FED Ready To Cut
The recently concluded Jackson Hole gathering of central bankers produced an investor friendly outcome – Jerome Powell is ready to cut rates. The acknowledgment of rising risk to the labour market signalled a shift in the FED’s monetary policy stance. Expect a September cut unless there is a big change in inflation and job market data. Interestingly, markets responded positively, which would indicate that expectations of a rate cut was not that high.
Rotation Out Of Tech
While lower interest rates boost real estate, banks, and manufacturing companies, the tech sector’s “Magnificent Seven”—Amazon, Alphabet, Apple, Meta, Microsoft, Nvidia, and Tesla—are struggling to maintain momentum.These tech giants carried markets to record highs, but investors are having second thoughts. Stock prices have become extremely expensive compared to earnings, and the AI boom driving their growth is showing cracks.
The AI revolution is facing harsh realities. OpenAI’s highly anticipated GPT-5 model flopped, failing to answer basic math questions despite being marketed as a “PhD-level expert.” A MIT study found hundreds of companies using AI haven’t seen promised revenue growth. Industry leaders are pumping the brakes. Meta froze AI hiring, and OpenAI’s CEO Sam Altman is comparing current AI investment to the dot-com bubble—making investors nervous.
The short term negatives are likely to put a lid on investors’ enthusiasm for tech stocks for the time being. On a side note, the long term benefits of AI adoption is still positive. The same MIT study notes that companies are not deploying successfully, result in low Return on Investment. We are still in the early stages of learning how to integrate AI into business processes. The results will not be immediate.
Germans Are More Positive
After 3 years of business expectations below assessment of business situation, the forward looking index is leading the way up. This spells good news for Europe’s largest and still struggling economy, hit by trade tariffs and competition from export juggernaut China. The improvement should filter down to corporate earnings in the quarters ahead.
