Microsoft and OpenAI Forged a Close Bond. Why It's Now Too Big to Last.
The partnership that made so much sense from 2019 to 2023 has now made each company too dependent on the other. Why a divorce looks inevitable.
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Forbes
25 minutes ago
- Forbes
S&P To Crash 50%? Trump Calls Jerome Powell 'Dumbest'
President Donald Trump reignited his long-standing feud with Federal Reserve Chair Jerome Powell on Thursday, calling him "one of the dumbest, and most destructive, people in Government [sic]". The comment on social media followed the Fed's decision to hold interest rates steady, with the Federal Open Market Committee maintaining its target range at 4.25% to 4.5% - unchanged since December. Trump has been calling for lower rates, noting that the Fed was costing the country billions in interest payments. Trump's rhetoric sure does make headlines, but the real danger for investors is the Fed buckling under political pressure and cutting rates too soon. That could unleash a second wave of inflation, which might be more entrenched than the post-Covid surge. If that happens, expect a sharp reset in valuations, a spike in bond yields, and a steep correction in the S&P 500. Cutting interest rates before inflation is fully tamed risks igniting a more persistent cycle of price increases, forcing the Fed to respond later with even more aggressive hikes, just as it did in the 1970s, when inflation spiraled out of control. Back then, the Fed's delayed tightening led to stagflation and a severe equity downturn: the S&P 500 fell nearly 50% between 1972 and 1974. What's more, higher valuations today, coupled with policy uncertainty, might actually make things worse. For investors seeking upside with less volatility than individual stocks, the Trefis High Quality portfolio offers an alternative. This portfolio has outperformed the S&P 500 and delivered cumulative returns of over 91% since inception. Trump's Policies Create The Perfect Storm? This time around, there is a risk of persistent supply-side inflation driven by policy. Trump's policy agenda, which includes tariffs, mass deportations, and tax cuts, could create a perfect storm of sorts. Tariffs are a supply shock. They raise input costs and consumer prices by removing cheaper imports from the market. Mass deportations of immigrants who entered the country illegally sounds reasonable - after all, they're illegal immigrants - except that it will make cheaper labor unavailable. On average, the price of services will go up. This could be a big factor driving inflation higher. Then there are the tax cuts under Trump's Big Beautiful Bill, under which most taxpayers are expected to see a tax cut, with all income groups reportedly likely to benefit. Now, while tariffs and deportations constrain the supply of goods and services to increase prices, reduction in taxes makes more cash available to consumers. So people can spend more while prices are higher. The result would be spiking inflation, and this would make the Fed's job a lot harder. A Replay of the 1970s? The Fed will likely pull out its 2022 playbook: it'll have no choice but to increase interest rates - not just reverting some of the recent cuts, but in fact, going beyond, to rates above 6% and even 7% or higher for short-term treasuries. Now, if you can get a guaranteed 6% on a 1-year Treasury bill, or bank savings - risk-free investments - won't you demand higher earnings and returns from stocks as well? There will be an exodus - a massive outflow from the S&P and overall markets from risky equities into treasuries, CDs, and savings accounts. It happened in 2022 - within months, the S&P 500 tumbled by 20%. It's easy to forget that stocks including Nvidia (NASDAQ:NVDA) and Meta (NASDAQ:META) had lost more than 50% in the 2022 rate cycle alone (Can Nvidia Stock Lose 50%?). Smaller companies, with less cash on their balance sheets, fared even worse. That said, in 2022, inflation was largely transitory, and the Fed was able to bring it under control. This time, it could be entrenched. Covid-related stimulus money was a transient cause of 2022 inflation. This time, tariffs, tax cuts, and deportations, together, are likely to prove a stronger and perhaps much more persistent force. A replaying of the 1970s crisis is very much possible, taking the S&P 500 down. Higher rates don't just hurt stocks - they make U.S. debt less sustainable. Annual interest payments now already exceed $1 trillion, and JPMorgan CEO Jamie Dimon has called it a red flag. If bond markets start to question the government's fiscal path, yields could spike, deepening the equity selloff. On top of that, loan defaults are rising both in the commercial real estate sector and across consumer debt, like credit cards and auto loans. Big lenders like JPMorgan, BofA, and Citigroup are especially exposed. So, how much would that hurt? Well, the combined market cap of S&P 500 constituents is roughly $47 trillion. So a 50% decline in the index would mean a loss of more than $23 trillion in value. And you thought the $5 trillion-plus wipeout the benchmark index witnessed in the first few days of April 2025 was bad! How Low Can JPMorgan Stock Go In A Market Crash? A Question When things are bad, what do you expect Trump to do? Blame everyone else, or change his course on taxes, deportation, and tariffs? There's certainly hope that his cabinet and loyalists will be able to sway his view into easing inflationary policies in the event they create spiking inflation before the U.S. economy plunges into a recession. But if the easing does not materialize or comes into play too late, how bad can things get if there is another recession? Our dashboard How Low Can Stocks Go During A Market Crash captures how key stocks fared during and after the last seven market crashes. Invest with Trefis Market Beating Portfolios See all Trefis Price Estimates
Yahoo
26 minutes ago
- Yahoo
Recent Academic Research Shows Which Q2 Earnings Reports Could Have the Biggest Impact on Markets
The unofficial start of the next earnings season is still roughly a month away, but recent research out of the University of California, San Diego and Aarhus University (featuring Wall Street Horizon data) might have investors preparing differently for Q2 2025 results. The study, Warp Speed Price Moves: Jumps after Earnings Announcements, recently published in the Journal of Financial Economics, shows how efficient markets are at pricing in earnings results. The authors found that earnings reports can move stock prices in milliseconds, and not just the stock of the reporting company, but often the stocks of peers in the industry, or even entire markets as a whole.[1] The research also shows that the effect is strongest from companies that report early in the season, and for companies that report after market close. After-hours earnings announcements cause stock prices to move over 90% of the time, while significant price movements during regular trading hours or in non-announcement sessions were less common. Co-Author of the study, Allan Timmermann of UCSD's Rady School of Business commented With earnings announcements, traders deal with these every day and they are very good at gauging the impact of companies being able to meet and beat expectations or missing them. We find that it can be very costly to miss expectations - this often leads to sharp drops in prices, sometimes affecting entire sectors.[2] A good example of this occurred just last Wednesday, June 11, 2025. Oracle, one of the early reporters each earnings season, released their results for fiscal Q4 2025 (equivalent to calendar Q2 2025) after-the-bell. The mega-tech company beat Wall Street's expectations on the top and bottom-line due to strength in their cloud segment. The company also commented that AI demand would drive cloud infrastructure revenue up 70% for fiscal 2026.[3] Such bullish comments lifted the stock more than 11% after the report, and into Thursday big tech stocks also surged with the S&P 500 tech sector leading the index higher for the day. The strength of tech lifted equity markets higher on Thursday, with S&P 500 up 0.36% and the Nasdaq Composite gaining 0.21%, and Oracle closed out the week at a record high. Given this information, we took a look at the large cap names that are releasing results early in the reporting season for Q2, and after-the-bell. According to the study these could be some names to keep an eye on in the coming weeks: Source: Wall Street Horizon, Note: United Airlines is currently unconfirmed as of June 13, 2025. As the unofficial start of the Q2 earnings season draws near, the research suggests that not all earnings reports are created equal in their market-moving potential. The combination of an early reporting date and an after-hours release appears to be a potent formula for influencing not just a single stock, but entire sectors and the market as a whole. The reports from the companies listed above, among others, could therefore be critical viewing for investors looking to gauge how Q2 reports could impact markets this summer. 1 Warp Speed Price Moves: Jumps after Earnings Announcements, Journal of Financial Economics, Christensen, Kim and Timmermann, Allan and Veliyev, Bezirgen, May 2025, 2 Earnings News Cause Immediate Stock Price Jumps, Sometimes Moving Whole Market, UC San Diego Today, March 18, 2025, 3 Oracle Announces Fiscal 2025 Fourth Quarter and Fiscal Full Year Financial Results, June 11, 2025, Copyright 2025 Wall Street Horizon, Inc. All rights reserved. Do not copy, distribute, sell or modify this document without Wall Street Horizon's prior written consent. This information is provided for information purposes only. Neither TMX Group Limited nor any of its affiliated companies guarantees the completeness of the information contained in this publication, and we are not responsible for any errors or omissions in or your use of, or reliance on, the information. This publication is not intended to provide legal, accounting, tax, investment, financial or other advice and should not be relied upon for such advice. The information provided is not an invitation to purchase securities, including any listed on Toronto Stock Exchange and/or TSX Venture Exchange. TMX Group and its affiliated companies do not endorse or recommend any securities referenced in this publication. This publication shall not constitute an offer to sell or the solicitation of an offer to buy, nor may there be any sale of any securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction. TMX, the TMX design, TMX Group, Toronto Stock Exchange, TSX, and TSX Venture Exchange are the trademarks of TSX Inc. and are used under license. Wall Street Horizon is the trademark of Wall Street Horizon, Inc. All other trademarks used in this publication are the property of their respective owners. This article first appeared on GuruFocus.
Yahoo
26 minutes ago
- Yahoo
Morning Bid: Relief at two-week Middle East window
By Mike Dolan LONDON (Reuters) -What matters in U.S. and global markets today I'm excited to announce that I'm now part of Reuters Open Interest (ROI), an essential new source for data-driven, expert commentary on market and economic trends. You can find ROI on the Reuters website, and you can follow us on LinkedIn and X. Last month's China-U.S. trade showdown turned world markets' focus to Geneva, and that's where attention is yet again, only this time for European talks with Iran, as President Donald Trump has delayed a decision on direct U.S. involvement in the Israel-Iran war to allow a two-week window for negotiations. It's Friday, so I'll provide a quick overview of what's happening in global markets and then offer you some weekend reading suggestions away from the headlines. Today's Market Minute * Iran said on Friday it would not discuss the future of its nuclear programme while under attack by Israel, as Europe sought to draw Tehran back into negotiations and the United States considers whether to get involved in the conflict. * Investor unease about an increasingly uncertain environment is rising, as Norway's shock rate cut on Thursday highlights how U.S. tariffs, Middle East conflict and a shaky dollar make global monetary policy and inflation even harder to predict. * The Federal Reserve took a slightly hawkish turn on Wednesday, indicating it is worried more about rising inflation than slowing growth. But Chair Jerome Powell suggested this outlook should be taken with a large grain of salt, writes ROI markets columnist Jamie McGeever. * UK finance minister Rachel Reeves insists higher economic growth is her top priority, but the government's current plan to address the country's chronically low investment is unlikely to be ambitious enough. What may be needed is a structural rethink of the finance ministry itself, argues Mike Peacock, the former head of communications at the Bank of England. Relief at two-week Middle East window Even though U.S. markets were closed for the Juneteenth holiday on Thursday, Wall St futures fell sharply during the day as tensions over the Israel-Iran war boiled. But those losses were mostly reversed before the market re-opened on Friday after Trump gave Tehran a fortnight to come up with a compromise before he decides whether to add U.S. firepower to Israel's air attacks on Iranian nuclear installations. Drone and missile attacks between the two warring sides continue, however. As is always the case with Middle East conflicts, the price of oil is the lodestar. Iran is OPEC's third-largest producer. U.S. crude came within a whisker of five-month highs on Thursday before falling back today to just over $75 per barrel. While a major concern, the rise in energy prices is still shy of a "shock", with crude prices down 7% year-on-year despite the tense situation. Foreign ministers from Britain, France and Germany along with the European Union's foreign policy chief were due to meet their Iranian counterpart Abbas Araqchi in Geneva on Friday to try to de-escalate the conflict. If Trump goes to the wire with his decision about direct U.S. involvement in the war, this will coincide with the expiration of his 90-day pause on "reciprocal" tariff hikes across the world, further fogging up the windscreen for world markets. Treasury yields were steady going into Friday's open, as investors juggled the energy picture and this week's relatively hawkish Federal Reserve meeting. The dollar fell back from Thursday's highs. While the median forecast from Fed policymakers is still two interest rate cuts over the rest of the year, inflation forecasts were nudged higher and 7 of the 19 central bankers now expect no further easing in 2025. But confident forecasting is next to impossible now for the major central banks as they try to balance edgy oil prices, uncertain tariff hikes and multiple geopolitical risks. The Bank of England and Bank of Japan also left their key policy rates unchanged this week, largely for those reasons. Two rate cuts did emerge this week, however. Swiss interest rates returned to zero as expected as the Swiss National Bank battles the deflationary effects of currency strength, largely due to the franc's "safe haven" appeal. Norway surprised with a quarter point cut as well, taking the heat out of an oil-driven crown that had hit two-year highs this week. Stock markets around the world rallied on Friday as the oil price fell back, with Japan's Nikkei bucking that trend and ending slightly in the red again. A relatively thin trading session is expected on Wall Street later following the holiday on Thursday, though unfolding events in the Middle East will continue to create considerable trepidation before the close. The Philadelphia Fed's June business survey tops the data diary. Next week's events are led by Fed boss Jerome Powell's semi-annual congressional testimony on Tuesday and Wednesday and the release of the Fed's favored inflation gauge - the personal consumption expenditures measure - on Friday. A NATO summit in The Hague on Wednesday adds to the geopolitical focus. Elsewhere, sterling was firmer in the wake of the BOE decision, even with a surprisingly poor UK retail sales readout for May. There was some marginally better news from UK public borrowing numbers. While slightly above forecasts for May, the government has borrowed 37.7 billion pounds over the first two months of the 2025/26 fiscal year, less than the 40.7 billion pounds the Office for Budget Responsibility had predicted. In China, foreign direct investment from January to May fell 13.2% from the same period last year, more than had been forecast. And the European Union said it will bar Chinese companies from participating in EU public tenders for medical devices worth 60 billion euros or more ($68.9 billion) per year after concluding that EU companies are not given fair access in China. Weekend reading suggestions * MONETIZING DEBT: With no end in sight for outsize U.S. deficits and debt accumulation, the Fed "will almost certainly" be forced to monetize enough federal debt to prevent a default at some point, according to former Bank of England policymaker Willem Buiter and Professor Anne Sibert. Higher inflation and interest rates "are all but assured", they wrote in a column on Project Syndicate. "The Fed will have no choice but to engage in sovereign debt purchases that it knows to be incompatible with its monetary-policy objectives," they concluded. "The inflation surge could be no more than three years away." * EMOTIONAL FED?: Central bank communication is one of the most closely watched signals by markets, but it is not just what is said, but how it is said, argue economists Dimitris Anastasiou, Apostolos Katsafados, Christos Tzomakas and Steven Ongena in a paper on CEPR's VoxEU site. "Even subtle emotional cues can shift expectations and pricing behaviour in financial markets," they wrote. "Portfolio managers, particularly in the banking sector, may need to recalibrate models to include emotional tone as a market-moving variable." * US FIRMS MUSCLE IN: U.S. defense giants, backed by a Congressional delegation, used this week's Paris Airshow to showcase their cutting-edge technology and court European partners as they seek to tap into the rising regional military spending. Reuters' Joe Brock, Giulia Segreti, Paul Sandle and Tim Hepher show how despite the pledges by many European nations to boost military self-sufficiency, the continent remains heavily reliant on U.S. defense firms such as Lockheed Martin, Raytheon, Boeing, Anduril, Palantir and Elon Musk's SpaceX. * G6-PLUS?: President Trump's early departure from this week's G7 summit in Canada left the group without an overarching agreed communique and raised questions about the future shape of the group. Writing on the Chatham House site, the RIIA's economy and finance director Creon Butler outlines different formats that could be considered, including "G6-plus" without the full attendance of the United States or "G7-plus" with invited guests and limited issue-specific statements. * REFINING OKLAHOMA: Nestled beneath Oklahoma's Wichita Mountains sits a warehouse containing the only machine in the United States capable of refining nickel, a crucial energy transition metal now dominated by China. President Donald Trump has said he wants to boost U.S. production of minerals and, as Reuters' Ernest Scheyder shows, Oklahoma's push into minerals processing marks a turn in efforts to wean America off Chinese rivals. The state houses the country's only nickel refinery, its largest lithium refinery, two lithium-ion battery recycling plants, a rare earths magnet facility, and several electronic waste collection facilities. That's more than in any other state. Chart of the day During the parade of central bank meetings this week, Swiss interest rates returned to zero, and Norway's central bank surprised markets with a quarter point cut. Both decisions were currency-related and have been influenced by the swooning dollar and rising geopolitical tensions. The supercharged Swiss franc has drawn safe-haven demand and threatens Switzerland with deflation, as it flirts with 10-year highs against the green back. The Norwegian crown is highly linked to the oil price and hit its strongest level in two years this month as crude shot higher on Middle East worries. The major central banks all held the line, largely due to growing uncertainty over trade, oil prices and war. Today's events to watch * Philadelphia Federal Reserve's June business survey (8:30 a.m. EDT), May leading indicator (10:00 a.m. EDT); Canada May house prices, retail sales and producer prices (8:30 a.m. EDT) * European foreign ministers meet Iranian counterpart in Geneva * European Union finance ministers meet in Luxembourg, European Central Bank Vice President Luis de Guindos attends * U.S. corporate earnings: Accenture, Kroger, Carmax, Vertex Pharmaceuticals, Darden Restaurants Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias. Want to receive the Morning Bid in your inbox every weekday morning? Sign up for the newsletter here. (By Mike Dolan; Editing by Anna Szymanski)
