Ed Yardeni: Wealth Effect Will Fuel Even More Growth The S&P 500 just logged its 20th record close of the year, rising 0.32%. Nvidia’s earnings were digested without much drama, effectively wrapping up a supportive second-quarter earnings season. Markets are also leaning on hopes for easier monetary policy. Ahead of Friday’s PCE inflation release, futures are pricing in an 85% chance the Federal Reserve will cut rates by 25 basis points in September. Ed Yardeni of Yardeni Research argues that cheaper borrowing costs will push stocks higher as valuation multiples expand — but warns the Fed risks stimulating an economy that doesn’t really need it. He points to several indicators backing that view: Yardeni notes many firms are still absorbing costs through productivity gains, but more may soon pass them to consumers. The bigger story, however, is the wealth effect. With stocks at record highs, Americans are richer — and that’s boosting spending. Gallup data show 62% of Americans owned stocks at the end of 2024, the highest since 2008. U.S. households held $46.7 trillion in equities and mutual funds in Q1, with baby boomers controlling 54% of it. With a combined net worth exceeding $82 trillion, they’re set to spend and pass down unprecedented wealth. “The bull market is having a significant positive wealth effect on consumers who own equities, more than offsetting the drag from rising credit delinquencies,” Yardeni says. And as the market climbs, so does consumer wealth — continuing to fuel growth in an economy that arguably doesn’t need the extra boost.

Nvidia shares drop on China concerns despite strong earnings Nvidia shares fell more than 5% in after-hours trading Thursday after the chipmaker highlighted ongoing challenges in China, despite reporting another quarter of blockbuster growth. The stock ended the regular session flat at US$181.60, then slid to US$172.45 following earnings. For the quarter ended July 27, revenue surged 56% to US$46.7 billion, but sales from China, including Hong Kong, dropped 24% to US$2.8 billion. Nvidia disclosed it sold no H20 chips — processors designed to comply with US export restrictions — during the period. The product had generated US$4.6 billion in the prior quarter. The pause came as Washington pressed for a 15% revenue cut without formal regulation, while Beijing questioned whether the chips contained “built-in vulnerabilities.” Nvidia denied its GPUs have back doors. CEO Jensen Huang stressed China remains a priority, estimating it could be a US$50 billion market this year and praising the country’s open-source AI models, including DeepSeek, Alibaba’s Qwen, and Moonshot AI’s Kimi. Still, US-China tensions loom large. Analysts at Saxo warned that export restrictions could benefit domestic rivals, especially as China’s Semiconductor Index hit a record high this week. Local firms such as Cambricon Technologies, which posted a 4,348% jump in first-half revenue, and foundry SMIC are gaining momentum. China is also stepping up chip production, with new state guidelines to boost AI capacity and reported plans to triple AI processor output next year. Despite the headwinds, Wall Street remains upbeat. Wedbush Securities called the pullback a “buying opportunity,” projecting Nvidia’s market value — currently US$4.4 trillion, the highest globally — could reach US$5 trillion by 2026.

US stock futures were little changed Wednesday as investors waited on Nvidia’s (NVDA) blockbuster earnings report, a key test of the tech-driven summer rally. Dow Jones (YM=F), S&P 500 (ES=F), and Nasdaq 100 (NQ=F) futures hovered around the flat line after small gains on Wall Street. Nvidia, the world’s most valuable company, is expected to post record revenue and profit after the bell. But its forecast of an $8 billion hit from President Trump’s China chip restrictions has traders on edge. Options markets imply a post-earnings swing of about 6%, or $260 billion in market value — making the results a pivotal moment for the broader AI trade. Elsewhere, Trump’s firing of Fed governor Lisa Cook over alleged mortgage fraud barely rattled stocks, though bond markets flashed mild stress. Two-year yields edged up to 3.65% after hitting their lowest since May, while 30-year yields (^TYX) held above 4.9%. Trade headlines also grabbed attention. The EU is reportedly fast-tracking the removal of tariffs on US industrial goods, clearing the way for reduced duties on European auto imports. Meanwhile, Trump’s 50% tariffs on Indian goods took effect Wednesday in retaliation for Russian oil purchases. Crude prices (CL=F, BZ=F) were steady after Tuesday’s 2% drop. Cracker Barrel (CBRL) shares extended gains in premarket after the chain restored its old logo following public and Trump-led pressure.

Why Tax Refunds Could Delay Fed Rate Cuts Markets are counting on the Federal Reserve to trim rates in September, but a surge of tax refunds in early 2026 could complicate that outlook, says David Kelly, chief global strategist at JPMorgan Asset Management. The IRS recently confirmed that withholding levels won’t change this year as it implements the One Big Beautiful Bill Act (OBBBA). That means taxpayers will likely see unusually large refunds when they file 2025 returns. With seven retroactive tax breaks—ranging from no tax on tips and overtime to bigger child credits and standard deductions—refunds could average $3,743 across roughly 110 million households. Kelly warns these payouts could act like “stimulus checks,” fueling spending and inflation through early next year. While upper-middle-income households will capture most of the benefit—and may save more than spend—many consumers could still bring forward spending into this holiday season, creating a short-term economic lift. But the effect may fade fast. If refunds are spent quickly, growth could slow sharply by late 2026, just as tariffs and weaker immigration weigh on the economy. That could set the stage for Washington to consider fresh stimulus before midterm elections. For the Fed, the risk is clear: cutting rates into a refund-driven “sugar rush” could stoke inflation, undermine credibility, and weigh on the dollar and equities. Kelly advises investors to diversify into international and alternative assets to hedge against these risks.