US Strategy Weekly: Head Spinning

In the first few days of President Trump’s second term, the newly reinstalled President generated news at a head-spinning rate. This week was another one of those head spinning times. In the last two days President Trump proposed raising new H-1B visa fees to $100,000, is seeking an equity stake of roughly 10% in Lithium Americas Corp. (LAC.N – $3.07), a Canadian-based lithium company, as part of the company’s $2.26 billion Energy Department loan negotiation, announced a willingness to assist Argentina with its weakening peso, warned about the safety of paracetamol during pregnancy, canceled a meeting with Democrats who want to add $1.5 trillion more spending concessions to the seven-week continuing resolution, stated that Russia faces “big” economic problems at home and implied this could help Ukraine retake all its occupied lands, and in an historic speech at the UN (worth watching in full) blasted the assembly for its lack of peace efforts, called climate change the “greatest con job” ever, condemned moves to recognize a Palestinian state, and lectured Europe on buying Russian oil which supports Russian warfare on their borders and for allowing mass migration which is ruining European countries and cultures.

Each of these items is worthy of further discussion since each has economic implications. But the most immediate of these is the battle in Congress regarding the seven-week continuing resolution (CR). The House’s Republican-backed bill was rejected in the Senate by a 44-48 vote. A competing CR introduced by Senate Democrats also failed to pass and now Congress has until September 30 to pass a funding proposal in order to avert a government shutdown.

Keep in mind that aside from keeping the federal government running, the House-passed bill would have extended key health care programs that are currently set to expire at the end of this month. These include programs that provide inpatient payments to small, rural hospitals with a high percentage of Medicare patients, telehealth and hospital-at-home flexibilities, and the Cybersecurity Information Sharing Act. However, instead of negotiating, both political parties are blaming the other for a government shutdown, which is beginning to feel inevitable.

In other news, Nvidia Corp. (NVDA – $178.43) announced a $100 billion investment in OpenAI LLC, with the first $10 billion going toward building a gigawatt of capacity using its next-generation Vera Rubin chips. The build-out is estimated to start in the second half of 2026. Perhaps more interesting is the fact that while this announcement triggered a tech rally, it proved to be short-lived, and stocks gave up their gains by the end of the session.

September has a history of being a volatile month, and though it has produced gains so far this year, we would not be surprised if the market took a short pause as it awaits news on a possible government shutdown. Plus, this Friday the BEA will release data on personal income, personal expenditures, and the Fed’s favorite benchmark, the PCE deflator. At the end of next week, the BLS will release the jobs report for September. These two reports will be the basis for what analysts will expect at the next FOMC meeting on October 28-29. At present, we expect another 25-basis point cut in the fed funds rate, but calm inflation and a weak employment report could shift the consensus toward a larger cut. Either way, a dovish Fed should be good for equities. But in the interim, there may be little to drive stock prices substantially higher.

Recently reported housing data reveals a slow but steady deterioration in this important segment of the economy. In July, the total annualized rate for construction was $2.2 trillion, down 2.8% YOY. The residential construction rate was $899 billion, down 5.1% YOY. These numbers represent the sixth consecutive monthly decline in total and residential construction spending. Housing starts fell 6% YOY in August, and single-family starts fell 11.7% YOY. Permits were similarly down 11.1% YOY in total and down 11.5% for single-family units. These represented the worst declines in starts and permits since the third quarter of 2023 and suggest that the housing industry could remain in a slump for the rest of the year. See page 3.

Data for existing and new home sales in August will be reported later this week; but in July, the annualized rate for existing home sales was 4.0 million, up a mere 0.8% YOY. New home sales were 652,000, down 8.2% YOY. The average existing single-family home price was $559,900 in July, up 0.3% YOY; and the average new single-family home price was $487,300, down 5% YOY. Overall, the trends in both residential sales and prices are negative or decelerating and we will look to see if new data supports or stabilizes this trend. See page 4.  

The inventory of existing single-family homes rose to 1.36 million units in July, which equals 4.5 months of supply. This is up substantially from 990,000 units of inventory reported in December, which was 3.1 months of supply. Inventories are up 15% YOY while sales, at 4.0 million units, are roughly the same as a year ago. See page 5.

The National Association of Home Builders confidence survey showed the headline index was 32 and unchanged in September. Present sales were unchanged at 34, sales over the next six months rose 2 points to 45 and traffic of potential buyers rose 1 point to 21. In short, this survey suggests that the weak numbers seen in residential construction in August are likely to continue in September. See page 6.

Import prices for the month of August showed no change on a year-over-year basis, but June and July data were revised lower and July import prices fell 0.6% YOY. Conversely, exports prices rose 3.4% YOY in August, up from a rise of 2.4% YOY in July. This data is before tariff pricing, but it shows that those selling to the US are keeping prices low, whereas US sellers are able to raise prices. Moody’s Analytics has an interesting chart on global CPI which shows worldwide inflation was less than 3.6% YOY in August, down from July, and decidedly lower than the 4.2% YOY seen in January before tariffs were introduced. Moreover, Moody’s reports that Africa leads in inflation at 10.6% YOY, down from 11.3% YOY in July. Again, hard data does not support the view that tariffs are generating inflation.

Consensus earnings estimates continue to inch higher, and the S&P Dow Jones estimate for calendar 2025 is now $258.30 and the LSEG IBES estimate is at $267.86. For 2026, these consensus forecasts are calling for earnings of $302.91 and $304.88 per share. The IBES estimate for 2027 is $345.27, up $1.11 this week. Although PE multiples are rich, in our view the forward earnings yield of 4.5% and dividend yield of 1.2% compare well to a 10-year Treasury bond yield of 4.15%. Plus, the 12-month sum of operating earnings shows a gain of 10.5% YOY, better than the 75-year average of 8.1% YOY. See page 7. Most technical indicators, with the exception of the 25-day up/down volume oscillator, support the bullish view. The oscillator has not confirmed the August-September highs, which suggests a pullback may be ahead. Nevertheless, we would be a buyer of weakness in coming weeks.

Gail Dudack

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