Remember When Consensus Was
The Fed Was Going To Cut?

U.S. Futures & World Markets

US stocks are slightly lower premarket following yesterday's selloff. Equities continue to struggle in the face of higher oil prices and rising yields. Tech names are weaker again ahead of Broadcom's earnings after the bell. Defensives, energy, and cyclicals are catching a bid.

The bond market remains firmly in charge of the direction of stocks. Higher Treasury yields put pressure on equities, so expect more of the same until that narrative changes.

Torsten Slok of Apollo nails the key point: the Fed went into 2026 expecting several cuts, and now the FOMC is leaning toward hiking. With this backdrop, it is not surprising that long rates are higher. That may be the simplest explanation for everything that's happening in the bond market — not fiscal deficits, not term premium, not Fed credibility. Just a dramatically changed outlook for monetary policy.

CORE Headlines

• U.S. military attacked two Iranian government tankers as part of a new "tanker for tanker" policy approved by President Trump. Iran launched missiles at various countries, but most were intercepted. — Axios
• Bessent says elevated bond yields should be viewed as a sign of economic strength rather than weakness. — Barron's
• Russia secretly assisting Iran in the development of advanced supersonic cruise missiles. — FT
• Nvidia in discussions to acquire Hugging Face for $14B. — Bloomberg
• Coinbase co-founder Fred Ehrsam wants control of three oil fields in Venezuela. — Bloomberg
• Trump signs bill to extend government funding from September 30 through December 11.
• Nestlé will sell its mainstream vitamins and supplements business for $1B to Yellow Wood Partners. — WSJ
• Novartis halted eight clinical trials after three patients died. — WSJ

Charts & Data

Existing workers are much more likely to be retrained than replaced by AI. New York Fed via Daily Chartbook: the AI jobs apocalypse narrative continues to outrun the actual data.

Q3 GDPNow rose to 4.8% from 4.6% on August 26. Augur Infinity via Daily Chartbook: the economy is running far hotter than the bond market anxiety implies.

Treasury net interest outlays have climbed above $1 trillion on a 12-month basis — on par with national defense spending. There is no way to put lipstick on this pig. Yardeni Research via Daily Chartbook: the fiscal math is getting harder to ignore.

Global bond markets are on fire — every day yields rise somewhere. Japan's 10-year forward rate moving 10 bps in a single session is spilling over to global markets everywhere. We're witnessing a global sell-off. @robin_j_brooks via Daily Chartbook: this is not a US-only story.

The correlation between equity returns and bond yields has turned negative — long-term bonds are no longer a good hedge against declines in stock prices. This has reduced demand for bonds, pushing up yields. @peterberezinbca via Daily Chartbook: a structural shift in how investors think about portfolio construction.

AAII investor allocation to stocks ticked up in August to a fresh YTD high at 71.1%. AAII via Daily Chartbook: retail investors are all-in on equities even as they worry.

Despite high stock allocations, the current streak of AAII bulls below 50% is the 5th longest in survey history at 483 sessions. Forward S&P return profile from similar streaks is historically strong. Daily Chartbook Studies: a rare contrarian setup that tends to precede strong markets.

Systematic strategies still leaning bullish at the 82nd percentile. Discretionary investors more cautious at the 45th percentile — with plenty of room to add risk. Deutsche Bank via Daily Chartbook: the positioning divergence between quants and fundamentals investors is unusually wide.

Cumulative advance-decline lines are all below their 50-day moving averages. Not the end of the world. But clear sign of weakening market breadth conditions. @dkellercmt via Daily Chartbook: the internals are deteriorating even as the index holds up.

Yesterday was the first time since early June that there were more oversold stocks in the S&P 500 than overbought. @bespokeinvest via Daily Chartbook: a potential short-term turning point.

AI and Software stocks: the winners and losers of the AI revolution are being defined less by sub-sectors and more by whether AI can be used to retain and enhance legacy moats. The 1-month correlation between the Broad AI and Software baskets jumped +0.7 over the past month after reaching a low of -0.56 at the end of July. Goldman via Daily Chartbook: the AI/software convergence trade is real.

Interesting Reads

• Chinese humanoid robots: apparently a lot in Chinese tech think it's a bubble, with most units bought by phantom government "labs" — Ben Evans
• Apple's market cap has grown at roughly $32 million per hour, every hour, for nearly 15 years under Tim Cook — $4.5 trillion total — Yahoo Finance
• PlantVoice is bringing 'plant intelligence' to precision agriculture — Tech.eu

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