We're joined by Ben Emmens, founder and chief investment officer at Fed Watch Advisors. Ben, great to have you with us. >> Hey man, it was good to be on again.Thank you. >> So, we saw that record hit on the S&P 500 early in the session and then the market started really thinking like, uhoh, why do we really need so many cuts. Are you worried that there is a growth scare ahead of us.>> Not really. actually now because I I I've noted from the GDP data and even from some of the ISM and regional PMI data there' ...

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Core Viewpoint - The demand outlook for copper remains positive, driven by strong economic data from major global economies, with prices expected to rise for the fourth consecutive week [1] Economic Indicators - Recent U.S. data shows that economic growth has exceeded initial estimates due to a rebound in business investment and trade, highlighting the resilience of consumer spending [1] - In China, the decline in industrial profits for July has narrowed compared to the previous month, indicating that capacity reduction measures may be alleviating competitive pressures among producers [1] Metal Price Trends - Copper, along with aluminum and nickel, has seen an approximate increase of 2% in August, while prices for lead and zinc have also risen slightly [1] - Analysts from Bloomberg Intelligence suggest that with the bearish outlook for the dollar still in play, prices for metals like copper and aluminum appear poised for short-term gains [1] Currency Impact - The recent fluctuations of the dollar against the G20 currencies are unlikely to alter the prevailing bearish trend for the dollar in the second half of the year [1]

Summary of Key Points from the Conference Call Industry Overview - The focus is on the S&P 500 index and its performance amid the ongoing earnings season and tariff discussions [2][3][4]. Core Insights and Arguments - **Earnings Performance**: 61% of the 59 companies that reported 2Q results exceeded consensus earnings estimates, surpassing the historical average of 48%. The S&P 500 is forecasted to rise by 10% to 6900 over the next 12 months [2][3]. - **Tariff Impact**: The effective US tariff rate is expected to increase to 19% by early 2027, which is 3 percentage points higher than previous forecasts. Despite this, investors are optimistic about economic growth in 2026 [2][4]. - **Dollar Weakness**: The US dollar has depreciated by 7% year-to-date, with expectations of an additional 4% decline by year-end. This depreciation is projected to boost S&P 500 earnings per share (EPS) by approximately 2-3% for every 10% decline in the dollar [2][18][22]. - **Sector Performance**: Cyclical industries are outperforming, indicating that the equity market is pricing in solid GDP growth despite expectations for sluggish growth in the near term. Information Technology, Financials, and Communication Services have seen the most significant improvements in earnings revision breadth [2][13][14]. Additional Important Insights - **Investor Sentiment**: The equity market appears to be largely unconcerned by recent tariff hikes, with the S&P 500 reaching new record highs. Many investors believe that tariff rates will eventually stabilize at lower levels than currently indicated [7][13]. - **Economic Data**: Recent economic indicators show a smaller impact from tariffs on consumer spending, inflation, and the labor market than previously feared. For instance, June core CPI rose by 0.23% month-over-month, below expectations [10][13]. - **International Sales Exposure**: Companies with higher international sales exposure are expected to outperform those with more domestic sales due to the weakening dollar. The Nasdaq-100 generates 45% of its revenues outside the US, while the Russell 2000 derives only 20% from abroad [2][27][23]. - **Earnings Growth Forecasts**: The median stock in the international-facing basket is expected to grow earnings by 10% in 2026, while the domestic-facing basket is projected to grow by 11% [28]. Conclusion - The S&P 500 is positioned for potential growth despite tariff uncertainties and economic challenges. The weakening dollar is expected to provide a tailwind for earnings, particularly for companies with significant international exposure. Investors remain optimistic about long-term growth prospects, focusing on the potential for robust earnings in 2026 [2][14][27].

Market & Economic Outlook - The bond market has largely priced in the current fiscal situation, suggesting that a massive bond bearish environment may be overstated [1] - The US is perceived to be moving towards fiscal consolidation, despite consensus views to the contrary [1] - The market is pushing for rate cuts, influenced by factors such as the labor market and potentially President Trump [3] - Dollar decline tends to be stimulative for the economy [3] Fiscal Policy & Deficit - The recent bill is expected to slightly increase the deficit over the next 10 years, but the impact may be offset by revenue from tariffs [1] - Extending the 2017 tax cut is estimated to cost $4.5 trillion and is not considered particularly stimulative [1] - Post-pandemic US fiscal spending was unprecedented, matching levels during World War II and exceeding other major economies by four times [1] Monetary Policy - The Fed potentially has 450 basis points worth of cuts to enact [4] - The market may respond more to anticipated future actions (the "shadow chair") than to the current Fed chair's actions [5] US vs UK - The US differs from the UK due to a wider international appetite for US bonds, contingent on trade negotiations [1]

Dollar Weakness Factors - The US debt-to-GDP ratio is projected to increase from 100% to potentially 125% or higher in the next decade, leading to increased Treasury issuance [2] - Higher borrowing costs, resulting from increased Treasury issuance, could slow down the US economy, making it less attractive for foreign capital and reducing dollar demand [3] - Current dollar weakness is primarily due to reallocation out of US assets by investors, differing from historical instances driven by Fed rate cuts [7] Impact of a Weaker Dollar - A weaker dollar can benefit multinational corporations and the stock market in the near term, but slower growth poses a long-term negative impact [4] - While historically a weaker dollar has correlated with faster earnings per share growth, the current situation is different due to the cause of the dollar's depreciation [6][7] - Excessive currency strengthening can create concerns for entities like the European Central Bank if the Euro strengthens to 120% [10] Global Investment Implications - Emerging markets may benefit from a weaker dollar, as investors potentially reduce capital allocation to the US [9] - Some countries, like Taiwan and Switzerland, are intervening to manage their currency strength, highlighting potential challenges [11] - Continued and rapid dollar weakness could lead to stresses in currency markets and potentially spill over to other asset classes, raising concerns about global instability [12]

Geopolitical Risk and Market Sentiment - Investor sentiment is a key factor influencing market reactions, with oil prices and defense stocks showing sensitivity to Middle East developments [1][2] - Market reactions to geopolitical news have become more subtle compared to previous months, indicating a shift from emotional responses to a "buy the news" mentality [2] - Defense stocks, such as RTX, Northrop Grumman, and Halliburton, experienced pre-market gains, suggesting a defensive trade strategy among investors amid geopolitical uncertainty [3][4] - The recent surge in defense stocks is viewed as a knee-jerk reaction to news, with historical trends indicating that such moves may not have long-term impacts [5][6] - Secular trends support defense stocks due to increased defense spending discussions in DC and NATO, but short-term movements are often knee-jerk reactions [7] Tech Sector Performance - The XLK tech ETF, heavily weighted by mega-cap tech companies like Nvidia, Microsoft, and Apple, hit all-time highs, with some components like IBM and Palantir also reaching new highs [8] - Investors tend to gravitate towards tech during technical rallies, viewing it as a defensive sector that performs well in both good and bad times [8][9] - Valuations in the tech sector are extended compared to value sectors and international markets, suggesting a need to consider fundamentals [9] Dollar Weakness and Earnings - A weaker dollar benefits multinational companies' earnings through translation effects and competitive advantages [11][12][13] - Small-cap companies with a domestic focus may not benefit as much from a weaker dollar [11] - The reasons behind dollar weakness are more important than the weakness itself; government actions like selling treasuries or punitive tariffs could negatively impact the dollar [14][15] - A slight dollar weakness from elevated levels can be beneficial for earnings and reflect a leveling out of domestic and foreign earnings [15]

Market Expectations & Trade Relations - Market expectations regarding US-China trade talks are realistic, with no anticipation of a grand deal [1][2] - A minor agreement on rare earth exports in exchange for tech exports may disappoint the market [2] - US effective tariff rate on all trade partners reached over 7% in April, a multiple of the rate in the past 25 years [3] - Tariff rate on China was up in the high 30% in April, subsequently decreasing but remaining at extreme levels [3] - Without a positive surprise in trade talks, the market may drift lower as profit-taking begins [4] Equity Market Performance - No fresh record highs are expected for US or global stocks [5] - US stocks have underperformed global stocks by approximately 7 trillion over the past four months [5] - US stocks experienced a sharp decline from early February to mid-March, subsequently keeping pace with global stocks [6] - A new positive catalyst is needed for US stocks to reach fresh record highs [7] Currency Market Outlook - The possibility of Euro/Dollar reaching 140 is being discussed [7] - The US dollar is expected to structurally decline significantly in the coming years, though not in a straight line [9] - An overshoot to 140 on Euro/Dollar is feasible but not expected this year [9]

Market Trends & Investment Strategies - Portfolio managers should consider selling the dollar due to an anticipated multiyear downtrend, similar to the post-Bretton Woods era in the 1970s [1] - Short rate strategies, particularly curve steepening, are advisable as long-end interest rates are expected to rise globally [2] - Defense stocks are recommended on the equity side, with further potential gains expected [2] Currency Dynamics - The dollar could potentially depreciate to 115 or even 140 within one to two years from its current level of 114 [3] - The speed of the potential dollar decline could mirror the 2002-2004 period, or even be more significant, reminiscent of the early 1970s [4] - Interest rate increases may reflect a risk premium concerning the dollar, behaving more like an emerging market dynamic [7] US Economy & International Order - Traditional cyclical dynamics in the US economy are becoming less relevant due to structural changes and international factors [6] - Tariffs and shifts in the international order need to be factored into US economic forecasts [6] - The Federal Reserve must understand how the changing international order will impact interest rates [6] - A weaker dollar is generally unfavorable, and no one would welcome a dollar at 140 [7][8]