Resilient Growth and AI Momentum

1. Cooling Labor Market, Not Collapsing. Concerns about a slowing labor market dominated headlines last week, with both nonfarm payrolls and ADP employment data coming in softer than expected for the second month in a row. Yet, digging deeper reveals a far more balanced picture. Weekly jobless claims remain well-behaved, with the four-week moving average holding steady at 231,000, signaling a cooling labor market rather than one in distress. This is an important distinction: while hiring momentum has slowed, the underlying health of employment remains intact. Credit markets confirm this story, with spreads near historically tight levels, reflecting no meaningful signs of economic stress.

This kind of moderation is precisely what the Fed has been hoping to achieve, a labor market that eases inflationary pressure without tipping the economy into contraction. With an enormous amount of global cash, $7 trillion sitting on the sidelines, the market backdrop remains exceptionally liquid, creating a powerful buffer against volatility. Rather than fearing a collapse, investors can view this moment as one of normalization, which sets a stronger foundation for future growth.

2. Fed Set to Cut Rates from a Position of Strength. Markets are now pricing in near certainty that the Fed will begin cutting rates in September, with expectations for multiple cuts through year-end. Importantly, this easing is not being driven by a crisis narrative but by a pragmatic recognition that rates are too restrictive for the current environment. Inflation, which has largely stabilized in the 2.5%–3.5% range, is being offset by strong gains in productivity, up 3.4% annualized, and a healthy pace of economic expansion, with growth tracking close to 3%.

Companies are putting capital to work, with investment running at a 10% annualized rate in the first half of the year and shipments up 6% in the latest quarter. The ISM Services Index, which has been in expansion for several months, accelerated again last week, with the new orders component jumping six points, a clear signal of business confidence and future growth momentum. Even more encouraging, is that the prices paid component of ISM Services is easing, offering a sign that inflationary pressures are cooling organically.

This combination of rising productivity, steady growth, and moderating inflation gives the Fed confidence to adjust policy proactively rather than reactively. Rate cuts in this context should be viewed as a tailwind for growth rather than a lifeline for the economy.

3. Investment Surge and Strategic Tariff Positioning. Durable goods orders, excluding transportation, rose 1.1% month-over-month, signaling a willingness to spend despite trade uncertainty. This aligns with the administration’s stated goal of driving more capital investment back into the U.S., and the numbers are beginning to reflect that shift.

Markets are also showing an ability to look through tariff turbulence, with businesses adjusting supply chains and policy discussions underway with global partners. Over time, the details of these tariff policies will become clearer, allowing investors to refocus on pro-growth catalysts such as deregulation and targeted tax incentives. The trend of rising non-financial corporate productivity and capital spending reinforces that companies are positioning themselves not just to weather tariffs but to thrive under them.

4. Post-Earnings Season MAG 7 Strength. Following second-quarter earnings, nearly all of the Magnificent Seven saw their 2025 annual EPS estimates rise, signaling durable fundamental momentum.

Amazon (AMZN): Despite a brief 6% stock pullback after earnings, annual EPS estimates climbed from $6.37 to $6.60, showing underlying confidence in execution.

Meta (META): Estimates jumped from $25.76 to $28.15, underscoring Meta’s strong AI-driven growth strategy.

Alphabet (GOOGL): Raised from $9.77 to $9.95 per share post-earnings, highlighting resilience across advertising and cloud.

Microsoft (MSFT): EPS rose from $15.31 to $15.54, reflecting durable demand for cloud and AI offerings.

Apple (AAPL): Increased from $7.18 to $7.37, supported by iPhone momentum and services growth.

Nvidia (NVDA): Small bump from $4.46 to $4.49 demonstrates ongoing AI strength.

Tesla (TSLA): The lone exception, with EPS estimates slipping from $1.83 to $1.74.

These revisions reinforce that short-term market volatility during earnings season often masks longer-term fundamental growth.

5. The AI Trade is Alive and Well. Broadcom’s latest earnings showed 163% year-over-year growth in AI-related revenue and execution across its core businesses. However, the narrative around AI is no longer just about chipmakers, it’s about the infrastructure buildout required to sustain it. With 75% of the U.S. power grid over 25 years old, the case for modernization is undeniable. The AI revolution will demand more from data centers, utilities, and infrastructure providers, creating a multi-year investment cycle. Companies positioned in these areas are poised to be major beneficiaries as AI adoption accelerates.

Meanwhile, cybersecurity is emerging as an equally powerful secular growth driver. As AI adoption creates new opportunities, it also creates vulnerabilities. Recent M&A activity, such as Palo Alto’s acquisition of CyberArk, highlights the urgency and scale of this theme. Cybersecurity spending is an essential component of the digital economy; thus, we expect more consolidation and innovation in this sector over the next several years.

6. Fixed Income. U.S. Treasury yields declined sharply across the curve last week in response to softer-than-expected labor data which reinforced a September rate cut. By Friday’s close, yields on the 2-, 10-, & 30-year yields were lower by 11, 15, & 17 basis points, respectively. This week’s economic calendar features several key data releases ahead of next week’s FOMC meeting, where consensus expectations point to a 25-basis point reduction in the federal funds rate. Scheduled releases include the Producer Price Index (PPI) on Wednesday, Consumer Price Index (CPI) and initial jobless claims on Thursday, and the University of Michigan Consumer Sentiment survey on Friday.

Credit markets posted constructive total return gains on the back of lower rates, although spread performance diverged across ratings. Investment-grade spreads narrowed 2 basis points to +121, while high-yield spreads widened 6 basis points to +347. U.S. credit ratings improved last week as the main rating agencies issued 24 upgrades and 22 downgrades. The Financial sector led with the most upgrades, while the Material sector had the most downgrades.

Tax-exempt yields followed Treasuries, finishing the week 6-16 basis points lower across the curve. This week’s primary market is expected to remain supportive, underpinned by a manageable $9.7 billion of tax-exempt supply.

The Week Ahead.

Economics- Monday: Consumer Credit, Wednesday: Central Bank, Producer Prices, Wholesaler Sales, Thursday: Consumer Prices, Labor Market, Government Finance,  

Earnings –Tuesday: SNPS, ORCL, Thursday: KR, ADBE

Stephanie Link’s TV Schedule:

Return for Selected Indices^[1]

Source:

^[1] Source: Bloomberg. As of September 8, 2025.

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