October 28, 2025

QuickTakes

Reality Check

Shares of Nokia soared by 23% today after the telecom equipment provider announced a billion-dollar partnership with artificial intelligence (AI) giant Nvidia. As part of the deal, Nvidia plans to invest $1 billion in Nokia in exchange for a 2.9% stake in the Finnish networking pioneer.

Yardeni Research is seeking an investment from Nvidia. The funds will be used to build a data center in Dr Ed's backyard and to add a ballroom to the East Wing of his home in Long Island. That's just wishful thinking. But, for now, Cathy Wood has seen enough AI wheeling and dealing to warn that a "reality check" on AI valuations is coming. AI euphoria is once again causing the Magnificent-7 to outperform the Impressive-493 (chart).

The stock market may have already discounted a Santa Claus rally. If so, then maybe there won't be one this year. We are still expecting it to happen, especially after raising our odds of a meltup from 25% to 30% on Sunday. The average gain for the S&P 500 during the last two months of the year over the past 10 years has been four percentage points. However, sentiment may be getting too bullish again, with 49.9% of respondents to the Consumer Confidence Index survey saying stock prices will be higher in 12 months (chart).

The S&P 500 is 13.0% above its 200-day moving average (chart). The S&P 500 Information Technology sector is 23.6% above its moving average. Buckle up, folks; it could be a wild ride over the rest of this year.

The good news is that the percentages of S&P 500 companies with positive three-month percentage changes in forward revenues and earnings are currently very high at 86% and 83%, respectively (chart).

Today's Consumer Confidence Index (CCI) survey showed that respondents' assessment of the present situation also remained relatively high last month (chart).

September's CCI survey showed a slight stabilization in the labor market (chart). The percentage saying it's hard to get a job remained relatively low at 18.4%.

The average of the five Fed regional business surveys showed that manufacturing remained lackluster this month, suggesting another weak reading for the national M-PMI in October. However, these surveys have been too pessimistic about the overall economy's growth for the past four years!

The average of the five Fed regional business surveys shows that inflationary pressures may be peaking (chart). We aren't as worried about consumer price inflation as we are about asset price inflation. Then again, meltups are fun as long as we remember to bail out before the meltdown.

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