August 25, 2025 09:16 PM GMT Federal Reserve Monitor | North America We now forecast Fed rate cuts beginning in September Chair Powell signaled increased concern over labor market risks and leaned toward rate cuts for risk management. This marks a shift from his earlier focus on low unemployment and inflation persistence. We now expect a 25bp cut in September as our baseline. Key Takeaways The net effect of our change in the Fed's policy path is fairly minor. We project the Fed to cut sooner, but finish its ...

And where are stocks heading from here. Well, we welcome Ed Yardi to Power Lunch. He is founder and head of Ardeni Research.Ed, great to have you on. >> Thank you very much. >> All right.Why do you think the market is not reacting a little more negatively to the hot inflation read and a lowered expectation of more Fed rate cuts in the future. Well, I think the uh market hasn't given up on the idea that the economy is actually resilient, that it doesn't necessarily need lower interest rates and that if we ge ...

Market Trends - Emerging-market currencies experienced a rally following weaker-than-expected US jobs data [1] - Traders are pricing in Federal Reserve rate cuts, leading to a weaker dollar [1]

Summary of Key Points from the Conference Call Industry or Company Involved - The conference call primarily discusses the **U.S. economy** and the **Federal Reserve's monetary policy** outlook, particularly regarding potential interest rate cuts in 2025 and 2026. Core Insights and Arguments 1. **No Rate Cuts Expected in 2025**: The baseline outlook remains for no rate cuts in 2025, with potential cuts only in 2026 as the economy slows and tariff-induced inflation is deemed transitory [8][6][5] 2. **Inflation Forecast**: The forecast anticipates a 3-month annualized rate of PCE inflation at 4.3% in September-October, with year-on-year rates of headline and core PCE inflation at 3.0% and 3.2% by year-end [6][8] 3. **Labor Market Dynamics**: The unemployment rate is projected to remain below 4.5% until Q1 2026, influenced by tighter immigration controls, which may keep labor supply constrained [7][8] 4. **Paths to Rate Cuts**: Five scenarios are outlined that could lead to rate cuts as early as September, including significant declines in payrolls, higher-than-expected breakevens, weak services inflation, and a lack of pass-through to goods prices [23][24][19] 5. **Economic Scenarios**: The report assigns a 40% probability to a baseline scenario of slow growth and firming inflation, with 20% probabilities for upside scenarios and 40% for a mild recession induced by protectionism [12][11] 6. **Impact of Tariffs**: The effective tariff rate is expected to rise, impacting consumer prices and inflation, with a noted shift in the Fed's assessment of risks associated with tariffs over time [60][62] 7. **Consumer and Business Confidence**: Confidence is expected to rebound in 2026, although it remains low due to ongoing uncertainty and sluggish growth [49][48] Other Important but Potentially Overlooked Content 1. **Labor Market Signals**: Current labor market data does not indicate an acceleration in layoffs, but there is concern that the labor market can appear healthy until a downturn occurs [24][31] 2. **Immigration Policy Effects**: Recent immigration policy changes are projected to significantly reduce net immigration, which could further constrain labor force growth and impact breakeven hiring rates [42][41] 3. **Potential for Revisions**: There is a possibility of downward revisions to payroll data, which could signal a more severe labor market downturn than currently reported [30][29] 4. **Consumer Spending Trends**: Consumer spending is expected to slow, particularly in goods, due to tariffs and immigration policies, but a tighter labor market may support spending in 2026 [12][8] 5. **Credit Conditions**: Credit conditions are anticipated to tighten further as the economy contracts, with a gradual loosening expected in 2026 [8][7] This summary encapsulates the key points discussed in the conference call, focusing on the economic outlook, Federal Reserve policy, and the implications of labor market and inflation dynamics.

Market Trends - Gold price steadied, indicating market stability [1] - Gold is set for a moderate weekly loss, reflecting potential downward pressure [1] Monetary Policy - Investors are assessing the outlook for Federal Reserve rate cuts, influencing gold's performance [1]

Market Overview - The S&P 500 has reached an all-time high of 6,173.07 points, up 0.5% on Friday, surpassing its previous record of 6,147.43 points [3][8] - The index has rebounded over 20% from its April lows and has gained nearly 5% year to date, driven by easing geopolitical tensions and hopes for Federal Reserve rate cuts [6][8] Geopolitical and Economic Factors - Geopolitical tensions, particularly between Iran and Israel, have eased, contributing to investor confidence [6] - The Federal Reserve is expected to resume rate cuts, with officials hinting at a potential cut as early as July, which could further support the S&P 500 rally [7] Company Highlights Adobe Inc. (ADBE) - Adobe is a leading software company with an expected earnings growth rate of 11.9% for the current year, and its earnings estimate has improved by 1.2% over the past 60 days [9] - ADBE currently holds a Zacks Rank of 2 (Buy) [9] Altria Group, Inc. (MO) - Altria is adapting to industry changes by expanding into the smokeless category, with an expected earnings growth rate of 4.9% for the current year and a 1.7% improvement in earnings estimates over the past 60 days [10] - MO also holds a Zacks Rank of 2 [10] Arista Networks, Inc. (ANET) - Arista provides cloud networking solutions and has an expected earnings growth rate of 13.2% for the current year, with a 4% improvement in earnings estimates over the past 60 days [12] - ANET is currently rated as a Zacks Rank 2 [12] Atmos Energy Corporation (ATO) - Atmos Energy is involved in regulated natural gas distribution and storage, serving approximately 3.3 million customers [13] - The company has an expected earnings growth rate of 6% for the current year, with a 0.6% improvement in earnings estimates over the last 60 days [14] - ATO also carries a Zacks Rank of 2 [14]

Core Viewpoint - AGNC Investment has a high dividend yield of approximately 16%, but its stock price has been declining, raising questions about the sustainability of its payout and whether it is a good investment opportunity [1]. Group 1: Company Overview - AGNC is a mortgage real estate investment trust (mREIT) that primarily invests in agency mortgage-backed securities (MBS) guaranteed by Fannie Mae and Freddie Mac, which carry virtually no credit risk [1]. - The company has faced significant challenges due to rising mortgage interest rates and widening spreads between MBS yields and Treasury yields [2][3]. Group 2: Financial Performance - AGNC's tangible book value (TBV) has decreased by 45% from $15.75 at the end of 2021 to $8.70 per share by the end of 2023, and further declined to $8.25 at the end of Q1 2025 [4]. - The company has maintained its dividend payout despite a challenging environment, although this has impacted its TBV [10]. Group 3: Market Conditions - The Federal Reserve's aggressive interest rate hikes have contributed to higher mortgage rates, which have negatively affected AGNC's performance [2]. - The yield curve has been inverted, which is unfavorable for AGNC's income generation model, but it has recently flipped to a positive slope, potentially benefiting the company [7][8]. Group 4: Future Outlook - Fed Chairman Jerome Powell has indicated potential rate cuts, which could lower AGNC's short-term funding costs and improve MBS valuations, positively impacting TBV [5][6]. - If MBS-to-Treasury yield spreads narrow as banks re-enter the MBS market, AGNC could see a recovery in both its book value and share price, leading to potential total returns of 20% to 25% annually in the coming years [13][14]. Group 5: Investment Considerations - AGNC is characterized as a high-risk, high-reward income investment, with the current market conditions possibly turning in its favor after enduring the impact of higher interest rates [15]. - For income-focused investors, AGNC presents a high yield with strong potential upside, although it requires active management and understanding of associated risks [16].

Market Overview - The S&P 500 and Nasdaq-100 indices are currently about 10% and 13% below their respective peaks from 2025, indicating they are out of bear market territory [1] - Some index funds and actively managed ETFs remain in bear markets, defined as being 20% or more below their highs [1] Small-Cap Stocks - Small-cap stocks are trading at their lowest price-to-book valuations relative to large-cap stocks in over 25 years, with the gap widening since the start of 2025 [2] - The average stock in the Russell 2000 small-cap index has a price-to-book multiple of 1.8, compared to 4.6 for the typical S&P 500 stock [3] Investment Vehicles - The Vanguard Russell 2000 ETF (VTWO) is highlighted as a preferred investment option due to its low expense ratio of 0.07% and its diversified holdings across 2,000 small-cap stocks [4] - The Vanguard Real Estate ETF (VNQ) is currently 25% below its all-time high, affected by the rising-rate environment that has placed REITs in a technical bear market [5][6] Real Estate Sector - Elevated interest rates negatively impact REITs by making risk-free returns more attractive, increasing the cost of capital, and leading to declines in commercial property values [6] - There is potential for a turnaround in the real estate sector, with expectations of four 25-basis-point Federal Reserve rate cuts by year-end, alongside a 4.2% yield from the VNQ ETF [7] Technology Sector - The Ark Autonomous Technology & Robotics ETF (ARKQ) is an actively managed ETF that focuses on AI investment opportunities, differing from traditional AI index funds by not being top-heavy with big tech stocks [8][9] - The ETF is currently about 18% below its 2025 peak and 30% below its all-time high, presenting a potential investment opportunity for those interested in AI [10]