Progress on trade talks... Friday's inflation data and what to expect at the FOMC meeting on Wednesday... Louis Navellier and the Swan Brothers team up... AI versus Everything Else... a warning about cash VIEW IN BROWSER Yesterday brought progress on the U.S./China trade talks. Let’s jump straight to Reuters: Top Chinese and U.S. economic officials on Sunday hashed out the framework of a trade deal for U.S. President Donald Trump and Chinese President Xi Jinping to finalize that would pause steeper American tariffs and Chinese rare earths export controls and resume U.S. soybean sales to China, U.S. officials said. U.S. Treasury Secretary Scott Bessent said the talks on the sidelines of the ASEAN Summit in Kuala Lumpur had eliminated the threat of Trump’s 100% tariffs on Chinese imports starting November 1. Bessent said he expects China to delay implementation of its rare earth minerals and magnets licensing regime by a year while the policy is reconsidered. Presidents Trump and Xi will meet on Thursday at the Asia Pacific Economic Cooperation (APEC) summit in Gyeongju, South Korea. If all goes well, they’ll sign off on the negotiated terms. This is huge for AI investors. As we’ve covered extensively in the Digest, rare earth elements (RRE) are critical for all things “AI” and next-gen technologies. China controls about 70% of global REE production and over 80% of refining capacity, and has limited exports in recent months. So, if negotiations are successful in delaying rare earth minerals and magnets licensing requirements for one year, as Bessent suggested, a substantial AI overhang for investors will be removed. We’ll report back after Trump and Xi meet. On Friday, the September Consumer Price Index (CPI) inflation report came in softer than feared, which means one thing... The Federal Reserve has a clear path to a quarter-point rate cut at Wednesday’s October FOMC meeting. The month-over-month reading clocked in at 0.3%, less than the 0.4% forecast. On the year, inflation climbed 3.0%, also less than the estimate of 3.1%. Core CPI, which excludes volatile food and energy prices, rose 0.2% monthly and 3.0% yearly. Both readings were lighter than forecasts of 0.3% and 3.1%, respectively. To be clear, these numbers are still “hot” relative to the Fed’s goal of 2%. But relative to the potential inflation readings Wall Street feared, 3% year-over-year inflation appears reasonable. Perhaps more importantly, the data are no longer surprising to the upside. Put it all together, and the Fed has permission to prioritize the labor market over inflation, which means another rate cut on Wednesday. Here’s the quick take from legendary investor Louis Navellier in his Growth Investor Special Market Podcast from Friday: Well, folks, the CPI (Consumer Price Index) obviously came in much better than expected, and that’s why the market [rallied on Friday] … So, we don’t have to worry about inflation – it fizzled. And that means the Federal Reserve can proceed with key interest rate cuts. Traders agree with Louis. The CME Group’s FedWatch Tool shows us the probabilities that traders assign to different fed funds target rates in the future. As I write Monday, traders put 96.7% odds on a quarter-point cut on Wednesday which would take the Fed’s target rate range to 3.75% to 4.0%. What to look for on Wednesday With a quarter-point rate cut fully priced into the market, Wednesday’s FOMC decision itself isn’t the story – it’ll be about Federal Reserve Chairman Jerome Powell’s commentary. The market has been trading this move for weeks, and the “light” CPI print simply sealed the deal. So, don’t expect fireworks when the Fed announces a 25-basis-point trim. Instead, watch Powell’s language and tone. We’ll be listening for three things: - How does he characterize overall inflation? Is it concerning? Or is he relatively pleased that the pace of increase has slowed (though still rising)?
- Are the effects from tariffs deemed “pass-through,” or does Powell see tariffs exerting continued upward pressure for months to come?
- On rate cuts, are there hints of more to come? Or does Powell stick to the familiar script of future policy being entirely “data dependent”?
The answers will determine whether stocks extend their rally or fade on “sell-the-news” fatigue. We’ll report back, along with Louis’ perspective. You don't have to wait until Wednesday for more of Louis Tomorrow at 10:00 a.m. Eastern, Louis goes live with Andy and Landon Swan to discuss their “Ultimate Stock Strategy.” For newer Digest readers, here’s some quick context… Louis has one of the most respected – and envied – multi-decade investment track records in our business. Behind this is his quantitative approach that zeroes in on stocks with fundamental strength. His high-powered computers, running detailed algorithms, scan the markets for the fingerprints of fundamentally superior stocks (e.g., growing sales and earnings growth, beating analyst expectations). Louis’ Stock Grader crunches the data and then assigns each stock a rating, separating the outperformers from everything else. Here’s Louis with what this has meant for rubber-meets-road returns: My Stock Grader and I have found 676 stocks that could have doubled your money or better – including 22 that went up more than 100-fold. Meanwhile, Andy and Landon are the analysts behind our corporate partner, LikeFolio. They use consumer data to spot shifts and trends in Main Street spending behavior before it becomes news on Wall Street. In essence, they track “buzz” to see where Main Street buying pressure is ramping up before it’s in the financial press. Here’s Andy with more: Consumers enthusiastically share the brands they purchase on social media. We found a way to use that data to forecast the sales of the companies that own those brands. We then use those forecasts to spot outlier stocks… We track millions of individual data points from across the web – including social media posts, AI prompts, search queries, and web traffic trends. Then we distill it into a 0 to 100 Social Heat Score to spot the stocks ready for liftoff. After becoming familiar with each other’s work, Andy, Landon, and Louis ran back-studies that combined Louis’ Portfolio Grader with the Swan Brothers consumer data approach. Back to Louis for the takeaway: This new “ultimate strategy” would’ve spotted over 240 doubles — just in the past 5 years. And posted an average gain of 244%. Which is why I’m convinced this is the most powerful way to invest right now. Tomorrow at 10:00 a.m. Eastern, Louis, Andy, and Landon will sit down to fill in the details about their combined market strategy. Just for joining, you’ll get two free picks (one from Louis, one from the Swan brothers), plus a stock that all three analysts agree you should sell immediately. I’ll note that Louis’ Stock Grader normally costs $1,000 a year. But it’s yours free for a limited time as a thank-you for signing up for tomorrow’s event. Just click here and we’ll see you at 10:00 a.m. Eastern. | Recommended Link | | | | Tomorrow, Nvidia’s silent partner could shock the world… And make a lot of people wealthy in the process. Nvidia and this partner are developing a new tech that, according to the CTO of Cloudera… “Is set to overshadow AI as the next major technological revolution.” Click here to get the details. |  | | More evidence that "AI" is vastly outpacing "Everything Else" Eight tech companies – the Mag 7 plus Broadcom (our proxy for “AI”) – are each valued at $1 trillion or more. Together, they make up about 37% of the market cap of the entire S&P 500, and their stock prices are doing a lot of the heavy lifting of today’s record-setting stock market. For example, Broadcom has shot up more than 53% this year, and Nvidia is up nearly 40%. Meanwhile, the S&P’s subgroups, consumer discretionary and consumer staples – we’ll call them our “Everything Else” bucket for today – have climbed less than 5% here in 2025. We’re seeing a similar split over on Main Street. The net worths of high-income earners are rising on the backs of surging asset prices. But there are growing cracks elsewhere… - A Deloitte survey published earlier this month found that 57% of U.S. consumers expect the economy to weaken in the next year…
- GenZ consumers plan to spend an average of 34% less this holiday season compared to 2024…
- As we’ve reported in the Digest, seasonal hiring is likely to come in at its lowest level since 2009.
Here’s our technology expert, Luke Lango, on this bifurcation: What we have today can only be called a K-shaped economy. On one arm of the “K,” we have the AI economy soaring to new heights. On the other arm, the “everything else” economy is struggling with high interest rates and weary consumers. Consider the contrast: While AI firms strike billion-dollar partnerships and tech stocks rally, consumers are falling behind on basic expenses. One stark example: Buy-Now-Pay-Later services report that some Americans are even missing payments on takeout meals. When people are financing burritos in four installments, it’s clear many households are scraping by. Meanwhile, corporate America is pouring money into automation that could ultimately replace those very workers. There are two related action steps Action Step One: ride AI momentum while it’s here. Over the last week, Luke has been sharing a slew of names for how to do this. One area in particular he’s zeroed in on is energy infrastructure powering AI. Back to Luke: We are fast approaching an energy crunch where power demand outstrips supply, thanks to the AI build-out… For investors, this crunch creates an opportunity. Someone has to build more power supply – and fast. That shines a light on utility and energy companies that can add generation capacity. Traditional power producers like Vistra Energy (VST) or Constellation (CEG) (major electricity generators) stand to benefit as society races to keep the lights on in the AI era. (For more on Luke’s top AI picks in Innovation Investor, click here.) Action Step Two: Recognize that this stock market boom cannot continue indefinitely with the “Everything Else” economy and average consumer struggling. This is why we’re still riding this AI boom, though remaining nimble for when conditions change. Luke recommends a similar approach: We are bullish that the AI-driven melt-up still has legs – there’s real money to be made. Our analysis suggests that the AI boom likely has 12 to 24 months of runway left to mint fortunes. By all means, take advantage of this historic moment. But do so with a game plan. Stay vigilant to economic warning signs (e.g. rising defaults, resurging inflation, weakening job markets) and have an exit strategy. The game plan we’ve highlighted here in the Digest is to track this bull market’s final innings with the “Crazy Map” we’ve introduced in recent weeks, then exit within a reasonable window after what we believe is the top, guided by Senior Analyst Brian Hunt and his A-B-C framework (detailed in this Digest). Finally, some perspective on why we're not more defensive today In a recent conversation, someone asked me, “Given valuations, isn’t it dangerous to stay in stocks? You might get – what, another 10% of gains? Maybe 15%? But for that, you risk 40% or 50%? Just seems foolish.” In the short term, that skepticism isn’t misplaced. With valuations stretched, a significant and painful pullback wouldn’t be surprising. So, reducing risk or moving to more liquid positions makes sense if you’re retired or can’t stomach a serious drawdown. But if your investment timeline is longer, remember the wise words of the great Peter Lynch: Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in the corrections themselves. This is key because guess what happens to those “safe” dollars moved to the sidelines as you anticipate a correction… Here’s Charlie Bilello from Creative Planning to show you:  If you can’t see the chart, over the last 30 years, while the S&P has climbed nearly 900%, the purchasing power of the dollar has collapsed by 52.75%. And don’t make the mistake of believing this dynamic requires decades to play out. Using the Bureau of Labor Statistics’ (BLS) own inflation calculator, to match your buying power from just five years ago, your salary would need to be 26% higher today.  Have you gotten a 26% raise over the last five years? And let’s be clear – this is the takeaway using BLS data. The reality is more likely you’d need a 30% - 40% pay raise simply to be treading water (we’ll dive into why in a different Digest). Bottom line: Except for short (well-timed) periods, not being invested is the vastly greater risk to your wealth. We’ll keep you updated on all these stories here in the Digest. Have a good evening, Jeff Remsburg | 
Post a Comment
Post a Comment