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Macro Minute: Week of September 1, 2025

Written by Wes Johnson on . Posted in Macro Minute.

This week, I want to pull at some loose threads in my mind and try to flesh them. The market is always a mix of people bearish and bullish. This is how a market is made and how prices are set. At every price that a position is traded, there is someone buying and someone selling, so the market is always made up of people positive on the price of securities and people negative on the price. I have some people that I highly respect on both sides of the market. Over time, we know that prices go up on average. 

Last week, I wrote about Kuppy, and he is as negative as I have ever seen him. He typically is levered long in his hedge fund, but now he is conservatively invested and being much more opportunistic in his positioning. He was on the podcast “The Market Huddle” recently. On there, he and my other friend Kevin Muir, discussed all the things that they are seeing as potential problems. In a nutshell it boiled down to a few points. 

  • Data center CapEx is masking the broader weakness in the economy. 
  • Companies in the small to mid-cap space were bearish on the latest earnings reports. 
  • Kuppy fears that even though AI is going to be great, malinvestment is happening in the buildout of the infrastructure and startups. 
  • Ultimately, where is the revenue going to come from to support the current valuations and spending? 

Compare that with the current stance of Tom Lee, who I also respect. Tom is often cited as being a perma-bull, but I think that is unfair. Yes, Tom is and has been bullish, but he has also been proven correct in that stance. Tom was recently on “The Compound and Friends” podcast. He had some excellent take aways from a bullish point of view for the market.  

  • If the market was thought of the same way as a single stock, there have been multiple “kill shots” that should have resulted in a prolonged bear market. That has not happened. In light of that, it should result in the market being rerated higher because of its resiliency, but it has actually gotten cheaper. The kill shots were: COVID, supply chain bullwhip, fastest inflation since the 70’s, fastest rate hiking cycle, U.S. tariffs, and the bombing of Iran nuclear facilities. 
  • The dominant investment theme of AI is not unusual to history. There is always a dominant theme that drives capital investment. Retail boom in the 80’s and 90’s. Internet infrastructure in the 2000’s. The market always has a catalyst that drives investment. 
  • In thinking of AI investment, we could still be very early. Net debt is low with the current AI investment so far. 
  • The market is due for a broadening out. The ISM survey has been negative for 30 months. As that turns positive, it will be expansionary for the economy. The Federal Reserve is set to resume a cutting cycle adding to a broadening/expansion. AI is beginning to be used in business, adding to productivity and expansion.  

As an investor right now, what does this mean you should do?  We have legitimate arguments on both sides for a bullish and bearish outcome. To me, this time is no different than history. There are always legitimate reasons to be concerned and not invest. Hindsight will always say, it would have been so easy to invest during that period in history. I can assure you that it is always difficult to invest because it is easy to be bearish. The weakness we have seen in certain parts of the economy are real. I think a lot of this is due to how tight the Federal Reserve has held rates and the knock-on effects that has had to the broader economy. One knock-on is how wide the current spreads are. For example, historically, the spread between the 10-year treasury and 30-year mortgages is around 1.5%. Meaning, with the 10-year treasury rate that is currently 4.28%, you would expect mortgages to be in the 5.75% to 6% range. Currently mortgages are 6.5% to 6.75%. This is just one example of wider spreads in the current rate market.  

My ultimate view is this-  If the tight monetary policy and uncertain fiscal policy has not driven a recession yet, then why would I believe that we would get one now. Investment has not outstripped demand in the aggregate. While I agree that there is a concern for the companies that are financing the AI buildout, I do not think that it is to the point of sinking the economy. If anything, I think that as the Federal Reserve begins a cutting cycle, that it will spur economic growth in the segments of the economy that have been lagging. I also think that an economic expansion could last for years. This gives credence to the market heading much higher. If that happens, we could get to a point where things get over its skis, but we are not there yet. I remain of the opinion that you want to stay broadly diversified and look for opportunities driven by an expanding economy that could drive inflation to remain above the Federal Reserve’s target of 2%. Loosening monetary policy along with loose fiscal policy remain my backdrop for the foreseeable future.  

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