Good Morning Investors,
The Supreme Court is being dragged into America's tariff war. President Trump's administration formally asked the nation's highest court to fast-track an appeal that could preserve emergency tariffs worth up to $1 trillion, warning of economic chaos if forced to unwind levies that lower courts have deemed unconstitutional. Meanwhile, Fed independence faces its most serious challenge in decades as Stephen Miran testifies today amid the contested firing of Fed governor Lisa Cook.
These aren't just policy footnotes. They're the backdrop against which markets are trying to navigate an increasingly complex landscape of legal battles, monetary policy uncertainty, and economic crosscurrents. Today's loaded economic calendar, private payrolls, jobless claims, ISM services data, feeds directly into the Fed's upcoming decision, while earnings reactions continue to defy conventional wisdom.
Let's get into it.
Opening Bell
U.S. equity futures are modestly higher ahead of a big batch of economic data. Nasdaq ($QQQ ( ▲ 0.89% )) futures are up 0.3%, S&P 500 ($SPY ( ▲ 0.72% )) futures up 0.2%, and Dow ($DIA ( ▲ 0.47% )) futures are flat. Treasury yields are holding just under cycle highs, with the 30-year still flirting with 5% and the 10-year hovering near 4.3%. Gold ($GLD ( ▲ 1.97% )) is slightly lower after profit-taking, oil continues to slide ahead of Sunday's OPEC+ meeting, and the dollar remains steady amid global bond jitters.
In Asia, Japan's Nikkei rebounded thanks to domestic tech strength, while Chinese markets tumbled as new regulatory pressures spooked investors. Europe is slightly firmer as bets build around a September rate cut from the Fed.
Key Developments
Trump Takes Tariff Fight to the Supreme Court
The administration's emergency appeal warns that delaying a ruling until June 2026 could result in $750 billion to $1 trillion in tariffs already collected, creating "significant disruption" if unwound. This case now sits at the intersection of trade policy and fiscal credibility. The timing is critical - if the Court upholds lower court rulings, the administration faces the impossible task of refunding massive tariff collections while maintaining its trade war credibility.
Fed Independence Under Fire
Stephen Miran's testimony today has evolved into a proxy battle for Fed autonomy. His written statement supports Fed independence, but nearly 600 economists have warned of unprecedented political interference following Lisa Cook's contested firing. Expect intense questioning from Senate Banking Committee members who view this as a constitutional crisis in monetary policy. The broader implications for market confidence in Fed decision-making cannot be overstated.
Google's Privacy Settlement Adds Regulatory Pressure
A federal jury ordered Alphabet to pay $425 million for tracking users who had disabled privacy settings. While Google ($GOOGL ( ▲ 4.01% )) plans to appeal and shares held recent antitrust ruling gains, it adds another layer to the company's regulatory challenges. The case highlights the ongoing tension between Big Tech's data collection practices and evolving privacy expectations.
Earnings Deep Dive
Salesforce: Strong Execution, Slow Growth Reality
Salesforce ($CRM ( ▼ 0.07% )) delivered where it counts, earnings per share of $2.91 versus $2.78 expected, revenue of $10.24 billion versus $10.14 billion expected, and raised full-year profit guidance while adding $20 billion to its buyback program. Yet shares dropped on weak third-quarter revenue guidance, underscoring Wall Street's impatience with single-digit growth rates.
The company's challenge is existential: AI promises transformation but hasn't accelerated growth meaningfully. With an enterprise value-to-free cash flow ratio at 10-year lows, the market is pricing in disruption risk rather than AI upside. Down 23% year-to-date and ranking as the Dow's second-worst performer, Salesforce embodies the broader software sector's AI monetization struggles.
Figma's Public Market Reality Check
Design software company Figma ($FIG ( ▲ 0.89% )) delivered solid second-quarter results in its first earnings as a public company - revenue of $249.6 million versus $248.8 million expected and a swing to profitability. But shares plunged 14% as investors grappled with slower third-quarter growth guidance and questions about AI product monetization.
The company's challenge reflects broader software sector dynamics: strong underlying business fundamentals meeting investor skepticism about AI disruption. With 129% net retention and over 1,100 customers paying $100,000-plus annually, Figma's fundamentals remain solid. Yet the market is demanding clarity on how AI features translate to revenue growth, something the company acknowledges is still evolving.
American Eagle's Marketing Masterclass
Sometimes viral marketing actually works. American Eagle's ($AEO ( ▲ 1.24% )) second-quarter beat was powered by celebrity campaigns featuring Sydney Sweeney and Travis Kelce that drove 700,000-plus new customer acquisitions and record website traffic. Earnings per share of $0.45 crushed expectations of $0.21, demonstrating that authentic celebrity partnerships can still move the needle in retail.
The Sydney Jacket sold out in a day, while the Travis Kelce collaboration saw one-day sales triple previous campaigns. Beyond the headlines, the company reinstated guidance despite tariff pressures and sees comparable sales rising in both third and fourth quarters. It's a reminder that in an increasingly digital world, breakout marketing moments can drive meaningful business results.
Market Dynamics and Technical Outlook
Wednesday's job openings data confirmed weakening labor demand, with openings falling below the number of job seekers for the first time since the pandemic. Today's ADP and jobless claims numbers will either solidify or challenge the soft landing narrative, while Friday's jobs report remains the key catalyst for near-term market direction.
From a technical perspective, the market's resilience is notable but fragile. The underperformance of technology stocks without a major pullback suggests underlying weakness that could manifest if economic data disappoints. However, we haven't seen a meaningful break in the broader uptrend, and September volatility is historically normal rather than alarming.
The historical context remains compelling: since 1928, there have been 19 years where the S&P 500 posted 20 or more new highs from January through August, matching 2025's performance. In those years, the index averaged 5.4% gains from September through year-end and finished higher in 89% of instances. This suggests the current setup favors upside, particularly if the Fed delivers a dovish cut that supports risk assets while addressing growth concerns.
Final Thought
September remains the shakeout, not the showdown. The combination of a "no hire, no fire" labor market, fragile manufacturing backdrop, and escalating policy tensions creates tactical pressure. But the fundamental setup still points toward strength into year-end, supported by several converging factors.
Mega-cap technology companies will likely retake market leadership as AI monetization shifts from promise to actual earnings impact. Their extraordinary earnings power shouldn't be forgotten amid near-term growth concerns. Meanwhile, small-cap stocks, massively underperforming for a sustained period, are positioning for mean reversion as a dovish Fed supports broader market participation.
The tariff inflation concern, while real in the near term, should prove transitory as supply chains adapt and the Fed's policy response provides economic cushion. Combined with improving market breadth, solid corporate earnings, and Fed accommodation, the final four months of 2025 are shaping up favorably for risk assets.
The key is staying nimble through September's inevitable volatility while maintaining exposure to the themes that should drive the year-end rally: AI monetization in large-cap tech, small-cap reversion, and dovish Fed policy supporting multiple expansion across quality growth names.
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Dan Sheehan
This newsletter is for informational purposes only and should not be considered investment advice. Please consult with your financial advisor regarding your specific situation.