Core Viewpoint - The current financial conditions are favorable, and the Federal Reserve's rate cuts may not have been necessary, leading to market volatility and presenting investment opportunities outside speculative assets [4][6]. Financial Sector Analysis - The financial sector is not experiencing a hiccup that would inhibit lending or slow GDP growth, as financial conditions remain easy with tight credit spreads [3]. - Prior to the pandemic, GDP was tracking around 3.5% to 4%, indicating a strong economic backdrop [4]. Investment Opportunities - There is a significant speculative nature in the market, with record participation in options and leveraged ETFs, suggesting a potential for volatility that could highlight alternative investment opportunities [5][6]. - The focus should be on boring investments such as dividends and quality stocks, particularly outside the tech sector, where non-US quality stocks are growing faster than major US tech companies [5][6]. Geographic Focus - Increasing non-US exposure is recommended, particularly in quality large-cap stocks in Europe and Asia (excluding Japan), which offer higher dividend yields, faster growth, and attractive valuations [8]. - The current market conditions present a growth story for non-US investments that was previously lacking [8]. Crypto and AI Investment Stance - The company has historically been critical of crypto and has not engaged in it, suggesting a cautious approach to speculative assets [9]. - For AI investments, diversification is advised, with a recommendation to take profits from significant gains and reallocate into a more balanced portfolio [10].

Economic Outlook - The government shutdown is expected to depress GDP growth during its occurrence, but growth may rebound in the following quarter once the shutdown is lifted [2][3] - The current economic outlook remains largely unchanged despite the shutdown, with the potential for some growth not being fully recovered due to the prolonged nature of the shutdown [2][3] Federal Reserve Projections - The Federal Open Market Committee (FOMC) had projected three interest rate cuts for the year, but recent inflation data has been better than expected, suggesting a more dovish stance may be warranted [5][6] - Labor market data indicates a gradual softening, with new job openings, wages, and jobless claims reflecting continued weakening [6][7] Inflation Data Analysis - Current inflation data is considered backward-looking and may not accurately reflect future trends, as many rely on stale data [8][9] - Market-based core measures of Personal Consumption Expenditures (PCE) are closer to the Fed's target than traditional measures, indicating a potential decline in inflation [11][12] Future Data Expectations - Updated inflation data may take time to be released following the end of the shutdown, with labor market data also expected to be somewhat outdated [13][14] - The focus should remain on forward-looking policies rather than solely on past data, as no significant changes have occurred since the last FOMC meeting [15][19] Economic Performance Indicators - Factors such as tax refunds and depreciation are anticipated to contribute to stronger economic performance in the first half of the next year [16] - The output gap, which compares potential GDP to actual GDP, is crucial for understanding economic growth and may necessitate rate cuts [16][19] Financial Conditions - Financial conditions are viewed as nuanced, with some markets appearing tight, particularly in housing, which is more relevant for economic growth than equity markets [23][24] - The central bank's focus should remain on achieving maximum employment and stable prices rather than solely on financial market conditions [21][22]

Group 1: US-China Trade Deal - The US-China trade discussions were in line with expectations, indicating a fragile stability in relations [1][3] - China is implementing more stimulus measures, which could lead to growth upsides beyond just tariff reductions [2] - The market reaction to the trade deal was muted, with a "sell the fact" sentiment as the outcomes were anticipated [3][4] Group 2: Federal Reserve and Economic Outlook - The recent rate cut by the Federal Reserve is viewed as hawkish, with uncertainty surrounding future cuts [5][6] - The Fed's language suggests a growing divergence in opinions about future policy, indicating that further rate reductions are not guaranteed [7][9] - Economic growth revisions are expected to trend upwards, with projections of 3% real growth and inflation around 3% [9][15] Group 3: Technology Sector and Capital Expenditure - Mixed reactions were observed in big tech earnings, with Alphabet performing well while Meta and Microsoft faced pullbacks [11][12] - Increased capital expenditure (capex) spending, particularly in AI, is expected to drive GDP growth and contribute significantly to global wealth [13][14] - The defense sector is considered attractive, along with financials benefiting from deregulation [16][17]

Market Overview - The S&P 500 index reached a record high, with only 108 companies in the green contributing to this achievement [1] - There is a noted disconnect between surging asset prices and weakness in the labor market, which the Federal Reserve will need to address [3][4] - Financial conditions are tight, yet job cut announcements have been significant, indicating potential challenges ahead [5][6] Earnings Reports - Booking Holdings reported a third-quarter adjusted EBIT of $3 billion, exceeding expectations [9] - PayPal shares rose nearly 13%, finishing the day with a 4% gain, driven by a partnership with OpenAI [11] - Nvidia's planned $1 billion equity investment in Nokia led to a 22% increase in Nokia's ADRs, highlighting a successful pivot towards AI [13] - UPS shares increased by almost 8% after surpassing profit expectations and announcing significant cost-cutting measures [14] - Wayfair experienced a 23% jump, marking its best day since January 2020, reflecting strong marketplace performance [15] Decliners - JetBlue shares fell nearly 12% due to challenges anticipated during the holiday travel season and rising fuel prices [19][20] - DraftKings and Flutter Entertainment shares declined following reports of increased competition in the sports betting market [20][21] - V.F. Corp saw a 12.2% drop after issuing third-quarter guidance that missed consensus expectations [22] Additional Earnings Insights - Mondelez reported an adjusted EPS of $0.73, slightly above the expected $0.71, but its adjusted gross margin fell short of estimates [25][26] - Frontier Communications reported third-quarter revenue of $1.55 billion, slightly above expectations, with adjusted EBIT of $637 million [28] - Visa's fourth-quarter adjusted EPS was $2.98, marginally beating the estimate of $2.97, with net revenue also slightly ahead of expectations [29][30] - Enphase reported an adjusted EPS of $0.90, beating the expected $0.65, but provided guidance for the fourth quarter that was below street estimates [31][32]

RT Julien Bittel, CFA (@BittelJulien)Ok, let’s get one thing straight…Delinquency rates on credit card loans (or otherwise) are not a leading indicator. The ISM is not a leading indicator. PMIs are not a leading indicator. Heavy truck sales are not a leading indicator. Job openings are not a leading indicator. Consumer confidence is not a leading indicator. Small business confidence is not a leading indicator. Durable goods orders are not a leading indicator. Capital goods orders are not a leading indicator ...