As global markets, after many months of volatility and rhetorical interventions that created a cloud of uncertainty, are preparing, in our view, to welcome a period of increased significance with lower volatility and a distinctly upward trajectory, negative news has begun to fade, while positive developments are being priced in at a very slow pace on boards. The movement of U.S. indices appears ready to cover their lagging performance compared to other global markets.
Last week, for the first time, we observed inflation data, improving for the fifth consecutive release—being priced positively by the market, leading to a small upward reaction in U.S. indices. But the good news does not stop there. President Trump’s confrontation with the Federal Reserve Chairman has reached its peak, while his first moves to replace Fed members have already begun, most notably with the appointment of Miran to replace Kugler, who resigned 15 days ago.
Rate cuts in the U.S. are expected to begin at the September meeting, a development that I believe will trigger massive investment capital inflows, as investors seek to “lock in” the high yields still offered by U.S. government bonds relative to other countries. These flows, in my opinion, will also contribute to strengthening the dollar, as I have emphasized since the start of the year. However, we must also account for any short-term volatility that may emerge once President Trump succeeds in bringing the war in Ukraine to an end, an outcome we have repeatedly stressed we expect within 2025.
Meanwhile, over $7 trillion remains in money market funds due to artificially created uncertainty. A significant shift of part of these funds into capital markets, driven by the reduction of geopolitical risks, could set off a substantial upward trajectory in U.S. markets. This is also confirmed by S&P, which on 08/19 reaffirmed the high rating of U.S. creditworthiness (AA+/A-1+) despite rising debt, signaling confidence in fiscal resilience through tariff revenues.
This prolonged uncertainty has also caused U.S. asset managers to remain cautious, keeping their investment allocations at very low levels. We have seen in the past that such conditions often lead to strong rallies once managers decide to increase their investment exposure rapidly. This was confirmed by Warren Buffett’s recent announcement: while he had maintained high liquidity and a negative stance on deploying it since the beginning of the year, last week he announced purchases in United Health company, which jumped by more than 10% the very next day. Other companies he disclosed also rose close to 3% the following day. We believe this investment moves will continue at a stronger pace, not only from Buffett but also from many global managers.
As you already know, for months we have highlighted the importance of selective increases in exposure to specific companies, an approach that has already yielded positive results for those who acted accordingly. And we believe that we have only seen a small fraction of what is still to come. Based on our systems that monitor corporate valuations, in the U.S. alone more than 4,000 companies (out of a total of 10,000 listed) are currently trading at undervalued levels.
In June, the U.S. economy achieved, for the first time since 2017, a budget surplus. Tariffs have already started generating revenues, even though major deals have not yet been finalized. Trump believes interest rates should move 3% lower. At the same time, I consider the Artificial Intelligence sector to be the driving force behind a significant increase in valuations across multiple industries, including Healthcare, which has remained attractive for a long time, and precisely why Buffett invested in a company in that sector.
Since last week, the war in Ukraine appears to be entering its final stages. As we have mentioned in previous articles, this may prove to be one of the most important catalysts of the massive global growth that will result from its conclusion. We have estimated that the reconstruction of Ukraine over a ten-year horizon could contribute around $1.3 - 1.5 trillion annually to global GDP. We also emphasized that this development would act as a catalyst for the “golden era” we foresee in Shipping, something already reflected in the positive trends of the Baltic Dry and Dow Jones Transportation indices. Europe, on the other hand, as we have written before, needs to act more effectively and productively in its own interest, something which, in my opinion, it has not yet done.
Significant volatility is also expected due to U.S. interest rates and statements by Powell at Jackson Hole this Friday, as Powell–Trump relations are at their worst point. I continue to believe Powell’s opposition to Trump’s low-rate policy is a mistake, as I have stressed in all my articles since the beginning of the year. His statement at the last Fed meeting in July, that he “does not care about the cost of servicing debt but only about inflation,” was both unfortunate and a clear intervention in the President’s economic agenda. He has also made incorrect forecasts in the past regarding the inflationary impact of tariffs, which proved inaccurate. I hope he will not continue at the same pace of intervention.
Analysts are now betting on what we have been emphasizing since the start of the year: three rate cuts by the end of 2025 (75 bps). Personally, I dare to suggest that we may see total cuts closer to 1% by year-end. Statistically, it is worth noting that the period following Jackson Hole traditionally favors the markets.
Beyond the main stock indices, I would like to point out significant and profitable opportunities in oil, the EUR/USD exchange rate, gold, natural gas, and any sector connected to Artificial Intelligence.
It is worth noting that on the day this article is written, markets are moving negatively due to concerns over the profitability of AI stocks, an excuse, in my view, as baseless as many of the fear-driven narratives we have seen since the beginning of the year. Analysts who sold “fear” will be surprised in the future when they realize how undervalued many companies were during this period. Especially when, in a few years, the U.S. will be announcing growth rates reminiscent of the Chinese economy. Keep this as an important future tip for any investment or business strategy.
Investments are the best parallel pursuit for anyone seeking returns on their capital, let alone over the next four years. Keep this in mind, along with everything else I have written in my articles. Who knows, this may be another prediction I will be proven right about!
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As we always point out:
The greatest returns are often born in times of uncertainty,and recent months have only confirmed this rule.
by Kotsiakis George
