Inflation and Bonds Amid AI Concerns

Chanel

• Dana Telsey · Telsey Advisory GroupBullish

  Chanel's recovery under its new creative lead has been remarkable, with products selling out.

  Telsey says Chanel is back in vogue after a recovery she calls remarkable. The new designer's impact on clothing has spread to the whole company, including makeup, where lipsticks are selling out everywhere.

  “Have you ever seen a recovery of a house like Chanel in the last year? It's been amazing, and thank you for having me here, Tom.”at 13:32

Target

• Dana Telsey · Telsey Advisory GroupBullish

  Target is up over 50% this year on newness, collaborations and a search for value.

  Telsey cites Target shares up more than 50% this year. She credits new assortment and collaborations such as Hollister and Home and Warby Parker shop-in-shops, which draw value-seeking shoppers.

  “Look at Target this year. Target's up over 50%. The newness in the assortment, the new collaborations.”at 16:35

Nike

Across the shows: 6 speakers in other episodes, 3 bullish and 3 bearish calls, past 30 days

• Dana Telsey · Telsey Advisory GroupBearish

  Athletic footwear is promotional and weak; Nike needs fresh product to revive the category.

  Telsey says the athletic footwear category has been very tough and promotional. She argues the category needs newness from Nike to recover, and says the industry has moved on from Nike as people dress up more for events.

  “Look at active footwear, the athletic footwear. That category has been very tough. It's been promotional, and you need the newness from Nike to resuscitate the category.”at 17:55

LVMH Moët Hennessy Louis Vuitton

Across the shows: 3 speakers in other episodes, 1 bullish and 5 bearish calls, past 30 days

• Dana Telsey · Telsey Advisory GroupBearish

  LVMH's fashion and leather goods missed on weak Chinese demand, down mid-teens, a key headwind.

  Fashion and leather goods, about 45% of the business, came in weaker than expected. Telsey attributes this to Chinese consumer demand, which fell in the mid-teens. Other segments such as Sephora and jewelry were doing well.

  “fashion and leather goods, which is 45% of the business, was weaker than expected. Why? China. Chinese consumer demand was weaker. It was down mid teens.”at 20:05

CoreWeave

Across the shows: 13 speakers in other episodes, 2 bullish and 14 bearish calls, past 30 days

• Ross Mayfield · BairdBearish

  CoreWeave, a higher-risk AI trade, is getting hit as yields rise and investors become more discerning.

  Higher-for-longer yields, a Fed back to hiking and rising long-end bond yields mean investors must be more discerning. CoreWeave sits at the higher-risk end of the AI trade and is taking it on the chin, so the rising tide that lifted all AI boats is no longer the story.

  “So a core weave, which is kind of on the higher risk spectrum of the AI trade, gets hit.”at 21:40

US stock market outlook

• David Katz · Matrix Asset Advisors

  S&P 500 is the most growth-overweighted in some time; investors need small, mid and international exposure.

  Because the S&P 500 is market-cap weighted, mega-cap growth names dominate it, and it is probably the most growth-overweight it has been in some time. Katz says investors who own only the S&P are concentrated and should add small cap, mid cap and international stocks.

  “the S and P 500 is a living index. And right now, you're right. It's probably the most overweighted to growth that it's been in some time.”at 3:19

• David Katz · Matrix Asset Advisors

  Consumer staples offer value at 14x earnings after lagging; favors rotation into staples.

  Staples and utilities were named as sectors that lagged the market in risk-on/risk-off trading this year. Katz thinks they offer better go-forward opportunities, and points to many good staples businesses trading at 14 times earnings.

  “Consumer staples, there are a lot of good businesses at 14 times earnings.”at 4:58

• Wei Li · BlackRock Investment Institute

  BlackRock downgraded US equities to manage risk from AI policy and AI build-out concerns.

  BlackRock's note this week upgraded Treasuries at both the front and back end while downgrading US equities. The aim was to manage risk from the potential focus on AI policy and the AI build-out, which has since played out in markets.

  “on Monday, we put out a note essentially upgrading treasuries front end and back end and downgrading US equities to manage risk and just thinking about the potential focus on AI policy and AI build out.”at 30:13

Credit markets

• Winnie Cisar · CreditSights

  Energy and commodities credits outperformed while hyperscaler, tech and CCC bonds decompressed, reshuffling what looks cheap.

  Credit looked solid in aggregate until recent weeks, but decomposing it shows energy and basics performing well as a commodities inflation trade, while hyperscalers, technology issuers and triple-C credits have been decompressing. This reshuffling of valuations is unusual relative to history, especially in investment grade. It is partly fundamental, reflecting worries about the inflation outlook, a possible Fed hiking path and what lower-rated issuers will do, and partly technical, reflecting portfolio construction.

  “Obviously, energy and basics. It's the commodities inflation trade. Whereas the hyperscalers, the technology, the triple c's have been decompressing.”at 38:25

• Winnie Cisar · CreditSights

  Large hyperscaler and data-center bond deals are clearing without failure, but at wider spreads with more supply coming.

  Deals are being digested: no hyperscaler deal has failed to clear the market, and no high-yield bond from data center infrastructure has had a massive failure. Things are pricing at wider levels across investment grade and high yield. Investors now have to ask what yield compensates them today when they know much more supply is coming.

  “We haven't seen a hyperscaler deal fail to clear the market. We haven't seen a high yield bond deal in the data center infrastructure space really have a massive failure as well. Things are pricing at wider levels across investment grade and high yield.”at 40:07

• Winnie Cisar · CreditSights

  Higher borrowing costs will squeeze interest coverage as companies have releveraged, so credit quality faces pressure.

  Interest coverage is the first metric credit investors watch, and it will come under pressure as borrowing costs rise. The pressure is compounded by a wave of intentional releveraging across some core parts of the market. Leveraged finance has seen much less of that releveraging.

  “the first thing we are always looking at as credit people is the interest coverage levels. And that is going to be under pressure as borrowing costs are higher, and we've seen a wave of intentional releveraging across some core... Ports of the market.”at 41:47

US consumer

• David Katz · Matrix Asset Advisors

  US consumer has been surprisingly strong and the economy shockingly strong; expects that to continue.

  Katz says he sees the consumer and economy as stronger than expected despite the rising inflation and retail spending data. He expects that resilience to continue.

  “We think the consumer has been surprisingly strong. We think the economy has been shockingly strong, and we think that it's gonna continue to be okay.”at 10:30

• Dana Telsey · Telsey Advisory Group

  Expects a decent holiday season, helped by early promotions around Amazon Prime Day.

  Telsey expects a decent holiday season. Advertising and activation are pulling spending forward, and Amazon Prime Day kicked off the season, with Target and others running events around it. She says her full holiday forecast comes next week.

  “I think the holiday season's gonna be okay. ... I think it'll be a decent holiday season.”at 19:01

US Treasuries & yields

• Wei Li · BlackRock Investment Institute

  After years of repricing, bonds are back; BlackRock is overweight the front end and neutral duration.

  After years of yield repricing in US Treasuries, Li thinks bonds are back. BlackRock first went underweight long duration when the 10-year was below 90 basis points, then closed that underweight to neutral and moved the front end to overweight. Higher yields also mean more income, and 60/40 allocations have regained favor.

  “after years of yield repricing in The US treasury market, we think bonds are back. We first went underweight long duration treasuries.”at 30:40

• Winnie Cisar · CreditSights

  Short-term Treasury paper still has integrity, but it now reacts more to second-tier data and Fedspeak.

  Cisar says the short end still has integrity. However, data that used to be second tier now has amplified effects on short-term paper, and recent Fedspeak has increased the sensitivity further.

  “I think that there's definitely still an integrity to short term paper, but we've noticed that the sensitivity to things that were maybe second tier economic data... tend to have amplified effects more recently.”at 37:20

Power demand & the grid

• David Katz · Matrix Asset Advisors

  Utilities sold off in the AI selloff but yield 3.5-4% at 16x earnings and will benefit from AI buildout.

  Utilities had a strong run but gave it back in the AI selloff. Katz argues many utilities now pay a 3.5-4% yield at about 16 times earnings and will benefit from the AI build-out and higher electricity usage.

  “There are a lot of utilities right now that are paying a three and a half, 4% yield at 16 times earnings that are gonna benefit by the AI build out and more electrical usage.”at 4:58

Oil & fuels

• David Katz · Matrix Asset Advisors

  An Iran de-escalation would sharply cut oil prices, cool inflation, ease Fed pressure and help stocks.

  Hot inflation is driven by energy prices. If there is an exit ramp out of the Iran conflict, Katz expects oil to fall sharply and inflation, which has been negative, to cool a lot. That would take pressure off the Fed, which he says would be bullish for the market.

  “if there's ever sort of a exit ramp out of Iran, oil prices will come down sharply and the inflation numbers which have been pretty negative will cool down a lot.”at 10:30

GLP-1s & obesity drugs

• Dana Telsey · Telsey Advisory Group

  GLP-1 drug use is driving new apparel wardrobe purchases and changing consumer buying patterns.

  Telsey says GLP-1 drugs are causing wardrobe changes and new apparel purchases among users. The effect is not finished because the drugs' impact keeps extending, so it is an additional reason for consumption shifts.

  “GLP ones are causing new apparel wardrobe changes, new apparel wardrobe purchases, and they are not done because the impact that it has basically extends.”at 15:53

AI bubble & tech valuations

• Ross Mayfield · Baird

  Mega-cap tech holds up on strong earnings, so valuations are not very stretched; favor quality.

  The Mag Seven has looked fine while semiconductors and cloud names sold off. Mayfield expects the big names to keep catching a bid. Valuations are not very stretched because tech earnings have been so strong, so he favors quality within tech.

  “I think the big ones will continue to catch a bid. The Mag seven has looked fine while the semis and the Cosby have sold off.”at 22:13

Banks

• Ross Mayfield · Baird

  Financials are oversold yet resilient, and they benefit if AI delivers productivity gains.

  Financials are a bit oversold after a good year. Mayfield cites a strong consumer, solid wealth management and healthy capital markets activity at banks such as Wells Fargo. If AI delivers productivity gains, financials can root out fraud and waste and benefit.

  “they're a bit oversold, but they've had a nice year. The consumer remains strong... The consumer piece of the business is solid.”at 23:52

Earnings & corporate profits

• Ross Mayfield · Baird

  Earnings optimism holds for Q3, but 2027 earnings growth should slow to 10-15% from 30%-plus.

  Earnings are the great lifter of this market and put a floor under it, so optimism for Q3 and the rest of the year remains. The question is 2027, when Mayfield expects earnings growth to slow to 10-15% rather than 30-plus percent.

  “the question is what happens when you get to 2027 and the base rates and the earnings growth slows to 10, 15% rather than 30 plus percent.”at 24:54

IPOs, M&A & deal activity

• Ross Mayfield · Baird

  Capital markets are recovering but far from the late-1990s IPO frenzy; rates are a headwind.

  Comparing today with the late 1990s, when there were around 50 IPOs a day, the IPO and M&A environment is not robust. It is recovering and a little better, but higher rates are still a headwind.

  “this is not a robust, you know, capital markets, IPO, m and a environment. It's recovering. It's a little better.”at 25:58

US rates & the Fed

• Wei Li · BlackRock Investment Institute

  September hike was about credibility, not the start of a sustained hiking cycle, despite priced-in hikes.

  Markets price more than three Fed hikes through the end of next year after a broad-based hot CPI print. However, the labor market gives the Fed room to wait. Li thinks the September hike was a credibility move, not the start of a sustained hiking series.

  “markets are currently pricing, I think more than three hikes for until the end of next year.”at 34:08

China's economy

• Wei Li · BlackRock Investment Institute

  China is two economies: AI and exports drive growth, while property, youth jobs and aging drag.

  Part of China is doing well because of AI and exports. The structurally challenged part faces youth unemployment, the unresolved property overhang and an aging population. BlackRock is neutral on China and prefers the part of the market driving growth, since translating market share into profit is harder there.

  “There is the part of China that is doing well because of AI and The exports. And then they are structurally challenged part of China.”at 35:29

Private equity

• Winnie Cisar · CreditSights

  Smaller leveraged companies lack exits because sponsor-to-sponsor M&A has dried up, which is hurting leveraged finance.

  Leveraged finance has seen much less intentional releveraging, but it has become problematic more recently because sponsor-to-sponsor M&A has stopped. Smaller-cap companies therefore have no exit opportunities, which strains them.

  “When you go down into the leverage finance space, we've seen much less of that intentional leveraging... But it's been a bit problematic more recently because there's no sponsor to sponsor [M&A]. There's no exit opportunities for some of these smaller cap companies.”at 42:13

Market sentiment, positioning & volatility

• Winnie Cisar · CreditSights

  Money market funds will keep attracting cash as rising rates make cash yield again, with compounding effects.

  Winnie says she would never bet against money market funds, especially as rate hikes make cash yield again. Money market assets are heading toward $8 to $10 trillion. Muni ETF inflows are also picking up as people reallocate, but the compounding effect of cash income is what she says cannot be underestimated.

  “I'm never gonna bet against money market funds... especially as we are seeing more rate hikes and cash is, you know, yielding again.”at 42:38

US elections & politics

• Libby Cantrill · PIMCO

  Democrats are likely to win the House, with generic ballot and enthusiasm gap signalling a wave like 2006 and 2010.

  Republicans seem to have capitulated in the House, which will likely flip. Democrats lead the generic ballot by about 8 to 9 points, and the enthusiasm gap is about D+11. Those old-economy indicators have translated into turnout before and are consistent with the 2006 and 2010 midterm waves. Early vote numbers are less reliable because of false positives.

  “Democrats lead by d plus eight, d plus nine, and then the enthusiasm gap... That's a democrat plus 11. So those are both in [wave] territory. They're consistent with twenty ten. They're consistent with 2,006.”at 46:59

AI infrastructure & data centers

• Libby Cantrill · PIMCO

  Bipartisan anti-data-center politics will bring more state moratoria and restrictions in 2027, denting the AI buildout.

  AI policy is a state issue for now, not a federal one, and 36 of 50 states vote for governors this cycle. Many governors on both sides are running on anti-data-center platforms, and in Ohio both gubernatorial candidates advocate a full statewide moratorium. Politics leads policy, so Libby expects more friction, more moratoria and more restrictions in 2027, which could put potholes in the AI story. The House has passed a data center bill that the Senate failed to pass.

  “Politics leads policy. Policy follows politics. The politics of this are very bad... we're expecting more friction Right. You know, more moratoria, more restrictions just in general. And that could definitely, you know, at least put some potholes in this AI story.”at 49:05

US deficit & government debt

• Libby Cantrill · PIMCO

  Debt-limit standoffs force PIMCO into daily modelling and change how it invests in T-bills.

  Paul calls the debt limit the dumbest debate Congress has. Libby says PIMCO has a large amount of work to do in advance, running daily models around the debt-limit date. As a fiduciary, this affects how they invest in bills, and Paul notes T-bills caught in the debt-limit crosshairs are always priced cheap.

  “we're fiduciary. So it does affect the way that we invest in bills, for instance.”at 51:39