Despite breaking new highs, the markets have been somewhat more volatile this week. Earnings announcements came in hot and heavy as many companies reported strong revenue and earnings growth. Additionally, the Federal Open Market Committee (FOMC) decided to cut rates another 0.25% even though it lacks supporting data. Investors loved the news, that is until Jerome Powell threw a wet blanket on the potential for another much-anticipated rate cut in December. At this point it’s anyone’s guess. Will the Fed have enough data to warrant another rate cut, or will it take a more cautious approach as it waits on the data to come in. One thing is clear though, the unanimity among board members seems to be crumbling. The next FOMC meeting will undoubtedly be a knock down drag out fight. If only I could be a fly on the wall for that meeting.
The good news is that even though jobs data is seemingly getting worse, the economy remains stable. Now for the not so good news. Job losses appear to be accelerating. Recent layoffs include UPS 48,000, Amazon up to 30,000, Intel 24,000, Nestle 16,000, Accenture 11,000, Ford 11,000, Novo Nordisk 9,000, Microsoft 7,000, PwC 5,600, Salesforce 4,000, Paramount 2,000, Target 1,800, Kroger 1,000, Applied Materials 1,444. Reasons companies are giving for slashing headcount include cutting costs, making workflow more efficient, or in Amazon’s case, reducing bureaucracy. But some of the biggest cuts hint at executives hoping to free up funds for future AI spending. Amazon announced most of its $31.4B in Q2 capital expenditures were going to AI and cloud-computing. An awful lot is resting on the success of AI. I’m not sure what that means for those who lost their jobs though.
While we’re about AI, JPMorgan announced it is taking one step further toward automation. It is testing the use of AI in writing performance reviews. It claims AI can help reduce writing time by 40% and that standardized feedback is an advantage. CEO Jamie Dimon, told Bloomberg that the company’s $2B annual investment in AI has already paid for itself and has been used to trim headcount. Are you beginning to see a trend?
As for the companies that are leading the charge in AI, Nvidia attained another milestone this week, becoming the first company to break a $5 trillion market cap. Apple, while not exactly an AI juggernaut, topped $4 trillion in market cap reaching a new all-time high. Clearly, money continues to flow into what many investors perceive as the future. However, as valuations continue to climb higher, some are questioning whether the lack of revenue warrants current valuations. While the economy remains resilient, the stock market has climbed to new highs. You should know that risk mitigation is always forefront on our minds, and while we have exposure to these high-flying companies to ensure performance doesn’t fall behind, through rebalancing and diversification, we’ve reduced risk where possible. Additionally, we added international exposure to our models earlier this year to hedge against the risks to U.S. large cap growth.
In closing, I turn to the penny crisis of 2025. Yes, you read that right. Weren’t aware there’s a penny crisis you say. Well, the current shortage of pennies in the United States is due to the Treasury Department’s decision to stop producing new pennies earlier this year. As existing supplies are depleted, retailers are struggling to provide exact change, leading to various issues like rounding down cash transactions to avoid legal problems. Sheetz, the convenience store based in Pennsylvania, ran a promotion offering customers a soda if they brought in 100 pennies. Kwik Trip is rounding every cash transaction down to the nearest nickel, which reportedly will cost the company $3 million per year. The Treasury Department says it will save $56 million per year by no longer minting the penny. Now you know.
Bruce J. Mason, MBA
