I have noticed that as economic anxieties rise, the talk of a stock market “bubble” has increased. Paul Tudor Jones said on CNBC that the stock market is reminiscent of the setup leading up to the burst of the dot-com bubble in late 1999. However, Jones also said that the bull market still has room to run before it reaches its final phase. I agree with Jones, and it is imperative that the stock market’s breadth and power overall improve. Furthermore, it would be odd for the stock market to fizzle when the Fed is cutting key interest rates.
I do not want you to worry about a stock market bubble, since as long as the analyst community is raising earnings estimates and the Fed is cutting key interest rates, we can invest confidently in A-rated stocks.
The big news is that is now up 50% year to date due to a lack of confidence in central banks as well as international turmoil. As an example of the turmoil, Japan now has its fifth prime minister in the past five years, namely Sanae Takaichi, who caused the Nikkei to surge based on her promise of more fiscal spending. Unfortunately, the “Takaichi trade” also puts the Bank of Japan in a pickle, since it will not be able to raise key interest rates, so the Japanese yen gapped down almost 2% relative to the U.S. dollar.
Another example of turmoil is that France lost its new prime minister after just three weeks. Specifically, Sebastian Lecorne, became the shortest serving French prime minister since 1958 and the third prime minister since 2024 over the inability to finalize a budget with Parliament that is controlled by Marine Le Pen’s National Rally party. Finally, I should add that the U.S. federal government shutdown is also related to budget differences with the minority leadership in Congress.
The European Union continues to change, and another development is that the Czech Republic elected billionaire Andrej Babis’s ANO party, which will now create a new, more conservative ruling coalition. Babis is vowing to make the Czech Republic “the best place to live in the European Union (EU).” Ironically, the Czech Republic will now be more resilient against EU mandates, especially immigration. Babis has also been a critic of seemingly unlimited aid to Ukraine. So, now the Czech Republic is expected to be more like Hungary and Poland by pushing back on EU mandates.
Despite the federal government shutdown, the U.S. remains an oasis in the world, with better demographics than Asia and Northern Europe, higher key , and stronger growth. Despite warning signs from private payroll data, the Conference Board’s index, plus a dramatic declaration in the , service index, U.S. GDP growth is resurging with all the onshoring that the Trump Administration is pushing for the automotive, pharmaceutical, and semiconductor industries. We remain in an environment where bad news is considered good news because weak economic news just ensures more key Fed interest rate cuts.