From the desks of Stanley Katz & Lauren Madera
IF EVERYONE COMMEMORATES “CHEAP FLIGHT DAY” WITH A FLIGHT PURCHASE, WILL THE ALGORITHM FOIL THE HOLIDAY’S INTENTION?
Markets gave back ground this week (DJIA: -0.85%, S&P 500: -1.43%, Nasdaq: -2.05%) with pressure from several directions. Elevated Treasury yields, renewed U.S.-Iran tensions, higher oil prices, and weakness in semiconductor and AI-related shares all weighed on sentiment. The 30-year Treasury yield touched its highest level since 2007 early in the week as investors focused on the fiscal outlook and the heavy debt issuance tied to AI capital spending. Minutes from the Fed’s July meeting did little to settle nerves. Officials expected inflation to moderate through the rest of the year but called their own outlooks highly uncertain. They noted that further tightening would likely be necessary if inflation failed to decline. The economic data, oddly enough, was the good news. Business activity accelerated sharply in August, and the S&P Global Flash Composite Purchasing Managers’ Index (aka PMI, a survey measure of how businesses say conditions are trending) reached its highest level since April 2022. Hiring in that survey rose at its fastest pace since January 2025, a notable contrast with the payroll declines reported earlier this month. The one soft spot in the data was housing. Pending home sales fell to their lowest level since January and housing starts dropped more than 12%.
Argus Research’s latest commentary steps back from the week and examines the season. They note that the market has performed better this summer than summers usually deliver, with August strength more than making up for July weakness. The more interesting argument picks up where last week’s concentration question left off. Argus makes the case that AI is driving technology earnings growth but that it is not all a Magnificent 7 story. They point to earnings strength spread across sectors that have little to do with the largest technology names. Their read on valuation is measured rather than enthusiastic, describing stocks as reasonably valued but not cheap on forward earnings. Argus flags the midterm elections and the outcome of the war with Iran as the two uncertainties most likely to unsettle the rest of the year. This is a fair reminder in a week when renewed U.S.-Iran tensions helped push both oil and yields higher.
The AI-related weakness that hit markets this week accompanies a larger question: Who is winning the AI race between the U.S. and China? Capital Group argues that the two countries, in fact, are running different races. The U.S. is spending enormously in pursuit of frontier models and eventually artificial superintelligence, while China has concentrated on making AI cheap and putting it to work in factories, robotics, and autonomous vehicles. The spending gap is not even close. Capital Group projects U.S. AI capital investment at roughly $791 billion this year, almost seven times as much as China’s $118 billion. As we noted last month, cheaper Chinese models have already shaken confidence in U.S. budgets. The more useful insight is how they expect the market to divide. Companies will pay for the most capable model when a modest performance edge genuinely matters, and they will reach for a cheaper one when it does not. Perhaps that points toward coexistence rather than a single winner. Capital Group also observes that early leaders in technology cycles frequently are not the ones standing at the end. They expect the volatility tied to this competition to continue, and they raise the possibility that the build-out phase of AI spending sits closer to its peak than its beginning. This is a timely observation in a week when AI shares fell and the debt financing behind all that spending unsettled the bond market.
Below are links to a number of third-party research reports that we have read and analyzed over the past week. We hope you will find the information interesting, useful, and worthwhile.
Argus:
Capital Group:
Northern Trust:
BlackRock:
First Trust:
Stanley Katz & Lauren Madera, Financial Advisors
ClientFirst Financial Strategies, Inc.
937-293-5500
Source for weekly stock market returns: Barron’s.
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