Companies’ focus on AI, a trade deal with Japan and the resurgence of ‘meme stocks’.
My husband would cringe if he heard me say I only knew heavy metal singer Ozzy Osbourne from the MTV reality show “The Osbournes” documenting his family life with his wife Sharon and their children Kelly and Jack. Ozzy and Black Sabbath were not my typical listening fare, but I loved the “Crazy Train” nature of their home and relationships. I would laugh out loud at Ozzy trying to figure out how to work the television remote or Sharon suggesting that Ozzy, also known as the “Prince of Darkness,” incorporate bubbles into his concert effects. In the end, the strength of their relationship helped them cope with the silly and the sad.
I mention Ozzy’s passing because his death, along with others announced this week, reminded me of the march of time. Perhaps my nostalgia is also connected to the accumulating pile of college dorm supplies building in my house as the departure of my oldest grows ever closer.
In our planning conversations, I’m struck by how many of you are also feeling a mix of nostalgia, excitement and anxiety about the future, and a little exasperation, like Ozzy, about trying to use today’s technology. But time ticks on nonetheless, regardless of how we feel about it.
As we review the second-quarter earnings reports now coming in fast and furious, it is clear that, despite some of the proposed changes in tariffs and taxes and global relationships, the biggest and most important theme on the minds of management teams is also change, specifically related to artificial intelligence (AI). In their descriptions of how they are engaging with the technology, we are getting a window into how AI will transform not just the earnings of big tech and communication services companies, but how every industry, every sector and every company large and small are imagining the possibilities of how it can be used as a tool to enhance productivity and efficiency.
To that point, the S&P 500’s 12-month forward profit margin recently rose to nearly 14%, a new all-time high. In a vacuum, margins are under scrutiny because of tariffs, but AI may have the potential to be more than just an offset. Widening margins are one key component of earnings growth and excitement is growing over how improved productivity linked to AI and other technological advances across all industries may drive markets even higher. We will explore this topic more in the future, so stay tuned.
I would be remiss not to mention the trade agreement between Japan and the U.S. that set U.S. tariffs at 15% on Japanese imports. While the level is far above where it was in recent years, it’s below some worst-case scenarios that the market had worried over. As often seen in markets, “better” bad news can lift spirits.
Likewise, this week’s sparse economic data delivered an underwhelming report on existing home sales. Just 3.93 million sales were made in June on a seasonally adjusted annual basis, below May’s levels and the expected number of 4 million. Stubbornly high mortgage rates continue to keep supplies down and prices up. In perhaps an attempt to break the logjam, President Trump earlier this week suggested removing capital gains taxes on home sales, which would be a big shift if it happened.
A notable final item that’s been catching the market’s attention this week has been the resurgence of so-called meme stocks. It recalls the dynamic in 2021 when online forums and social media platforms drove up investor interest and buying of stocks like GameStop, AMC and the now-shuttered Bed, Bath & Beyond.
Today, stocks like Opendoor, Kohl’s and Krispy Kreme are surging higher, with little fundamental backing to explain the moves. Heading into a typically volatile August through October season for stocks, it’s probably not a good sign that markets are trading at all-time highs and meme stocks are resurfacing while large open questions about the future direction of global trade and interest rates remain unanswered.
Nevertheless, time marches on, and so will we, working as your partner to manage through the changes and keep you on track despite the call to step “all aboard!” the crazy train of the markets and the world around us.
Written by a human.