September 2nd Market Overview

Happy Tuesday

I hope everyone had a wonderful holiday weekend.

Bonds are doing their thing today and stocks are feeling it. The 30-year Treasury pushing almost 5% while the 10-year hit 4.28%.

Noting this because these kinda yields can start messing with equity valuations, when you can get 5% guaranteed from bonds people start to ask why take stock market risk unless stocks offer even better returns? Not saying it's time to panic, but September's already living up to its reputation as the market's least favorite month.

Let's dig in...

Today's Big Picture

1. Appeals Court Rules on Tariff Authority

A federal appeals court ruled 7-4 that most reciprocal tariffs exceed presidential authority, determining only Congress can impose such levies. The tariffs remain in place until October 14 while the administration seeks expedited Supreme Court review. Bond markets reacted to potential refund obligations.

2. Global Bond Yields Climb

Treasury yields rose across the curve, with the 30-year nearing the 5% level that historically pressures equity valuations. European yields also advanced, with France's 30-year reaching 4.5% and Germany's touching 3.4% - both multi-year highs. The moves reflect changing buyer dynamics as traditional purchasers like central banks and pension funds reduce Treasury allocations.

3. Tech Sector Tests Support Levels

The Nasdaq 100 fell below its 50-day moving average for the first time since April, with NVIDIA $NVDA ( ▼ 2.7% ) breaking the same technical level held since May. This marked the first back-to-back decline for the tech index since April. The moves came as Abu Dhabi's G42 explores alternatives to NVIDIA chips for its AI infrastructure, holding discussions with Alphabet, Microsoft, Meta, and Amazon.

Market Overview

U.S. Stock Indexes

Stock Spotlight

Kraft Heinz $KHC ( ▲ 1.22% ) confirmed splitting into two companies via tax-free spinoff: Global Taste Elevation (Heinz, Kraft Mac & Cheese) and North American Grocery (Oscar Mayer, Lunchables). Warren Buffett called the move "disappointing" - a brutal assessment given Berkshire Hathaway's 27.5% stake and the fact he orchestrated the original merger a decade ago.

Elliott Investment Management took a $4 billion PepsiCo $PEP ( ▲ 0.63% ) stake, one of the activist's largest ever positions.

Frontier Airlines $ULCC ( 0.0% ) gained on Spirit Airlines bankruptcy. Deutsche Bank upgraded to buy, noting 35% route overlap expanding to 40% by December as Frontier adds 20 new routes previously served by Spirit.

Constellation Brands $STZ ( ▲ 1.75% ) cut full-year guidance from $12.07-$12.37 to $10.77-$11.07 per share. The Corona owner cited weakening high-end beer demand, especially among Hispanic consumers who drive disproportionate business impact.

Big Name Updates

Alphabet $GOOGL ( ▲ 1.16% ) faces mounting calls to monetize its TPU chip technology. D.A. Davidson argued that Google's TPUs represent the best alternative to NVIDIA and suggested a standalone TPU+DeepMind business could be worth $900 billion.

Apple $AAPL ( ▼ 0.04% ) received a JPMorgan overweight rating with $255 price target ahead of the fall iPhone event. The firm expects incremental AI features and potential pricing adjustments to provide modest upside.

Amazon $AMZN ( ▼ 1.42% ) saw Prime membership sign-ups slow this year despite extending Prime Day to four days. While the company touted record sales figures, the membership momentum lagged previous years' performance, suggesting potential consumer fatigue.

Tesla $TSLA ( ▲ 3.64% ) continues struggling in India with just over 600 orders since its mid-July launch - roughly what the company delivers globally every four hours. Tesla now expects to ship only 350-500 EVs in India this year, far short of its original 2,500-vehicle target.

Other Notable Company News

Signet Jewelers $SIG ( ▲ 3.42% ) beat second-quarter expectations with adjusted earnings of $1.61 per share on $1.54 billion revenue, surpassing forecasts of $1.24 and $1.50 billion respectively. The jewelry retailer raised its full-year guidance across both earnings and revenue metrics.

Morgan Stanley downgraded Lam Research $LRCX ( ▲ 2.52% ) to underweight from equal weight, lowering the price target to $92 from $94. The firm expects the company's growth drivers in China and NAND memory to slow after two very strong years, with growth decelerating from 82% in 2025 to just 3% in 2026.

Taiwan Semiconductor $TSM ( ▲ 3.49% ) reportedly plans 5-10% price increases on advanced nodes in 2026 to offset tariffs, foreign exchange impacts, and supply chain costs, while older process technologies may see discounts.

Sector Watch

Bond Market

Treasury yields climbed across the curve as multiple concerns converged. The 10-year yield reached 4.28% while the 30-year approached the critical 5% threshold that historically triggers equity multiple compression.

• Global spillover effects: European long-dated yields hit decade-plus highs with France, Germany, and the UK all seeing significant moves higher

• Buyer dynamics shifting: Traditional purchasers like central banks, pension funds, and insurers are reducing Treasury allocations, amplifying yield volatility

• Fiscal concerns mounting: Potential tariff refunds combined with existing deficit pressures create genuine questions about debt sustainability

Policy Watch

Trade Authority Under Fire The Federal Circuit's 7-4 ruling represents the most significant legal challenge to Trump's trade agenda. The court determined that his reciprocal tariffs exceed presidential authority, though levies remain in place until October 14. Trump plans to seek an expedited Supreme Court hearing this week, calling potential tariff elimination "devastation" for the country.

Manufacturing Data Mixed

• ISM manufacturing index rose to 48.7 in August from 48.0 in July

• Sixth consecutive month of contraction, though at a slower pace

• New orders improved while employment edged higher

• Reading suggests gradual stabilization rather than robust recovery

Fed Independence Battle A federal judge signaled she wishes to rule quickly on whether Trump acted lawfully in moving to fire Fed Governor Lisa Cook. The case represents a key test of central bank independence.

Housing Emergency Consideration Treasury Secretary Scott Bessent indicated the administration may declare a national housing emergency this fall, with options including standardizing local zoning rules and lowering closing costs.

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What to Watch

Jobs Report Friday
August employment data could shift Fed rate cut expectations. Strong numbers complicate dovish bets, especially with yields already rising.

Supreme Court Tariff Filing
Trump plans to file for expedited review Wednesday. Timeline and court response will signal if his trade agenda survives.

Tech Support Tests
Nasdaq 100 $QQQ and NVIDIA $NVDA broke 50-day averages. Follow-through selling likely unless buyers step in quickly.

Costco Sales Thursday
July same-store sales expected up 7%. Key test of consumer resilience amid tariff pressures and inflation concerns.

Airlines Reshuffling
Frontier $ULCC ( 0.0% ) capturing Spirit $SAVEQ ( ▲ 0.43% ) routes after bankruptcy. Execution on 20 new routes will determine lasting benefits.

Thanks for reading 🙂

- John