebranded as X). Critics say he has turned the social platform into an echo chamber for Republican presidential candidate Donald Trump. What are the billions for, if a person can’t even enjoy themselves by buying a little media, am I right?(That’s sarcasm.)
So far we’ve yet to see analysis to show Bezos’ editorial decision affecting Amazon’s share price or revenue numbers. Apparently Republicans buy Amazon Prime, too.
Canada’s best dividend stocks
Microsoft, Meta and Google: Predictably incredible earnings
While not having quite as large a market cap as Nvidia and Apple, other mega tech stocks in the U.S. are no slouches. For example, Microsoft is also as valuable as the entirety of Canada’s stock exchanges at $3.2 trillion. Alphabet and Meta clock in at $2.1 trillion and $1.5 trillion respectively. (All figures in this section are in U.S. dollars.)
Other Big Tech stock news highlights
Here’s what these companies announced this week.
Alphabet (GOOGL/NASDAQ): Earnings per share came in at $2.12 (versus $1.51 predicted) on revenues of $88.27 billion (versus $86.30 billion predicted).
Microsoft (MSFT/NASDAQ): Earnings per share of $3.30 (versus $3.10 predicted), and revenues of $65.59 billion (versus $64.51 predicted).
Meta (META/NASDAQ): Earnings per share coming in at $6.03 (versus $5.25 predicted) and revenues of $40.59 billion (versus $40.29 predicted).
All three companies crushed earning estimates across the board. However, shareholders’ reactions to these earnings beats were still muted. Meta shares were down 2.5% in after-hours trading on Wednesday, and it was a similar situation for Microsoft. Alphabet fared better as its shares were up 3%.
It’s hard to put these numbers into the massive context into which they belong, because the world has never seen anything like these companies before. Here are highlights from the earnings calls. (Scroll the chart left to right with your fingers or press shift, as you use scroll wheel on your mouse to read.)
Despite these setbacks, CPKC posted an income gain of 7% year over year. The four categories that made the most impact were grain, energy, plastics and chemicals, and they grew revenues by 11%. CPKC says the shipment of wheat to Mexico from the Canadian and American Prairies over the past 12 months was exactly the type of “synergy win” that it was hoping for when the former Canadian Pacific acquired Kansas City Southern back in 2021. This railway remains the only one to span Canada, the United States and Mexico.
CNR CEO Tracy Robinson commented on the railway’s operational challenges. “Our scheduled operating plan demonstrated its resilience in the third quarter, allowing us to adapt our operations to challenges posed by wildfires and prolonged labor issues,” she said. “Our operations recovered quickly and the railroad is running well. As we close 2024, we will continue to focus on recovering volumes, growth, and ensuring our resources are aligned to demand.”
CNR’s revenues were up 3% year over year; however, increased expenses meant the company’s operating ratio rose 1.1% to 63.1% (indicating that expenses are growing as a share of revenue). The railway announced it was raising its quarterly dividend from $0.79 to $0.845. This raise of nearly 7% is right in line with CNR’s mission to conservatively raise its dividend payouts each year.
Thursday’s revenue miss left some Rogers shareholders shaking their heads.
Rogers earnings highlights
Here’s what the large mobile company reported this week:
Rogers Communications (RCI/TSX): Earnings per share of $1.42 (versus $1.34 predicted) and revenues of $5.13 billion (versus $5.17 predicted).
While solid earnings numbers did take away some of the sting, Rogers’ share price was down 3% on Thursday. Lower-than-expected numbers for new wireless customers were at the root of low revenue growth. The oligopolistic Canadian wireless market remains uncharacteristically competitive as Rogers, Telus and Bell all continue to fight for market share. That competition is hurting profit margins for all three telecommunications giants at the moment. (Unlike in past years, when the three telcos all enjoyed charging some of the highest wireless plan fees in the world.)
One highlight for Rogers was its sports revenue vertical, which was up 11% from last quarter. Rogers has really doubled down on its sports media strategy over the last few years and now owns a controlling share of the:
Toronto Blue Jays in the Major League Baseball league (MLB)
Toronto Maple Leafs in the National Hockey League (NHL)
Toronto Raptors in the National Basketball Association (NBA)
Toronto FC in Major League Soccer (MLS)
Toronto Argonauts in the Canadian Football League (CFL)
SportsNet, a major Canadian sports network
Toronto’s Rogers Centre and Scotiabank Arena venues
Naming rights of sports venues in Edmonton, Toronto and Vancouver
National NHL media rights in Canada
Local media rights to the NHL’s Vancouver Canucks, Calgary Flames and Edmonton Oilers
Partial local media rights to the Maple Leafs and Raptors
Several minor-league franchises and esports (gaming) teams
Despite owning all those household-name sports assets, it’s worth noting that Rogers’ wireless and cable divisions were responsible for close to 90% of revenues, with sports and media making up the rest.
Changes to the BoC rate impacts the prime rate set by Canadian lenders, which in turn affects the pricing of variable-based borrowing products, which are based on the prime rate plus or minus a percentage. Following this most recent cut, the prime rate at most Canadian lenders will drop to 5.95% from 6.45%. What does that mean to your money and your debt? Keep reading.
The BoC is taking action with this larger-than-usual cut
When the central bank lowers its benchmark rate, it typically does so in quarter-point increments —unless there’s an economic reason for a heftier cut. Half-percentage point decreases like today’s are rare, but they do have a precedent; the last time the BoC doled out cuts of this size was back in March 2020, when it implemented three in rapid succession to support the economy amid the onset of the COVID-19 pandemic. Outside of the COVID era, today’s rate cut is the largest since March 2009.
That the BoC is once again supersizing its cuts points to concerns that the economy is slowing at a faster pace than expected. The most recent inflation report for September from Statistics Canada revealed the year-over-year inflation as measured by the Consumer Price Index (CPI) fell to 1.6%, which is below the BoC’s 2% target. That’s considered sustainable for the Canadian economy. The BoC tweaks its benchmark rate to keep it as close as possible to target. When inflation is running hot, it hikes rates to cool consumer spending and access to credit. The opposite occurs when inflation gets too soft; the BoC must ease borrowing conditions to encourage consumption, and bolster economic growth, otherwise it risks an impending recession. We’re in the latter situation right now.
Will the BoC continue to drop its rate?
Should economic data, such as inflation, GDP, and job market numbers, continue to trend as it has, additional rate cuts are a certainty, including more supersized cuts. Much will hinge on the next CPI report, due out on November 19. Should inflation remain sluggish, that increases the chances of another half-point cut in the BoC’s next rate announcement, on December 11.
The BoC is also keen to lower its rate down to “neutral” state, which is a range between 2.25% to 3.25%. This again is a rate that neither inflames or stunts economic growth, and remaining above it too long poses economic risk.
Following this rate cut today, the overnight lending rate remains 0.50% above the higher end of the neutral range. Overall, analysts think the BoC will lower its rate by another 1.75% by the end of 2025.
What does the BoC rate announcement mean to you?
What does it mean for you, your home, your finances and more? Read on.
The impact on Canadians with a mortgage
Whether you’re shopping for a brand new mortgage rate or renewing your existing term, today’s rate cut will make it slightly more affordable to do so.
The impact on variable-rate mortgages
Variable mortgage rate holders are the most heavily impacted by the October rate cut, as their mortgage payments—or the portion of their payment that services interest—will immediately decrease along with their lenders’ prime rate. These borrowers in Canada also have much to look forward to, with anticipated rate cuts on the horizon.
(Bloomberg) — Stocks struggled for direction as traders weighed prospects of a slower pace of Federal Reserve rate cuts. Treasury 10-year yields hovered near 4.2%.
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Wall Street are paring back bets on aggressive policy easing as the US economy remains robust and Fed officials have sounded a cautious tone over the pace of future rate decreases. Rising oil prices and the prospect of bigger fiscal deficits after the upcoming presidential election are only compounding the market’s concerns. Since the end of last week, traders have trimmed the extent of expected Fed cuts through September 2025 by more than 10 basis points.
“Of course, higher yields do not have to be negative for stocks. Let’s face it, the stock market has been advancing as these bond yields have bee rising for a full month now,” said Matt Maley at Miller Tabak + Co. “However, given how expensive the market is today, these higher yields could cause some problems for the equity market before too long.”
Exposure to the S&P 500 has reached levels that were followed by a 10% slump in the past, according to Citigroup Inc. strategists. Long positions on futures linked to the benchmark index are at the highest since mid-2023 and are looking “particularly extended,” the team led by Chris Montagu wrote in a note.
“We’re not suggesting investors should start to reduce exposure, but the positioning risks do rise when markets get extended like this,” they said.
The S&P 500 was little changed. The Nasdaq 100 rose 0.1%. The Dow Jones Industrial Average added 0.1%. The Russell 2000 of smaller firms slipped 0.2%. Texas Instruments Inc., which gets almost three-quarters of its revenue from industrial and automotive chips, reports results after the market close.
Treasury 10-year yield was little changed at 4.20%. Oil advanced as traders tracked tensions between Israel and Iran. Gold climbed to a fresh record. Options traders are increasing bets that Bitcoin will reach a record high of $80,000 by the end of November no matter who wins the US presidential election.
The stock market has rallied this year thanks to a resilient economy, strong corporate profits and speculation about artificial-intelligence breakthroughs — sending the S&P 500 up over 20%. Yet risks keep surfacing: from a tight US election to war in the Middle East and uncertainty around the trajectory of Fed easing.
“While recent data indicate a more resilient US economy than previously thought, the broad disinflation trend is still intact, and downside risks — albeit lower — to the labor market remain,” said Solita Marcelli at UBS Global Wealth Management. “We continue to expect a further 50 basis points of rate cuts in 2024 and 100 basis points of cuts in 2025. This should bring Treasury yields lower.”
A string of stronger-than-estimated data points sent the US version of Citigroup’s Economic Surprise Index to the highest since April. The gauge measures the difference between actual releases and analyst expectations.
“On the back of September’s strong economic data, markets have already priced a slower pace of cuts,” said Lauren Goodwin at New York Life Investments. “If the Fed is able to move towards a 4% policy rate — still above the levels most believe represent the ‘neutral’ rate — then the equity market rally can continue. Disruptions to that view make equity market volatility more likely.”
Most Fed officials speaking earlier this week signaled they favor a slower tempo of rate reductions. Policymakers at their meeting last month began lowering rates for the first time since the onset of the pandemic. They cut their benchmark by a half percentage point, to a range of 4.75% to 5%, as concern mounted that the labor market was deteriorating and as inflation cooled close to the Fed’s 2% goal.
“We can point to a few reasons for the rise in global long rates but one possibility is that markets are giving a big thumbs down to central banks easing policy before we’ve seen a sustainable drop in inflation.” said Peter Boockvar author of The Boock Report. “I remain bearish on the long end and bullish on the short end.”
The last time US government bonds sold off this much as the Fed started cutting interest rates, Alan Greenspan was orchestrating a rare soft landing.
Two-year yields have climbed 34 basis points since the Fed reduced interest rates on Sept. 18 for the first time since 2020. Yields rose similarly in 1995, when the Fed — led by Greenspan — managed to cool the economy without causing a recession.
In prior rate cutting cycles going back to 1989, two-year yields on average fell 15 basis points one month after the Fed started slashing rates.
Meantime, the International Monetary Fund said the US election is creating “high uncertainty” for markets and policymakers, given the sharply divergent trade priorities of the candidates. That gap creates the risk of another potential round of volatility on global markets similar to the rattling August selloff.
“Presidents don’t control markets,” said Callie Cox at Ritholtz Wealth Management. “Over time, the stock market’s common thread has been the economy and earnings, not who’s in the Oval Office. Be prepared for mood swings in markets as we get closer to Election Day. But remember that election-fueled storms often dissipate quickly.”
As the earnings season rolls in, US companies are reaping the best stock-market reward in five years for beating profit expectations that were lowered in the run-up to the reporting season.
S&P 500 firms that posted better-than-estimated third-quarter earnings have outperformed the benchmark by a median of 1.74% on the day of reporting results, according to data compiled by Bloomberg Intelligence. That’s the strongest rate in BI’s records going back to 2019.
At the same time, companies missing estimates trailed the S&P 500 by a median of 1.5%, a less severe underperformance than the 1.7% experienced in the second quarter, the data showed.
“This earnings season we are watching what companies are saying about inflation and the economy,” said Megan Horneman at Verdence Capital Advisors. “In addition, their view on interest rates, especially if the Fed cannot be as aggressive as the market is pricing in at this point. It is good to see analysts getting realistic about 2025 earnings growth. However, at 15% earnings growth, we believe it is still too optimistic given the expectation for slower economic growth in 2025.”
Corporate Highlights:
Verizon Communications Inc. reported revenue that missed analysts’ expectations, weighed down by lackluster sales of hardware such as mobile phones.
3M Co. increased the low end of its 2024 profit forecast and reported earnings that topped analyst estimates as a push to boost productivity gained traction.
General Motors Co. signaled solid US demand for its highest-margin vehicles even as the broader market softens, posting better-than-expected results for the latest quarter and raising the low end of its full-year profit forecast.
General Electric Co.’s sales fell short of Wall Street’s expectations last quarter, tempering enthusiasm for its improved profit outlook as the jet engine maker grapples with supply-chain limitations that are weighing on deliveries.
Kimberly-Clark Corp., owner of the Scott toilet paper brand, lowered its full-year organic sales forecast after reporting weaker-than-expected results.
Philip Morris International Inc. forecast higher-than-expected profit this year, citing soaring demand for its Zyn nicotine pouches in the US.
Lockheed Martin Corp.’s third-quarter revenue missed expectations, pulled down by weaker aeronautical sales and ongoing issues with its F-35 fighter jet program.
Zions Bancorp’s third-quarter adjusted net interest income came in ahead of estimates. Morgan Stanley said the results beat across the board and sees the positive trajectory in net interest income continuing into 2025.
L’Oreal SA posted disappointing sales last quarter as the beauty company suffers from worsening consumer demand in China.
An investigation of Huawei Technologies Co.’s latest AI offering has unearthed an advanced processor made by Nvidia Corp. manufacturing partner Taiwan Semiconductor Manufacturing Co., suggesting that China is still struggling to reliably make its own advanced chips in sufficient quantities.
Key events this week:
Canada rate decision, Wednesday
Eurozone consumer confidence, Wednesday
US existing home sales, Wednesday
Boeing, Tesla, Deutsche Bank earnings, Wednesday
Fed’s Beige Book, Wednesday
US new home sales, jobless claims, S&P Global Manufacturing and Services PMI, Thursday
UPS, Barclays earnings, Thursday
Fed’s Beth Hammack speaks, Thursday
US durable goods, University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
The S&P 500 was little changed as of 1:47 p.m. New York time
The Nasdaq 100 rose 0.1%
The Dow Jones Industrial Average rose 0.1%
The MSCI World Index fell 0.2%
The Russell 2000 Index fell 0.2%
Currencies
The Bloomberg Dollar Spot Index was little changed
The euro fell 0.1% to $1.0803
The British pound was little changed at $1.2983
The Japanese yen fell 0.1% to 151.02 per dollar
Cryptocurrencies
Bitcoin fell 0.6% to $67,338.79
Ether fell 1.9% to $2,625.07
Bonds
The yield on 10-year Treasuries was little changed at 4.20%
Germany’s 10-year yield advanced four basis points to 2.32%
Britain’s 10-year yield advanced three basis points to 4.17%
Commodities
West Texas Intermediate crude rose 2.3% to $72.21 a barrel
Spot gold rose 1% to $2,748.02 an ounce
This story was produced with the assistance of Bloomberg Automation.
