Why Are Stocks Hitting Records Amid US Uncertainty?

0:00Healthcare doesn't always work great. If you've ever waited on a refill or couldn't schedule an appointment, you get it. That's the kind of stuff Optum is changing. They're using data and technology to integrate patient care, pharmacy, and everything else. So healthcare is connected, not complicated. What's that look like? Cheaper prescriptions that are easier to get and care that looks at the whole person, how you need it. Optum is helping make healthcare work as one for everyone. Learn more at business.optum.com. everyone's talking about how ai is transforming work especially in sales while the landscape shifts one thing remains the same the thrill of closing a deal whether it's a gong or a confetti machine every team has its celebration rituals adio is designed for that moment it's the agentic crm that turns customer signals into actionable insights helping you close deals faster with revenue agents and automations working around the clock you'll have everything you need to scale your go-to market efforts.

0:56Elevate your wins with Adio. Start your free trial at adio.com slash iHeart. They're back live across North America.

1:11Guns N' Roses Tour 2026.

1:17Get tickets now at livenation.com.

1:27Don't miss Guns N' Roses.

1:33Bloomberg Audio Studios. Podcasts, radio, news. People recognize there's an overvaluation, but at the same time, there's no catalyst for dealing with that.

1:56Stephanie Flanders:I'm Stephanie Flanders, Head of Government and Economics at Bloomberg, and this is Trumponomics, the podcast that looks at the economic world of Donald Trump, how he's already shaped the global economy, what on earth is going to happen next.

2:13Stephanie Flanders:This week, we're doing something we don't normally do. We're talking about the stock market, the US stock market, because apparently a lot of people don't understand it. Let me explain. Like many of you, I had some holiday over the summer, and holiday inevitably means maybe having more conversations with normal human beings who don't spend their time checking the news or thinking about the state of the economy. The question I had more than any other from those normal human beings, as we sat on the beach or wherever it was, was if there's so much scary stuff happening in the US today and so much uncertainty hanging over pretty much every part of the economy, why on earth is the stock market so high?

2:52Stephanie Flanders:and it is a good question. The main US index, the S &P 500, hit another all-time high at the end of August. It's up around 30 % since early April, when investors were very worried about all those tariffs, many of which are still in place. And that all-time high in the market came just days after Donald Trump had put potentially the entire independence of the US central bank in question by firing the Federal Reserve Governor, Lisa Cook. So you might say it's the bond market that needs to worry about all that, about inflation and the Fed, not stocks. But the 10-year bond yield, long-term cost of borrowing for the US, well, that actually fell after Lisa Cook was fired.

3:33Stephanie Flanders:So what gives? I mean, we know the stock market isn't the US economy, but it is supposed to reflect reasonable expectations of US companies' ability to make money in the future, and that depends on quite a lot of things that you might say, President Trump had put into question. The ability to trade, export and import freely. Stable economy. Predictable policymaking. And there are quite a lot of people in the market worrying about these things, and they're also worried that the market has become way too dependent on a handful of companies, especially the ones associated with AI. But none of that has translated into a serious reversal in the market.

4:13Stephanie Flanders:Until now. Could this be the month that that changes? Well, we had a piece out earlier this week that did argue that the US stock market's fate comes down to the next 14 trading sessions. So I thought we'd better have a quick word about what could happen in the next two weeks and what is underlying this basic confidence that we've seen among investors in the last few months. We don't offer investment advice on this show, thank goodness, but I did want to have an informed debate about it with two regulars who are in the DC studio talking to me now. Anna Wong, chief US economist for Bloomberg, and Ed Harrison, senior strategist for Bloomberg and author of the Everything Risk newsletter.

4:53Stephanie Flanders:Ed, Anna, fantastic to have you. Good to be here, Stephanie. Good to be here.

5:04Stephanie Flanders:Thank you for sort of scrambling to do this show. Of course, as is always the way, we wanted to do something about the strength of the stock market and whether it might change. And as we're saying this on Tuesday, the market's heading south. So we were either very prescient or have once again sort of been counter indicators. But I mean, Ed, you may have had the same experience I had over the summer, that ordinary sort of bystanders of the US economy just find it pretty curious that the stock market's been so strong. Yes, definitely. I would say that a lot of people I've spoken to are thinking there's a relative amount of chaos in terms of the economic order.

5:40And they're wondering, how is it possible that the market is up so much? I would start out the conversation by noting that the last Bank of America fund manager report had 91 % of fund managers saying that US equities were overvalued. So that's a lot. That's pretty much everyone. And so what it says to you -

5:59Stephanie Flanders:Were they saying they should sell? Or were they saying they're overvalued, but buy more? Exactly. I think that's the problem. The problem is, is that, number one, when you look at the economic surprises in the last month or so, last two months, they've been to the upside. Number two, the last earnings season, particularly from those stocks that you were talking about where the concentration was very good. All of those companies, even when there were some problems like data centers at NVIDIA, also with Amazon and their AWS unit, they still overall had numbers that were stellar, better than the overall market, in fact, and better than expectations.

6:39And so that's what's driving the market higher. It's very difficult to sell when the stocks that you would sell are actually beating expectations and the economy overall is doing better than expected. And so you have this dichotomy playing out where people recognize there's an overvaluation, but at the same time, there's no catalyst for dealing with that.

7:06Stephanie Flanders:And actually, on the subject of catalysts, the piece I referenced about the next 14 trading sessions, I mean, we're straight after Labor Day now in the US, early September. There's always a kind of back to school feeling also for the market. And as that piece pointed out, September is often a pretty choppy month for the market. In these kind of key bits of news we're going to get over the next couple of weeks, do you think those could be critical for the momentum of the market? Yeah, this is probably where Ann is going to come in at some point, because ultimately, a lot of this has to do with the Fed on some level.

7:41Two things that the market thinks in terms of is Fed's got the markets back. And overall, there's really no reason when the economy is going higher and the Fed's got our back to sell. What we found in particular with large investors is that they were late to the game when Donald Trump reversed his tariffs early on. Small investors bought the dip, and then people had to chase those returns. And that's driven the market higher. And now we're getting to a point where the Fed could potentially cut. And so the question is, are they going to cut? When we talk about the next 14 trading days, that's the terminal date in those days.

8:19The Fed finally being able to cut. Will they cut? How much will they cut? Will there be dissenters? And so forth. I think that that's the critical test over the next three weeks.

8:30Stephanie Flanders:We'll go through some of the individual data, but just sort of broadly, when Ed talks about, you know, he's coming from the market perspective, this is what people in the markets want to see and this sense of the Fed having our back, quote unquote. Do you think they're going to get what they need? Do you think this is going to be a reassuring couple of weeks for the US stock market or something a bit more volatile? So we have two more key data points. One is the JOPS report this Friday and also a CPI report. The market thinks that the JOPS report is all that matters. And CPI has this price really high for it to stop a September rate cut.

9:11So now this JOPS report, well, there's barely any consensus. The range of forecasts out there goes from zero to 130 ,000. And I think even for unemployment rate, there's people thinking it could be 4.2, 4.1, 4.3. So I think that if the unemployment rate were to edge down surprisingly, I think that could well cost the market to price away the September rate cut back to right now. The probability of a rate cut in September is 89 % according to the futures market. I mean, if the jobs report was surprisingly strong, we could see probability go back down to 60 or 55 or something vague. And then it will become a coin toss.

10:00And I think that's the type of stuff the stock market doesn't like, which is uncertainty. I don't know if Ed will agree.

10:08Stephanie Flanders:We'll go back to that because it seems like there's been a lot of uncertainty over the last few months that they've managed to shrug off. But they are obviously very focused on these numbers. Just to touch on the inflation aspect, because one of the factors that had led traders to have a higher expectation of a rate cut from the Fed this month, along with the weaker labor market figures that we had, was also in the inflation numbers. So is there anything there that could change the way the Fed and then potentially the market is thinking? What I've heard from the markets is that CPI has to be really high, say 0.4, 0.5, to be a game changer for a rate cut.

10:52And I think it would be.

10:55Stephanie Flanders:Just remind us what it is now. So in the past four months, it has been fluctuating between 0.1 to 0.3. And only in the last month had CPI comes to 0.3, but previously. That's the increase in just the month. Yeah, just the month. So 0.4 points. And then the annual rate is? The annual rate is in the high too. I think, I believe 2.9 or close to 3.0. But 0.4 or 0.5 annual increase would be, if you analyze that, would be corresponding to 4 % to 5 % inflation. This is why 0.4, 0.5 are super ugly readings. But you're not expecting that because you've looked at how the impact of tariffs, for example, on prices, and we've not been seeing those kind of numbers, at least not yet.

11:44Stephanie Flanders:Is that right? Well, Stephanie, our view on this is very dynamic in the sense that pass through on tariff is not static. Firms will only pass through if they can. And so this second quarter earnings season, which I think market participants took as overall quite encouraging, was that there's not much evidence that firms' profits are hit by these tariffs, which was the piece of puzzle for me because our view had been that, well, maybe tariffs won't translate into inflation so fast because firms will be eating it through profit compression. But so far, we have not seen much tariff pass-through in CPI.

12:25We have not seen much profit compression in firms. But we do know that U.S. firms are taking the brunt of the tariff. So who in U.S. is really taking the brunt of the tariff? It's like the dog that did not bark in a Cheryl's home tail.

12:42Stephanie Flanders:Okay, so is it possible that Donald Trump is right and it's those foreigners that are paying the tariff? I don't think. No, I think the evidence is still pretty firm on that. Although I have been hearing some very esoteric explanations, which is that foreigners are not cutting the price they sold to the U.S. importer. However, they're offering credits on exports services, which is why import indices will never capture any discounts. This is just a very offbeat explanation, which I've heard from a few people now. So I think we need to examine that. Usually an importer in U.S. also exports. So if they get some credit on the export side, maybe that helps cushion something.

13:25I don't know, because at the end of the day, from a firm's perspective, it's about managing this cost increase. Imports tariff rise. You could cut labor costs, you know, increase your export prices, or you could do a range of things to manage that cost. And it could be that. But it also could be that actual tariffs was not as high as the statutory tariffs. And that's why the hit was also not as big. There are a few explanations. Everyone's talking about how AI is transforming work, especially in sales. While the landscape shifts, one thing remains the same, the thrill of closing a deal. Whether it's a gong or a confetti machine, every team has its celebration rituals.

14:03Adio is designed for that moment. It's the agentic CRM that turns customer signals into actionable insights, helping you close deals faster with revenue agents and automations working around the clock. You'll have everything you need to scale your go-to market efforts. Elevate your wins with Adio. Start your free trial at adio.com slash iHeart. They're back live across North America.

14:33Guns N' Roses Tour 2026. Get tickets now at LiveNation.com.

14:49Don't miss Guns N' Roses.

14:58Every sale comes down to a single second. The one between buy now and maybe later. PayPal is built to help your business win that moment. With a checkout experience that feels certain, reliable, and familiar. with a global two-sided network and hundreds of millions of buyers who already know us. All to keep you in control however buying happens next. New markets, new AI-powered selling services. A whole new agentic era where you decide how your business will show up and stand up. PayPal is built to help your business come out ahead. We're built for payments, built for growth, built for agentic.

15:52Stephanie Flanders:A lot of people have been looking into that gap. That's also been showing up in the revenues. We're getting less revenues than you would expect. There's quite a lot of revenues coming into the Treasury, but there's a bit of a gap there in terms of what the supposed tariff revenues rates are and what the revenues are. So I think there's plenty of puzzles there. But Ed, going back to the Fed having the markets back, I mean, it always strikes me, and it happens a lot in these contexts, there's a bit of a dilemma because the market wants the lower interest rates, but not the thing that would trigger the lower interest rates.

16:26Stephanie Flanders:So the economy is doing well, then the stock market might feel better, but that also makes it less likely there's going to be a cut in interest rates. Is that a bit of an issue for the current state of expectations? It is, but given the range that Anna was talking about, that's sort of like the sweet spot, the Goldilocks outcome, zero to 130 non-farm payrolls. It says that the economy is weak enough to get the Fed to cut, but not so weak that you actually are concerned about a recession. And I think when you think about the Fed, and there's been a lot of talk about Fed independence and whether you have low-rate people or high-rate people, Chris Waller, who's a Fed governor, he actually has the zeitgeist of the Fed right now in terms of anticipating that low number that we're talking about and the lack of a pass-through of inflation enough to get the Fed to cut.

17:19And I think that the rest of the FOMC sounds like they're moving in that direction. The market has 89 % priced in, as Anna was saying, and largely there's no way that the Fed is going to not cut when you have those kinds of numbers. The real question is, do they cut afterwards? But I think that September is probably a done deal at this point, unless you have something incredibly bad from the inflation number, as Anna was saying. And so the Fed has the markets back largely through September, in my view. But then afterwards, that's the real question.

17:54Stephanie Flanders:You started by talking about how people are conscious of the overvaluation of the US market. And we've talked in the past about how even though the US stock market looked healthy in relative terms, many other markets had done better this year. And maybe the marginal investment dollar was more of it was going overseas now than had been in the past. But that fundamental question of can you afford to be so dependent on a handful of stocks, I can't remember the figure now, but I think the percentage that just Nvidia alone, the producer of the absolute cutting edge chips, that its share of the market is now, I think, higher than any company's has been.

18:33Stephanie Flanders:What can seriously change that? What's going to provide the reality check on that kind of concentration, Ed? The reality check is missing earnings. And in its most dire form, from an economic perspective, an incredible slowdown that causes firms to miss earnings repeatedly and by a large margin. So it's almost like people are holding their noses to buy at high valuations because there's nothing that they can do. Let's back up for a second. If you think about what happened in April after we had the tariffs, when the tariffs were announced, the levels were so high and the fear of a recession was so high that people sold en masse.

19:12There was the whole sell America trade. What that is representative of, how quickly that almost recession for the S &P, we were almost down 20%, formed is indication that we have weak hands. That is, is that people are not real believers in the market. And given the fact that we've gone up this much since then, you would think that that same sentiment is even higher today. But at the same time, you're not going to be selling stocks that are actually beating expectations. and you're not going to do that in an economic environment that expectations are above. So I think that over the next couple of weeks, but I would say actually over the next six weeks, a number of things are coming together.

19:56One, we have the Fed. Two, we have expectations. That is the Citi Surprise Index at a very high level. And that's a mean reverting index, meaning that the likelihood of continuing to beat economic forecasts this much will go down. And then finally, in October, that's when we're going to start the next earnings season. So those three things will come together. And that will be very decisive in terms of whether or not this particular rally can hold. And I would mention, by the way, as you said, Stephanie, the first day back that we had a reality check, when people came back and desks were full, people sold not just stocks, but also bonds.