Dear Valued Clients and Friends –
A full and robust trip around the horn awaits you.
Dividend Cafe on Friday looked at recent arguments that secular disinflation is over and a new period of reinflation is coming. It asked if AI is inflationary or deflationary. It used both history and cogent economic theory to answer all these questions and more. The written version is here (my favorite), the video is here, and the podcast is here.
Off we go …
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Market Action
- Markets opened up 500 points this morning but quickly gave that back. Markets were in the negative for much of the day and ended mixed.
- The Dow closed up +263 points (+0.51%) with the S&P 500 dead flat and the Nasdaq down -0.18%.
*CNBC, DJIA, July 27, 2026
- The Sunday night announcement that Nvidia is in talks to guarantee $250 billion of financing for an OpenAI data center was perhaps the most fascinating escalation of the circular financing model in all of this I have seen yet. The market did not like it as Nvidia dropped -5% today.
- At the beginning of the year, the spreads in the CCC level of high-yield debt (real junky) were about 625 basis points. At the beginning of 2025, they were about 550bps. They are currently 876 basis points, a pretty dramatic risk indicator considering stock markets are all at or near all-time highs and the VIX is below 20. Widening credit spreads are worth noting and watching for a number of reasons.
- The ten-year bond yield closed today at 4.65%, down three basis points on the day
- Top-performing sector for the day: Consumer Staples (+1.58%)
- Bottom-performing sector for the day: Energy (-2.01%)
- On the whole, the rotational nature of markets this month has been extraordinary. Big drops in Tech and Communication Services have come with big moves up in Financials, Energy, Healthcare, and Industrials (especially Defense names within that sector).
- The weirdness in the Semiconductor space is not just weird, but dangerous. Fifteen major names in the index have dropped between 40% and 77% since the big rally across the whole space. The volatility is through the roof. The action does not command a lot of confidence in rationality.
- It is very clear that not all software is created equal within the software universe. I would just add to the nuances on this chart – not all the companies within each of these sub-sectors are equal to one another, either
Top News Stories
- The White House threats to escalate military actions against Iran are on hold for now as talks are allegedly underway to resume some sort of cease-fire.
Public Policy
- The biggest news on Friday was the Trump administration’s unveiling of new tariffs on 60 trading partners (largely to replace, by other means, various tariffs that the Supreme Court rightly ruled to be unconstitutional). They stay in the range of 10-12.5% and have to replace the prior stopgap, which was only legally allowed for a six-month period. These tariffs are being implemented under a Section 301 pursuit (claiming unfair labor practices). Almost immediately, various American small businesses filed lawsuits protesting the pretextual nature of the actions, and further Supreme Court review is widely expected.
- I think the Michigan Senate race is becoming a potentially groundbreaking race for what could potentially come out of it. The momentum of socialist/DSA/extreme left candidates could die there, with the Democratic Party establishment effectively drawing a line of what will not be allowed in their tent. OR, that momentum could continue, expanding into a purple state like Michigan. And then, should El-Sayed win the primary, it could destroy the Democrats’ chances of taking the Senate (should they fail to hold a state they already have), OR it could advance DSA/far-left momentum, if El-Sayed were to prevail in the general. I offer no predictions on any of this, but it is very much worth watching as a bellwether both within the Democratic Party and within the national electorate.
- The Senate is supposed to vote on Jay Clayton’s nomination to the position of Director of National Intelligence tonight. He will be approved, and that will allow Bill Pulte, the interim director, to be gone.
Economic Front
- Core Durable Goods Orders were up +0.9% in June and are up +14.3% year-over-year. Shouldn’t this stunning yearly increase be a huge positive? Well, the “base effect” of where things were with Liberation Day a year ago is a big part of the math, and nearly everything else is related to data center construction. Computers/electronics are up +18% year-over-year and electrical equipment +7.6%. Machinery is up quite a bit, too. It is all a positive – it is just less broad-based than meets the eye.
Housing & Mortgage
- New single-family home sales increased +1.6% in June but are down -5.6% from a year ago (volume of transactions, not prices).
- The median sales price of a NEW U.S. home is down -13.5% from the mid-2022 peak, but square footage is up +3.7%, meaning the price-per-square foot is down even more. That we see more activity with new vs. existing homes is purely a by-product of existing homeowners not wanting to part with attractive mortgage rates
Federal Reserve
- Where some believe the Fed should be raising rates because of higher oil prices, others make the argument that the very nature of oil price volatility calls for doing nothing whatsoever (up five dollars/barrel or down five dollars/barrel from one Truth Social post to the next). Now, if some want to say, “No, it is not about oil prices – it is about other inflationary pressures,” they could make that argument. Perhaps some feel the Fed should be the one to prick the AI asset bubble. Perhaps some think that tariff-induced goods inflation needs to be addressed with higher interest rates. Those arguments can all be made, and they are not the same as the oil price/geopolitical argument, one I am just not sure the new Fed chair buys at all.
- Peter Boockvar re-published this chart this morning, and it reinforced for me the biggest reason I would be shocked, shocked, if the Fed raised rates this week – or any other time this year. And that is the huge dependency the Treasury has on borrowing at very short maturities, making their exposure to a higher fed funds rate (and its impact on the deficit) very significant.
- I do want to say, all of my instincts, research, and shared assessment notwithstanding, Rene Aninao of Corbu believes there is a 95% chance of a rate hike this week, with a 50% chance of 25bps, a 40% chance of 50bps, and a 5% chance of 75bps.
- $200 billion has been ADDED to the Fed balance sheet this year, and I do believe (with Rene) that Warsh will announce a cessation of increased additions to Fed assets at least until the task force has completed its work
Oil and Energy
- WTI Crude closed at $81.81 today, down -8.4% on the day.
- Midstream was up 1.1% last week, with a negative S&P and oil up +8.3%.
Ask TBG
| “You mentioned growth/lack of growth a few times, and Japanification. I’ve always wondered why GDP growth is so important? I get that it’s good for banks and Wall Street, but why is it important to the average Joe? How does it impact him if GDP growth is zero? Will that make his life worse?” ~ John I. |
| I think GDP is far more important to Main Street and the average Joe than it is to Wall Street. Stocks are driven by corporate profits. But GDP measures gross output of goods and services, which is the essence of a higher standard of living. With higher production of goods and services comes more jobs, higher wages, and the other things that the average Joe cares about. If GDP growth contracts, the average Joe is killed – unemployment spikes, wages collapse, and their standard of living drops. I recently spoke about this subject here |
On Deck
- The FOMC meets tomorrow, and the announcement and Warsh presser will be on Wednesday.
- Lots and lots of company earnings announcements this week
More to Chew on
- My dear friend, Ben Sasse, continues to do death the way he has done life – the right way
- If you needed any more persuading that the Jones Act is an obsolete disgrace …
- Best article I read this weekend – the vulnerabilities of AI economics and mistake of government stakes
This coming Friday’s Dividend Cafe will look at all we learned about the new Fed this week in what should really be considered the first FOMC meeting under new Chairman Warsh.
To all, a good Monday night!
With regards,
David L. Bahnsen
Chief Investment Officer, Managing Partner
The Bahnsen Group
www.thebahnsengroup.com
The Dividend Cafe features research from S&P, Baird, Barclays, Goldman Sachs, and the IRN research platform of FactSet.
