Money Matters with Greg

Episode 169: Market Morning: Shutdown, Chips, Earnings

• Greg Farrall • Season 4 • Episode 169

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Markets are flirting with all-time highs while official data stalls—a strange mix that demands sharper signals and steadier conviction. We walk through the flat open, the week’s global moves, and why investor patience might outpace the Fed’s projections as minutes hint at more easing this year. From Nvidia’s export greenlight and early reads from Pepsi and Delta to a steadier dollar and softer Treasuries, we connect the dots on how chips, consumer demand, and currency are shaping third-quarter positioning.

Our focus turns to earnings: why Q3 may be light on drama yet strong on delivery, how AI capital spending continues to power the Magnificent Seven, and where margin resilience meets tariff reality. We break down the effective tariff rate, the legal uncertainties ahead, and the practical reasons the macro hit has been smaller than feared—services insulation, supply-chain rewiring, and AI-led productivity gains. With global benchmarks firming, Europe shrugging off auto weakness, and Asia rebounding post-holiday, we outline the setup for a broader advance if policy and profits keep working.

We also zoom out to what matters when government data goes dark: management guidance, order books, lead times, and market internals like credit spreads and the dollar. Expect a constructive path for earnings into year-end, potential breadth beyond mega-cap tech, and ongoing EPS support from buybacks. Whether you’re leaning growth for AI leverage or eyeing cyclicals for a catch-up, this conversation offers a clear map of risks and catalysts to watch.

Enjoyed the breakdown? Follow and subscribe for more real-time market context, share this episode with a friend who trades the headlines, and leave a quick review to help others find the show.

Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC.

The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may suit you, consult the appropriate qualified professional before deciding.

SPEAKER_00:

Welcome to Money Matters with Greg, where we dive into the money conversations shaping your life. From investment to estate planning, insurance to taxes, we cover it all with a fresh perspective. Join Greg and his guests each week to get inspired and take control of your financial future. Let's get started.

SPEAKER_01:

Securities and investment advisory services offered through LPL Financial Registered Investment Advisor, member from Red IPC.1 FM, community radio. Been here for a number of uh uh uh years and very excited to be here uh this Thursday morning, October 9th, uh early morning, and uh talking about the markets uh today. We're gonna go over what's going on this morning, what's happened this past week. Obviously, we want to address the government shutdown and then also walk into uh third quarter earnings, see how things are looking in regards to uh the third quarter. So again, um broadcasting on WVLP 103.1 or also on podcast anywhere you pod. You can find us Apple, Spotify, uh, and wherever. And then, of course, all of our socials at Feral Wealth, F-A-R-R-A-L-L, W E A L T H. And uh would love to hear from you if you have any questions uh and topics you'd like us to talk about. We talk about money on the show, and obviously shows money matters and anything that has to do with money in your life. Uh, money does matter uh to you in your life and psychology, uh, as far as um the uh the money that you have invested, as well as um, you know, really just your overall uh makeup. It just affects so many things in your life. So that's why we want to talk about uh some of the things that um we can help you with as far as adding some value and uh some financial literacy on this show and uh kind of just to fill you in on what's going on. Today we're gonna talk about the markets and investing in stocks and bonds and just kind of fill you in on what's going on out there in the stock market because we're at all-time highs again. Um so we've had a really good week, we've had a good September, and uh we've certainly um had a chance to um do some things here that are very, very positive in regards to the markets uh overall. All right, we broadcast the show at uh one o'clock on Thursdays and then replayed on Saturdays as well. So it is Thursday morning. Uh so we are going real time here as uh close as we can get, uh certainly uh here this Thursday morning, October 9th, as far as the markets go. Um at the open uh this morning, U.S. equity futures were pretty much barely moved, uh pretty much the flat line uh early this morning. And uh really investors have sort of been waiting um for uh kind of hunting for the next directional driver uh to move the markets. SP's uh SP 500 is up uh around 14 percent for the year, and it's had a great year. And this stalemate in stalemate in Washington is um completed now its first week, and it looks like nothing's pending. Uh the no reports of resolution for sure is in the works. Uh another batch of economic data was basically punted uh this morning because uh with the government shut down, that data is not coming about. We're not gonna see it. Um as far as corporate headlines, uh, everything was pretty light. Um U.S. approved several billion dollars uh worth of Nvidia chips uh to be exported, uh, which was good news in the chipmaking space, and then early third quarter earnings and reports have kind of trickled in. You've got Pepsi reporting uh turnaround on their uh uh beverage unit, uh, while uh Delta Airlines uh shares popped after popping uh a nice a nice profit um as well. Treasuries traded pretty much a little bit lower uh overall as far as bond goes. You'll talk about Europe. Uh European equities traded uh mixed uh this last afternoon afternoon in London. And uh that really sort of put them towards uh uh new all-time highs, uh, which is really good. Automakers acted as sort of the headwind uh for consumer discretionary um against uh the basically the news on Ferrari. Uh shares of Ferrari tumbled uh after management offered a sort of a uh a slower earnings growth rate. Uh French stocks traded higher, uh, which was good, but the going ongoing political jitters uh were still just um there's basically President Macron uh stated there's a new uh prime minister that will be named by Friday afternoon. So that's what the markets are are watching in France. Uh Asia, uh major Asia uh markets closed mostly higher uh overnight, and that lifted uh regional benchmarks uh really to the first gain in three sessions. Mainland China's led the gains uh overall as far as the first session uh following the uh they have the golden week holidays that's going on there, uh, with materials receiving uh a lift from Beijing's tighter export controls, um, while technology names help power um uh gains as well. Elsewhere, Japan extended recent gains uh lifted by SoftBank's subsidiary um chip, uh the uh Graph Core chip and uh research uh as far as their facility plans uh was there was good news there. While the yen is really weekend sparking debates about whether authorities may intervene. So we'll see about that. Uh Taiwan was also advanced, and South South Korea remained closed for the holiday. As far as last uh yesterday, uh Wednesday's recap, uh stocks were definitely cut a bid in the wake of uh Tuesday's slight drop that lifted the SP above 6750 and the Nasdaq above 23,000, uh which are all uh near or around all-time highs. Uh technology shares led led gains in response to Nvidia's CEO Jensen Sohuong. Um remarks, uh Huang, uh remarks that demand uh for the chipmakers, uh black uh Blackwell, the new chipmaker, Blackwell semiconductors uh demand is certainly high. And Cisco announced the new chip on the network, uh that likely rivaling that of uh Broadcom. So we'll see about that. That was all yesterday. Industrials uh also outperformed. Well, energy financials, consumer staples, real estate all posted losses of around half a percent. Federal Reserve meeting minutes uh were released Wednesday. It really pointed to a willingness to further uh lower rates this year, although inflation, tariff impacts, and were heavily discussed uh as well as the government shutdown, uh, I'm sure was was was you know was was mentioned as well. So that's really just the update. Um the Fed minutes that did come out, uh it's very important to talk about those because we always read through those and want to bring those to you uh as an audience. Uh the Fed minutes really focus on tariffs. Uh there was really no mention of shutdown risk, but obviously that was in the past. Um so we know that there has been a shutdown and it's been going on a week. Um we think that the shutdown uncertainties certainly increased the odds of a further easing this year as far as uh another cut. Um, but there were lots of diverging views uh in in the Fed minutes. Some even thought that there was merit in keeping rates unchanged at the meeting. Um so it's kind of all over the place as far as the Fed governors go. We'll see how this uh pans out here in the next uh month or so. Um with tariff impacts, uh really you'd kind of keep this upward pressure on inflation in the near term. Uh inflation is not likely to reach any sort of target until late 2027, which means uh these these pressures are stickier and more persistent than uh anticipated several months ago. But still, that doesn't mean that we won't see improvement in 2026. So we'll we'll see. Um the dollar has stabilized since the last meeting according to the committee members, uh, and has returned to trading roughly in line with the fundamental macroeconomic drivers, which is nice. Um that was that was mentioned, and that was positive. Foreign demand for the U.S. assets remained resilient uh since the previous Fed meetings as well. And then uh Governor uh Mirian uh preferred a 50 basis point cut and dissented from everybody uh that was really failing from the decision to cut um 25 basis points. Uh Moram really believes that the weak labor market uh justifies his view of 50 basis points, and his argument is reasonable if you think about it, if you really believe the CBO's estimate uh of really long-run unemployment rate. So we'll see. But uh bottom line, uh for today, uh futures markets uh may turn out to be more accurate than the the FOC's collective projections overall because uh inflation uh is consistently declined here and looks like it's going to be declining in 2026, so it's gonna definitely come in. Um and investors really should should expect two more cuts uh this year uh with a pause in the January 2026 meeting. All right, so that's our update uh today, uh here, Thursday, October 9th, uh, on just exactly what the markets are doing and whatnot. This shows money matters for Greg. I'm Greg Farrell, CEO and president of Faro Wealth, and we're broadcasting today on 103.1 FM uh WVLP locally here in Valparaiso and then podcasting everywhere you pod. So uh hopefully you're able to find us and listen in. And uh if you have any questions, for sure, I always like to remind people please just email me, Greg at farrellwealth.com, uh, or any of our socials. You can uh certainly DM me uh on any of the socials out there. Um Twitter, Facebook, LinkedIn, and Instagram are the four that we're allowed to use uh through compliance. So wanting to move on here to uh third quarter earnings, talk about that. That's really important coming up here uh and kind of give you a little bit of uh uh preview and um very little suspense. I have to say it's quiet, uh, which is shocking, but uh that's really nice to have, I guess, uh for sure, with not a lot of drama. Uh we really believe that corporate America is gonna follow up this second uh the second quarter, which was outstanding. Uh the earnings season was very, very good uh with another good one here in the third quarter. And uh really that's gonna support a resilient economy, uh, tariff mitigation measures for sure, uh AI and artificial intelligence investment. And really currency should offset uh any uh increasing tariffs as well. We'll see about that. But uh with much of the investors' sort of collective attention focus on the duration and the economic impact um of the government shutdown, uh and how to access the outlook of the U.S. economy is really sort of like in in the uh it's really in the absence of government data. We we rely on so many things to have government data uh and without that, and then also uh much of the data this year's just been wonky as well. I can't really explain it in any other way than just saying it's been off and really not believable. Uh there's been some multiple uh reports that you're just like um the revisions, the deductions, uh or the revised numbers uh have uh so often just been uh making the announced numbers just wrong. Um and so uh a lot of the responses and the response rates have gone down. So we talked about that in a previous podcast. It's very concerning because it's very difficult to uh to trust the numbers that are coming out, and right now there are no numbers. So um that'll that'll be interesting to watch uh for sure as we see um what looks like uh going it's going to be a very nice um third quarter. So not expecting much of no suspense uh and and and no drama really in this quarter. Um earnings season is uh usually uh predictable quarter to quarter in the absence of economic issues or inflection points. And it really just suggests that the second quarter was more of an inflection point than the third on tariffs, because obviously that all came about in April of 2025. Um and that really ramped up like in a meaningful way as companies, you know, the visibility of tariffs and the cost really improved going into the third quarter. The effective tariff rate ended uh July at 9.7%, and that was up slightly from 9% uh at the end of June. Uh, and that was uh Bloomberg as far as the source goes. But we think another three to five points of tariffs will likely be added on the July levels to land at an overall rate of 12 to 14 percent. Um we're gonna realize we're gonna sort of rely on the Supreme Court um determine how quickly we get there, I guess. Uh we'll see. But the nice nation's highest court is expected to rule on the legality of Trump administration's tariffs imposed under the um International Economic Emergency Powers Act. Uh gotta get that right uh within the next few months. So we'll see what happens with that. But with less suspense around tariffs, economic growth, uh that could really uh approach 3% uh for the third quarter and continue to surge uh with artificial intelligence investment. You're gonna see that continue and roughly a 5% drop in the average level of US dollar from the prior quarter. Corporate America really has an excellent opportunity to post another low teens earnings growth rate for the SP 500. And the up 8% upside produced last quarter may be too much to ask for, but you know, a 5% beat seems like a pretty reasonable uh expectation here. One of the main things, too, that I want to be able to talk about is just this artificial intelligence, capital investment that's gonna remain this driver here into the third quarter. So the Magnificent Seven will again be a significant driver and has been all year in earnings growth in this first and second quarter of the year, and then now going into the third quarter. Uh in fact, 70 of the 70% of the 8% expected SP 500 earnings growth reflected in analyst estimates is coming from the big six technology companies, uh the magnificent seven minus Tesla. And it's remarkable that companies um this big can grow earnings at 40 to 50 percent. But several hundred billion dollars in capital spending annually uh uh can do that uh for sure. So as soon as um uh uh well as this group continues to dominate the earnings growth, and the rest of the companies uh are just following, you know, following and uh behind. Um and uh this trend will likely continue through the year end and you know uh uh it's certainly expected to narrow into 2026, but for now it's um it's uh keep on spending and keep on investing. And um this earnings growth pop is still big right now, but it really just underpins sort of that large growth equities over large value counterparts conversation as far as the market goes and investors. Um but really this gap between the two is gonna narrow, and we'd really expect the entire bull market to kind of broaden out um overall, especially as uh the fiscal stimulus provided by uh the triple B, uh the one big beautiful bill uh act. Um and these are all positive views for financial fits, really, as far as the theme goes. It's it's we're seeing some really, really nice um earnings and looking forward to a really positive quarter. I have to say, we're we're we're we're encouraged. Um as far as where are the tariffs right now and going into the third quarter, tariff effects were expected to show up in the second quarter, uh, reported in July and August. Um, and they certainly showed up for some global industries, such as automakers and um industrial uh equipment makers, uh apparel retailers for sure. But on the macro level, the effects have really been much less than we um had really seen or certainly anticipated. Um and there have been lots of reasons for this. Uh some of the Paris tariffs that haven't even gone into effect yet. Uh that that makes that makes sense. Um service industries are largely largely unaffected by this. Uh as much as you see that everyone's affected by uh you know in in the media, um that's just not true. And so AI-driven productivity enhancements are really starting to show up too, supporting the profit margins, while most um AI companies have sort of moderate taxes and tariff exposure. Uh so we've really seen, and then we've also seen a number of deals, uh, side deals committing to investing in the U.S. Uh that really are furthering the Trump administration's objectives as far as Apple, Intel, Pfizer, Taiwan Semiconductor are all among the big names uh that have done something. And most imports from Canada and Mexico are subject to lower tariffs under the trade agreement, um, the US MCA uh trade agreement. So uh that's been another, you know, sort of a uh something to consider, but didn't know that sort of stuff. Uh that's what we try to bring here is bring some information to you you probably don't really hear uh out there. Um and then the other thing that tariff costs have really been spread out among exporters, importers, consumers, and kind of reduces the hit to profit margins. So there's there's more margin pressure uh with tariffs, obviously, is and it's likely coming more of these tariffs sort of flow through in the next months. We'll so we'll see how this goes. But based on Wall Street and uh Wall Street's really not worried about Main Street right now. The corporate America um sort of expectations um the margins will continue to expand. And uh given the recent track record, uh we don't want to bet against corporate America in any way, expanding margins through, you know, whether it uh we just don't expect quite as much expansion to be reflected in these sort of consensus estimates out there. Um I'm not betting against corporate America, and and I hope you're not either, uh, because uh reasons you really have reasons for optimism um uh going in here to third quarter. And we really expect uh corporate America to benefit from steady economic growth next year, supporting solid earnings growth overall. Um I always say, you know, even though valuations are high right now and there's uh and the valuation of the stock market and a number of things are um are priced in and they certainly are not cheap, um, earnings are justifying such. And fiscal stimulus from the OBBBA uh is expected to really jump start growth in late 2025. Um and uh obviously we have interest rate cuts coming. Uh we expect companies to manage their tariffs effectively. Uh the dollars go into AI investment uh really are surging, uh, and then it's only gonna get bigger next year. Uh these are gonna drive strong technology sector earnings uh gains and and still continue to be the leader. Um and another uh year means companies will have more time to generate productivity gains uh from AI, supporting all those margins. So the recent increase in earnings estimates is really encouraging. Um, and then don't forget, uh, one thing that uh we always uh seem to uh uh not mention is share buybacks. Um those are expected to maintain or exceed at a record record pace, um, which you know helps depress the denominator in the earnings per share, the EPS calculation, and lifting the earnings per share uh or the EPS. So uh that really helps. So pull it all together. Um, you know, a 10 10% increase in SP 500 profits in 2026 is a real possibility. Um that puts uh that puts$290 per share in play for the index of uh of earnings per share next year uh compared to 280 plus range. You really just uh was just you know mentioned by a lot of analysts uh just last quarter. So really positive things. Uh we're feeling really good about where we are uh in regards to the markets uh and in regards to corporate earnings. So um feeling really good about all that. Just wanted to be able to mention it here on this show. All right. So again, it's Greg Farrell, CEO and president of Faro Wealth. The show's Money Matters with Greg on 103.1 FM W VLP here locally in Valparaiso and then podcasting wherever you pod. Um we're excited to bring together, let's see, it's uh episode 169 here. Um, and uh you can find us on Spotify and uh Apple and anywhere else you pod. Uh I hope today was helpful for you to kind of update you on the markets. We're looking forward to having a number of guests coming on here in the uh you know in October uh and November uh coming up here. So uh looking forward to addressing anything you want to talk about financial literacy uh and anything to do with money, uh just let me know. Uh email me, Greg at farewell.com, and uh hope you have a very healthy and profitable week. Go Cubs, go Hoosiers. Uh it's a big week for both. And uh certainly we'll talk to you uh next week. See ya. Bye.

SPEAKER_00:

Thanks for tuning in to Money Matters with Greg. We hope you gained some valuable insights today. Remember, your financial journey is personal, but you don't have to go it alone. If you enjoyed the show, be sure to subscribe and share. Until next time, here's to making your money work for you. Securities and investment advisory services offered through LPL Financial, a registered investment advisor, member FINRA SIPC.

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Greg Farrall

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