Good Morning Investors,
Markets hit the brakes Monday after Friday's Powell-powered rally, but the real story was President Trump's unprecedented attempt to fire Fed Governor Lisa Cook over mortgage loan allegations, a constitutional crisis that could reshape central banking independence. The Dow dropped 0.8% from its record close, the S&P 500 slipped 0.4%, and the Nasdaq eased 0.2%, with the small-cap Russell 2000 tumbling a full percent after leading last week's charge. Cook has refused to step down, setting up a legal battle destined for the Supreme Court.
Opening Bell
Futures are modestly lower as investors digest the Fed independence shock, rising long-term yields, and what this means for monetary policy ahead. The Dow ($DIA ( ▲ 0.31% )), S&P 500 ($SPY ( ▲ 0.42% )), and Nasdaq 100 ($QQQ ( ▲ 0.4% )) are all off around 0.1%, with the dollar softening and gold hitting two-week highs as safe-haven demand emerges. European markets have pulled back from near-records, French assets are sliding on government instability, and Asia closed mixed with Shanghai retreating from decade highs while Japan fell on yen strength. Oil is drifting lower as markets monitor the Ukraine conflict and potential Russian supply risks.
Macro Landscape: Constitutional Crisis Meets Market Reality
Trump's move to oust Cook is not just about one governor, it is about testing the boundaries of Fed independence. If successful, Trump could gain a board majority that would change policy dynamics, especially with Powell's term expiring in May. Markets reacted by steepening the yield curve, with short rates falling on expectations of near-term cuts, and long rates rising on concerns about the inflation credibility of a politicized Fed.
The Small-Cap Rotation Question
Rate-sensitive small caps were the big winners since Jackson Hole, but Monday's reversal shows how fragile the trade remains. The Russell 2000's ($IWM ( ▲ 0.83% )) recent rally has been driven by dovish Fed expectations, fiscal tailwinds, and a weaker dollar. However, if rate cuts come as a response to economic weakness, history suggests small caps underperform in that environment. Sustaining the rotation will require economic resilience alongside monetary easing.
Nvidia: Where AI Meets Geopolitics – and Now Robotics
Wednesday's Nvidia ($NVDA ( ▲ 1.09% )) earnings are still the main macro-tech event of the week, but yesterday's launch of the Jetson AGX Thor marks a strategic leap for the company by taking AI from the cloud and putting it into motion. Priced at $3,499 for the developer kit and $2,999 per unit for production-ready Thor T5000 modules, the Blackwell-based "robot brain" delivers 7.5x the AI compute of its predecessor, runs multiple generative AI models in real time, and packs 2,070 FP4 teraflops into a 130-watt power envelope.
CEO Jensen Huang calls robotics Nvidia’s largest growth opportunity outside AI, and the roster of early adopters including Amazon Robotics, Caterpillar, Meta, Boston Dynamics, and Agility Robotics shows that physical AI is moving quickly toward commercial scale. Evaluations are underway by John Deere, OpenAI, and others. While robotics is currently around 1% of Nvidia's revenue, the automotive and robotics segment grew 72% year over year last quarter. Thor positions Nvidia as the infrastructure layer not just for AI in data centers, but for machines that can sense, decide, and act in the physical world.
This launch comes just as Nvidia navigates shifting US-China chip policy, including a 15% government cut on China sales and rising export restrictions. Wall Street expects Q2 EPS of $1.01 on $46.2B in revenue, with data center sales topping $41B. Guidance is key, and some analysts warn it could undershoot if China revenue is excluded. Strong GB200 yields and the Blackwell ramp are positives, but geopolitical headwinds remain. Options markets are pricing a $260B market cap swing post-earnings, showing just how extreme positioning has become.
Corporate Highlights
Korean Air placed its largest-ever order, buying 103 Boeing aircraft worth $36.5B along with $13.7B in GE engines, coinciding with the South Korean president’s US visit.
Gilead Sciences won EU approval for its twice-yearly HIV prevention injection, with analysts forecasting more than $4B in annual sales by 2029.
Norway's $2T wealth fund divested its $2.1B stake in Caterpillar, citing alleged humanitarian violations linked to equipment use in conflict zones.
Klarna is preparing for a US IPO next month, targeting a $13-14B valuation, far below its $50B peak in 2021.
Tesla rejected a $60M settlement offer in an Autopilot fatal crash case before a jury awarded $243M in damages.
Analysts' Notes
Madrigal Pharmaceuticals: TD Cowen raised target to $554 from $390 on strong Resmetirom uptake and expanding MASH trial success.
Post Holdings: JPMorgan lifted target to $131 from $122, citing cost savings, M&A opportunities, and aggressive share buybacks.
Semtech: Piper Sandler boosted target to $65 from $55 on accelerating FiberEdge and LoRa growth.
Ulta Beauty: Jefferies raised target to $550 from $425 on robust brand launches and category strength.
Xylem: TD Cowen increased target to $130 from $125 on margin expansion and steady municipal demand.
Today's Calendar (ET)
08:30 – Durable Goods (July): Expected -4.0% vs. -9.4% prior
09:00 – FHFA House Price Index (June): -0.2% prior
10:00 – Consumer Confidence (Aug): Expected 96.2 vs. 97.2 prior
10:00 – Richmond Fed Manufacturing Index (Aug): -20 prior
Final Thought
The attempt to remove Cook is crossing a constitutional threshold that markets may downplay in the short term, but it raises deep questions about the Fed's long-term independence and credibility. Near-term focus will shift quickly to Nvidia's earnings, which now stand at the intersection of AI infrastructure, robotics expansion, and geopolitical trade risks. Small-cap momentum still has policy support, but needs macro strength to hold. The next ten days, with the Fed meeting, PCE, and payrolls, will determine whether we are witnessing a sustainable broadening of market leadership or another brief rotation before megacaps reassert dominance.
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Dan Sheehan
This newsletter is for informational purposes only and should not be considered as investment advice. Please consult with your financial advisor about your specific situation.