These Are Not Fundamental Underpinnings!

Sharing my internal log entry from last Friday... 

11/14/2025

Musing briefly on the dynamics that presently underpin the US equity market.

For starters, suffice to say that the stock market is bigly essential to the overall health of the US economy… The K-shaped nature of present conditions demands that the wealth effect remains alive and well if the expansion is to continue going forward.

And this is in no-way lost on Washington… I watched S. Bessent announce in an interview that by mid-next year there will be “Trump accounts” established for every newborn American baby, retroactive to 1/1/2025… They will be funded with $1,000 and invested into the US stock market… Talk about being desperate to keep stocks afloat!! Essentially, throw tax-payer-money directly into the stock market and keep the upper half of the K clicking right along, with babies as the conduit.

The “need” for such measures is quite clear in my view… We are essentially reliving the dotcom setup, in that a bear market in stocks would be the catalyst for an economic recession (adding massive insult to injury for the bottom half of the K), versus popular wisdom, which says the opposite.

The political motivation to keep the market afloat is huge right here… Thus, I anticipate notable tariff relief over the coming months, along with generally-friendlier geopolitical rhetoric coming from US policymakers, and potentially yet more pro-market schemes (akin to the “Trump accounts”) being hatched.

Then there’s the Fed… The market is having a rough go of it of late based largely on the fact that Fed funds futures have suddenly priced in less than a 50% chance of a December rate cut (1 month ago those odds were 90%)... Should equities continue to sell off, the Fed will no doubt grow very concerned about the risk that they’ll cause (be blamed for) the dynamic that will bring on the next recession… I.e., all else equal, they’ll be cutting rates.

Thing is, all else is never equal… The not-small risk for stocks in the above narrative is inflation*… Considering all the fiscal help coming to the economy next year (BBB Act included), and a dear-in-the-headlights Fed – assuming this all works to boost the market and the economy – there’ll very likely be no letup in inflation… Likely the opposite in fact, putting upward pressure out the curve, pushing mortgage rates higher, and very much calling into question the prospects for, in particular, the large tech stocks whose multiples are priced for more than perfection!

Lastly, with regard to those tech stocks, a lot of ink has been spilled of late on the topic I’ve been pounding on herein; the massive capex spend on AI databases and the prospects for it not ultimately culminating any differently than all of history’s capex blowouts over game-changing technologies… If/when those chickens come home to roost – akin to the dotcom bubble bursting – Fed intervention, by itself, will not do the trick… It would take covid-junk-bond-style direct government purchases of these now-systemically important company stocks to arrest a major protracted decline… And I would fully expect that to ultimately occur under those circumstances.

*Note: Inflation, by the way, is more a structural necessity than it is a curse… Per my (and others) earlier writings, the most viable solution to the historically-high US debt (to GDP) balance, and its “need” to run large fiscal deficits as far as the eye can see, is to actually allow the economy to run historically-hot, while capping the cost of treasury debt all the way out the curve… I.e., “Yield curve control” -- the tack taken between 1943 and 1952 that brought US debt to GDP from 116% to a very manageable 80%.