Market Overview, August 12, 2025
Summary
The host’s core judgment is that “bad news is good news” may only be the first phase, before turning into “bad news is really bad news.” The market’s correction from July through October last year was ultimately reversed when economic data recovered; but whereas he was convinced last year that immigration and government spending would keep the fundamentals from stalling, he now believes the economy “may have problems,” suggesting the bad-data cycle could last longer.
A September rate cut is highly likely, but 25 basis points is more probable than 50. Tariffs could push up CPI, while weaker demand would exert pressure in the opposite direction; even with elevated inflation, the host still believes the Fed cares more about growth data, making it “difficult not to cut,” though another batch of data is due before September, so nothing is guaranteed.
A weaker macro backdrop and strong AI capex can coexist, potentially keeping the market sharply bifurcated. Lower government spending, weaker immigrant consumption and tariff-related hiring pressure will weigh on broad corporate earnings; the four major cloud providers’ capex, however, is “following the tokens,” while AI and semiconductors remain the host’s preferred areas to re-enter after a market pullback.
Opening H20 sales to China is positive for Chinese AI, but may not materially boost NVIDIA’s earnings. The host believes China faces a severe compute shortage and token demand is growing too quickly, making chips a “completely seller’s market”; Trump’s logic is to impose a 15% tax on AMD and Nvidia in exchange for allowing them to sell chips to China, further showing that his policy is more transactional than an ongoing blockade.
Trump’s pressure on Intel is more likely to end in negotiation and continued investment than in the removal of 陈立武. Apple’s commitment to invest $600B in the U.S. and Stargate’s $500B plan both fit the government’s push for investment through “grand pronouncements and a great leap forward”; Intel’s real problem is not simply foundry yields, but the ability to serve third-party customers and build development capabilities.
The S&P’s current valuation already prices in roughly 7% earnings growth this year and next, which does not fit fundamentals that may weaken in Q3 and Q4. Systematic strategies and CTAs have added substantial positions over the past two months, leaving the current setup mixed and still vulnerable to a pullback; with roughly 85% of companies temporarily in their buyback windows, “bad news is good news” could persist for a while longer. The host’s trading advice is that investors who are not yet in the market can wait until after a rate cut and see what happens, given the greater historical frequency of corrections beginning after cuts.
Deep dive
1. The Bad-Data Trade May Turn Against the Market After the Rate Cut
The host divides the market into two phases: first, investors trade toward rate cuts as the data deteriorate—“bad news is good news”; later, damaged earnings expectations force a switch to “bad news is really bad news,” and that is when the market actually begins to fall.
The same pattern appeared from July through October last year. The market continued to correct even after a 50-basis-point cut in September; the eventual reversal was driven not only by Trump’s election and expectations of a “pro-business” administration, but also by the fact that economic data stopped deteriorating.
The biggest difference from last year is that he was then “firmly convinced the economic fundamentals were fine” on the back of immigration inflows and government expenditure. He now believes the fundamentals may be in trouble. A similar correction could emerge over the next few months, but the bad data may persist for longer.
2. Elevated CPI May Still Not Prevent a 25-Basis-Point September Cut
On this week’s CPI report, the host leans toward the higher forecasts from Goldman and JPMorgan: tariffs are a one-off upward force, while weaker demand pushes prices down, leaving the two forces “caught in the middle,” though the tariff effect may matter more.
His policy hierarchy is clear: “For the Fed, growth data are more important than inflation data. That is certain.” Even a high CPI print, therefore, should not be overstated as a factor in the final decision.
Bowman favors 3 rate cuts, while Chris Waller believed the labor market was weaker than it appeared even before the revised employment data were released, treating the inflation data as a one-off factor. On that basis, the host believes internal pressure for a September cut has already built.
Two governors dissented at the last meeting, which he called “very rare since 1993.” Powell typically speaks with each policymaker and works to balance positions before a formal meeting, so 2 dissenting votes at minimum signal deep disagreement. The conclusion remains that 25 basis points is highly likely and 50 is extremely difficult, though subsequent data leave open the possibility of no cut.
3. Government, Immigration and Tariffs Are All Weakening Broad Demand
The first pressure point is that government spending is genuinely falling. Tax cuts and spending under the “Big Beautiful Bill” are later developments, with the tax cuts not arriving until November; sectors such as education are already showing lower government consumption and fewer jobs.
Immigration policy is reducing not only population growth and consumption, but also spending by the roughly 10 million immigrants already in the United States. In the face of harsh policies, even “just shouting and waving a big stick” could prompt existing immigrants to cut consumption. The host sees this as the larger shock.
Tariffs may not immediately trigger mass layoffs, but they have made companies reluctant to hire, invest or launch new capex. New job creation is therefore weakening first, while non-farm payrolls have yet to fully reflect the pressure. The four major cloud providers are the exception: their capex is “following the tokens” and has not declined in tandem.
When sentiment turns, even fundamentally strong stocks will not be spared. Early on, investors “buy every dip”; later, they treat a rally in good stocks as an opportunity to exit. Capital only returns to genuine growth assets once volatility stabilizes.
4. AI Compute Remains a Seller’s Market, and H20 Changes China’s Competitive Landscape
The host does not expect technology capex to fall materially over the next several years. The Mag 7, or perhaps the top 10 companies after adding Alphabet and TSM, could resemble 2023: broad fundamentals remain uncertain, but a small number of heavily favored giants continue to rise.
His global supply-demand framework is that most industries are oversupplied, while the real demand is in the United States, allowing U.S. companies to make money. Chinese companies often “have volume, but it is very hard for them to make money”; they expand through volume and bank lending, with little ability to generate profits.
Although H20 is a cut-down version of the H series, it is “a very, very big positive” for Chinese AI. The host believes its performance is far superior to domestic alternatives, so allowing sales would also pressure suppliers such as Huawei. In his view, domestic criticism that H20 is “unenvironmental, unadvanced and less secure” may partly reflect the interests of local vendors.
The incremental benefit to NVIDIA’s earnings should not be overstated. China had already been stockpiling and smuggling H-series and B-series chips, so the compute shortfall did not arise only because sales were restricted. His sharper point is that DeepSeek is determined to pursue imitation and replicate GPT, yet may not even be able to buy enough compute; token demand is growing too quickly, and limited TSMC capacity is keeping the entire chain in a seller’s market.
5. Trump’s “Big Stick” Usually Leads to a Deal and Investment Commitments
The host summarizes Trump’s pattern this way: “When he starts waving a big stick, you know he is about to negotiate.” Examples include threatening sanctions on Russia by August 8 without taking action, then announcing a meeting with Putin in Alaska on August 15; and imposing a 15% tax on AMD and Nvidia while allowing them to sell into China.
Apple’s stated $600B U.S. investment includes roughly $100B announced recently, with data centers also counted in the total. That does not mean the Chinese supply chain can be moved back to the United States wholesale. Stargate has a $500B plan, while Masayoshi Son and OpenAI also plan to invest $500B together; for companies of this scale, compute-center investment is a necessity.
Intel’s call for “living within its means” looks more like a reflection on its past culture of unlimited investment than a decision to halt 18A or 14A. But that austerity narrative conflicts with Trump’s push for investment on a “great leap forward” scale, prompting the public call that he “should resign immediately.”
陈立武 subsequently met with Trump, and the situation shifted toward “further negotiations.” The host sees the odds of his removal as very low: as Cadence’s former CEO, he understands Intel; and Intel’s problem is not simply foundry yields, but the ability to connect with and serve third parties and give developers a platform on which to build. Replacing the CEO again could leave the company finished within 2 years.
6. High Valuations and Large Positions Make a Rate Cut a Potential Correction Signal
The host believes the S&P is expensive relative to the economic backdrop. The market is still pricing in roughly 7% earnings growth this year and next, versus about 10% in 2024; if the data deteriorate in Q3 and Q4, even 7% will be difficult to achieve.
The index will remain bifurcated. High-tech companies may deliver double-digit growth on the back of capex and raise expectations, while companies dependent on broad consumption and economic data are more exposed to earnings downgrades.
CTA flow is currently mixed, but systematic and CTA funds added substantial positions over the past 2 months. Global CTA assets total roughly $150B, versus about $54B in the United States, implying that downside room remains. At the same time, roughly 85% of companies remain in open buyback windows over the next few weeks, which could temporarily support the market.
The host’s timing call is that market sentiment may continue to hold while rate cuts are being priced in. Once a September cut becomes increasingly certain, the correction may instead begin. “Every rate cut is actually a signal that the economic data have worsened and the correction is starting,” rather than a guarantee that markets will rise afterward. Investors who are not yet in can wait until after the cut and see how the market trades.