Markets are now pricing in more Fed rate hikes. After the Federal Reserve lifted its target range to 3.75% to 4.00% in September, markets expect the policy rate to approach 4.7% by mid-2027. This week’s feature puts that shift next to the rest of the recent data. You’ll see August industrial production, which stalled as manufacturing output fell and snapped seven straight monthly gains, along with a jump in new home sales and initial jobless claims of 197,000. On the market side, stocks reached a record 48% of US household assets in June, and consensus earnings estimates for 2026 and 2027 have kept moving higher. The article also shows how GDP growth has behaved in past Fed tightening cycles, split between those followed by soft landings and those followed by recessions.

 

US Economy

 

Industrial production stalled in August, falling short of expectations.  Manufacturing output unexpectedly fell, snapping seven consecutive monthly gains. The drag was broad-based across advanced and other manufacturing sectors, although the level of advanced production remained solid. Utilities output jumped due to data centers.

The Atlanta Fed GDPNow forecast is for a 5% annualized GDP for the third quarter.

AI-related investment has become a key engine of US growth, with its contribution to real GDP growth reaching the highest level this century.

Girls spend more time on social media than boys.

 

Dot chart of average weekly hours spent on social media by 15-year-old boys and girls across OECD countries in 2022, with girls reporting more time in most countries.

Source: OECD via The Daily Shot

 

Redbook same-store sales growth moderated but remained robust. The summer travel season this year has been disappointing. The Richmond Fed Manufacturing Index unexpectedly slipped into contractionary territory. The weakness was driven by falling shipments and new orders, although future expectations held up.

AI is getting cheaper more quickly than any other transformative tech in history.

 

Log-scale chart comparing how quickly the cost of transformative technologies has fallen, with AI from 2021 to 2026 declining faster than electricity, lithium batteries, DNA sequencing and computing.

Source: Epoch AI via The Daily Shot

 

US business activity accelerated sharply, with manufacturing hitting a 52-month high and services posting one of their strongest expansions in the survey’s history. The employment index was strikingly strong. However, intensifying supply bottlenecks drove input cost inflation higher.

Mortgage applications continued to slip, as the 30-year fixed mortgage rate rose above 7%, the highest level since May 2024.
Refinancing activity also pulled back. However, new home sales jumped more than expected in August, propelled by a record monthly surge in the Midwest. An elevated inventory of 8.5 months of supply, rising mortgage rates, and softening builder sentiment continue to weigh on prices. Mortgage-rate lock-in is discouraging existing homeowners from selling and, as builders cut prices to compete, has pushed the median new-home sale price below that of existing homes.

 

Line chart of the median price of US single-family homes sold since 2000, with new homes now priced below existing homes near $400,000.

Source: Bloomberg Economics via The Daily Shot

Source: @economics   Read full article

 

CFO optimism about the US economy held steady. Optimism about their own companies dipped but remained strong. Monetary policy replaced inflation as the top concern for CFOs.

Initial jobless claims fell by 1,000 to 197,000, below consensus. The four-week moving average fell for the third week, signaling limited layoffs. Continuing claims edged up but remained low.

 

US Stock Market

 

Earnings are expected to remain a solid support for equities in aggregate. Small caps continue to trade at a deep discount to large caps, based on forward P/E.

 

Line chart of the S&P 600 small-cap forward P/E relative to the S&P 500 from 2011 to 2026, with small caps trading at a discount well below the 15-year median.

Source: Bloomberg (John Authers) via The Daily Shot

 

SpaceX, Anthropic, and OpenAI are worth more than every US tech IPO of the past 45 years combined.

 

Bar chart comparing the $5.2 trillion combined valuation of OpenAI, Anthropic and SpaceX with the $4.1 trillion combined first-day value of all 3,365 US tech IPOs from 1980 to 2025.

Source: Steve Rattner, using Financial Times and Jay Ritter data, via The Daily Shot

 

Global earnings revisions have been unusually positive this year, with consensus global EPS estimates for both 2026 and 2027 continuing to move higher.

 

Line chart of consensus MSCI AC World earnings per share estimates for each year from 2016 through 2027, with the 2026 and 2027 estimates moving higher over time.

Source: Goldman Sachs Global Investment Research, “Competition for Capital” (September 2026)

Source: Goldman Sachs, “Competition for Capital” (September 2026)

 

Stock ownership as a percentage of US household assets hit 48% in June 2026, a record high and smashed the 38% peak reached during the dot-com tech boom in 2000. At the same time that we’ve seen a march higher in stock ownership we are also seeing a steady climb in the level of assets held in money market funds.

 

Line chart from 2017 to 2026 of total money market fund assets, now above $8 trillion, alongside the 10-year Treasury yield.

Source: Board of Governors of the Federal Reserve System via FRED

 

AI infrastructure stocks are expected to drive roughly half of S&P 500 EPS growth in 2026, but their contribution is expected to fade as hyperscaler capex growth slows and depreciation expenses rise.

This chart shows productivity innovations over the past 150 years.

 

Log-scale chart of US GDP per capita over 150 years annotated with innovations from the telephone to ChatGPT, with projected paths labeled utopia and singularity.

Source: UBS Research, “The AI Economy: A Roadmap” (June 2026)

Source: UBS Research, “The AI Economy: A Roadmap” (June 2026)   Read full article

 

The mental health of US teens is improving.

 

Line chart from 1999 to 2025 of the share of US high school students reporting persistent sadness or hopelessness and serious consideration of suicide, with both measures declining since 2021.

Source: CDC Youth Risk Behavior Survey via Statista

 

These are the world’s largest airlines by revenue.

 

Treemap of the world's largest airlines by annual revenue across the Americas, Europe and Asia Pacific, led by Delta at $68.3 billion.

Source: Visual Capitalist, using CompaniesMarketCap data

 

The Fed

 

Following last week’s 25-basis-point rate hike that lifted the federal funds target range to 3.75%–4.00%, markets are pricing in further tightening, with the policy rate expected to approach 4.7% by mid-2027.

How markets react to the tightening depends on how economic conditions unfold. To put the current cycle in context, the charts below divide Fed tightening episodes since the mid-1960s into two groups: those followed by soft landings and those followed by recessions.

– Across these historical episodes, GDP growth has remained resilient well into the early stages of tightening, illustrating the long and variable lags with which monetary policy affects the economy. On average, growth continued to accelerate for roughly another year before turning lower.

 

Line chart of year-over-year GDP growth relative to potential after the start of Fed tightening cycles, comparing the average soft-landing path, the average hard-landing path and the current cycle.

Source: The Daily Shot

 

Inflation pressures are being driven by three largely temporary supply shocks—tariffs, energy, and the AI buildout—with tariff pass-through already past its peak and the other pressures expected to ease in 2027, according to Alpine Macro.

 

Great Quotes

 

“In investing, the greatest puzzle for me is risk, how we should think about it, and how we can work with it.”

— Howard Marks

 

Picture of the Week

 

The Matterhorn, Zermatt, Switzerland

 

The Matterhorn at dusk above the village of Zermatt, Switzerland, with the lights of the town glowing in the valley, a rising moon in a blue evening sky, and red geraniums in the foreground.

The Matterhorn, Zermatt, Switzerland

 

 

All content is the opinion of Brian Decker