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1. Investors are convinced the Federal Reserve will save the day.

“The Fed is expected to save the day by cutting rates early and big enough to prevent a recession — something the US President would likely welcome,” say Barclays strategists led by Emmanuel Cau.

“However, we are not convinced a September cut is a given, yet.” A soft CPI reading is needed to cement the rate-cut view and boost stocks, they say. “A high figure would likely be a reality check for markets, and reinforce the current narrow leadership in quality/growth.”

After the rally in global stocks over the past few weeks, risk-reward is becoming less compelling. In Europe, optimism stems from prospects of a truce in Ukraine and fiscal spending, while the cascade of tariff deals has been a boon. Domestic stocks are still in the lead and gains have been broader than in the US, where concentration is back at extreme, almost bubble-like levels. Combined with elevated investor bullishness, it’s a recipe for things to turn sour quickly if there’s a glitch.

Below: The economic surprise indices (leading economic indicators) are going in the wrong direction.

2. Today’s reading of consumer inflation in July will be critical in determining whether the Fed cuts rates in September.

Soft inflation figures could potentially lead to a jumbo rate cut.

The impact of Trump’s tariffs on consumer prices is just getting started, according to Goldman Sachs.

3. Trees grow to the sky?

Tech’s winner-take-all reality, and lax antitrust enforcement, have propelled the Magnificent Seven skyward.

It’s been a winning trade for so long that the Mag 7 are one-fifth of the value of all stocks globally. Just one company, Nvidia, is worth more than Germany and France’s entire markets combined, and twice as much as all U.S. energy stocks.

But size creates its own limits, and many large tech companies have had to shed their capital-light ways by plowing huge sums into data centers in an AI arms race. Those investments worsen the sector's once-fantastic economics and might even be seeding new rivals that could turn them into another Blackberry, MySpace or Yahoo some day.

There’s still a lot to like about tech, but investors should consider spreading their bets. It’ll work eventually.

Source: WSJ

4. “The path to Goldilocks seems narrow and risks are skewed for a short-term correction in risk assets.” Says JPMorgan.

“The balancing act between dovish policy and rising growth risks becomes more tenuous the weaker the data is — so the path is a narrow one.”

“Big picture, our call is that a somewhat stagflationary backdrop will be seen in the US in 2H,” they write in a note.

Also, the strategists’ analysis shows that in the six instances since the 1980s when the Fed restarted easing after a pause, the S&P 500 fell every single time in the month following the cut.

Below: Cyclicals have diverged from bond yields in the past few months… most recently bond yields moved lower, but cyclicals returned to highs, widening the gap even further.

It’s time to switch from cyclicals to defensives.

5. The energy investment landscape has changed.

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