Our team looks at a lot of research throughout the day. Here are a handful of charts we think are good summations of the current market, from strong corporate profits and resilient consumers to an AI-driven investment boom, healthy credit markets, persistent weakness in housing, and a bond market facing a very different backdrop than it has in the past. Have a great weekend!”
Beckham: Second quarter earnings were strong, but third quarter estimates at the start of earnings season have barely moved. The 3Q number sits at $89.49 against $88.64 when reporting season began.
Brad: Meanwhile, the AI arms race is weighing on free cash flow. Mag 7 free cash flow growth peaked above 60% in 2023 before turning negative. The positive view is that despite all the capital investment, free cash flows have once again turned positive back to ~10%.
Dave: That spending is showing up in the real economy with manufacturing output having now risen six months in a row, which is the longest streak since 2002.
Mike: Meanwhile, the companies powering the manufacturing boom are printing cash. The top five international oil majors generated $70 billion of free cash flow last quarter, which tops the peak set during the invasion of Ukraine.
John Luke: The consumer is in no danger of breaking either. Household liabilities are down near 12% of net wealth and sit well below the six-decade trend.
John Fox: That coincides with the strongest household balance sheet in the series. Net worth is 759% of disposable income against 681% before COVID.
JG: Lenders would agree. AAA auto ABS spreads sit at 0.44% and credit card ABS at 0.27%, which is materially lower than levels that flagged trouble in 2022.
Derek: Housing remains the weakest pocket. New home sales have slid and continue to flatline over the past few years as interest rates remain an impediment.
Brian: Recession callers keep running into one challenge. Corporate profits are up 22.8% year over year, and this country has never entered a recession with profit growth positive.
Mark: The calendar is on the bulls’ side as well. Since WWII, a green August paired with a double-digit year-to-date gain has led to a higher final four months in 10 of 11 cases, averaging 5.6%.
Jake: The Fed remains the wild card. Fed Chair Warsh wants trimmed-mean PCE as the preferred gauge, and that measure reads 2.4% while core sits at 3.2%.
Brett: While cuts are starting to get priced in, long rates are going the other way. The 10-year has climbed to 4.73% while the market’s December 2026 funds rate keeps falling.
Ten: It is not just us. Ten-year yields are higher on the year everywhere, with Japan up 81 bps and the U.S. next at 54 bps.
Joseph: A full decade of returns shows why nominal bonds may no longer reliably play their old role. Real 10-year total returns for Treasuries were negative, the worst since the early 1980s, while the S&P 500 sits above 11%.
JD: Despite everything going on in the world, it’s always good to remember how much things have improved over time. Ninety-nine percent of babies born in 1990 lived to at least 25, and that longevity is the real argument for capitalism and investing in decades rather than quarters.
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