Markets opened yesterday with hope… and closed with a thud.
We, too, were fixated on the Federal Reserve decision and its subsequent press conference.
As we’re sure you’re aware, the Federal Reserve refused Trump’s insistence that they cut rates — again. In return, the president launched a fresh barrage of tariffs, triggering confusion across trade desks in lower Manhattan.
And underneath it all? An aggressive rollover of (ballooning) national debt, tech valuations at historic extremes crowding out all kinds of otherwise healthy businesses, and tremors — both literal and economic — shaking the ground beneath us.
Powell 1, Trump 0… Your Move, Mr. Trump
The Federal Reserve held interest rates steady for a fifth straight meeting, keeping the target range at 4.25%–4.50%, despite immense pressure from the White House. As expected, no rate cuts came… but the fireworks came anyway.
At his 2 p.m. press conference, Chair Jerome Powell was characteristically cautious: “We have made no decisions about September,” he said. “We don’t do that in advance.”
Internally, the consensus is cracking. Fed Governor Christopher Waller and Vice Chair Michelle Bowman, both Trump appointees, voted to cut rates — the first such dissent from not just one, but two sitting governors since 1993.
Meanwhile, Trump accused Powell of bungling the Fed’s $2.5 billion headquarters renovation and jabbed again yesterday: “He is always too late, even if he does it today.”
Beware the bond market reaction, click for our research here.
Markets Fall Off a Cliff
The major indexes opened strong, but tumbled hard after Powell’s remarks. Optimism about future rate cuts quickly gave way to anxiety about how long the Fed plans to “wait and see.”
In commodities, copper prices plunged after Trump announced a universal 50% tariff on copper imports and semi-finished goods like pipes and wires. Input materials like ore were exempted, but the market wasn’t comforted.
Typically, we’d view this sharp drop in copper as a bad sign for the economy, but in Trump’s Reality Distortion field, things ain’t what they typically seem. (Source: barchart)
Meanwhile, Trump imposed a new 25% tariff on imports from India, citing retaliation for their purchases of Russian military gear.
Copper took the brunt, and India may yet face further “penalties,” Trump warned.
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Ports, Power Struggles, and Panama
A quiet showdown is unfolding over the Panama Canal, where the U.S., China, and BlackRock are entangled in a global chess match. The canal is only one item on the list of non-tariff trade barriers that Treasury Secretary Scott Bessent and the Chinese delegation in Stockholm are bickering over.
Panama’s comptroller wants to void a key 2021 port contract with CK Hutchison, a Hong Kong-based operator. Meanwhile, China’s largest shipping firm is jockeying for influence in a deal involving 43 ports.
Trump called for the U.S. to “retake control” of the Panama Canal in his January inaugural. The question is — can he?
Elon SECEDING from the US?
Elon and Trump are at each other’s throats. And considering Elon just got his own city in Texas… Could Elon be looking to break away from the US entirely? Or is something else going on in his new city? According to one financial analyst, a man who’s spent nearly 30 years deep in the trenches of Wall Street… This city points to Elon Musk’s next trillion-dollar opportunity. One that could change your life in the coming years. Click here for the full details.
GDP Looks Rosy… Until You Read the Footnotes
The economy grew 3.0% in the second quarter. Sounds great, right? Not so fast. Much of that came from a 30.3% plunge in imports, a mechanical boost to GDP due to the way it’s calculated. Consumer spending rose 1.4%, better than Q1’s 0.5%, but well below trend.
A more honest gauge — final sales to private domestic purchasers — rose just 1.2%, the slowest since 2022. It excludes exports and government spending, giving a clearer view of real economic momentum.
Bottom line: the headline looks great, but underneath it’s a data shuffle trying to account for tariffs.
That said, that’s not how the financial press interprets it. They print and repeat the headline number and run with it. Beware.
The Great Rollover Begins
The Treasury Department announced another $125 billion in notes and bonds for auction next week. The U.S. must roll over $722 billion in debt this week alone.
Since early July, the national debt has jumped $519 billion, now totaling $36.73 trillion. If forecasts hold, we’ll end the year at $37.8 trillion.
The debt tsunami unleashed during the pandemic is now crashing ashore.
Tech Bubble 2.0?
Another historic hallmark has been achieved.
The Nasdaq Composite’s ratio to the Russell 2000 hit an all-time high: more than 9x, surpassing even the dotcom peak.
Tech stocks have never outperformed small caps by such a margin.
Meanwhile, Microsoft’s blowout earnings pushed its market cap toward $4 trillion, second only to Nvidia, the first to cross that line. Meta is also surging this morning as it ups its AI bets, while Google and Amazon are still on deck for earnings.
PCE and the Data Ahead
Tomorrow’s Personal Consumption Expenditures (PCE) Index is the Fed’s favorite inflation gauge. Economists expect it to rise from 2.3% to 2.5% as tariff pressures bleed through. Core PCE, which strips out food and energy, is widely expected to hold at 2.7%.
Earnings season update: We’ll also hear from Apple, Amazon, Mastercard, Coinbase, Ferrari, and S&P Global, among many others. It’s a crucial read on whether this earnings rally has legs—or if it’s a sugar high.
Retail investors are likely to respond when the indexes move in a clear direction up or down. We suspect it’s going to take an exogenous event to make record retail investor sentiment come down off market euphoria.
In other words, the market remains a bubble in search of a pin… ‘cept earnings seem to be keeping a few key stocks aloft.
Seriously, Where’s Hoffa?
On this day in 1975, Jimmy Hoffa, the labor titan who once ran the Teamsters with an iron grip, disappeared without a trace. Was it the mob? The feds? The Teamsters themselves?
No one knows, but we think it might now be easier to find out where Jimmy is than identify any of the names that appear on Epstein’s list.
~ Addison
P.S.: Grey Swan Live! features the full replay of our Fed breakdown and Powell and the bond market vs. The Great Trump Reset scorecard. The question now: what’s Trump’s next move? Look for your link at 11 a.m.
Your thoughts? Please send them here: addison@greyswanfraternity.com
