July 22, 2025

QuickTakes

Washington Creates Buzz 24x7

Can't we get a day without news coming out of the White House? Yesterday, US Treasury Secretary Scott Bessent called for an "exhaustive internal review" of the Fed's "non-monetary policy operations." He accused the central bank of "significant mission creep." He did so on CNBC in the morning. In a lengthy post on X, Bessent sought to clarify his remarks later that day. This morning, Bessent appeared on Fox Business and reiterated his stance on the Fed. Nevertheless, he said it is okay if Fed Chair Jerome Powell stays until the end of his term.

Stocks have not moved significantly so far this week in response to this news. However, the DXY dollar index edged lower, and the gold price rose closer to its June 13 record high of $ 3,452.80 (chart). The latter jumped more than $50 yesterday in response to Bessent's attack on the Fed.

This evening, the price of gold is down slightly on news that the US has reached a trade deal with Japan. The US will impose a 15% tariff on Japan's exports to the US, with auto duties reportedly being lowered to the same level. Japan’s markets jumped after the deal announcement, with major auto stocks soaring, some over 10%, while the broader Nikkei 225 gained more than 2% (chart).

The S&P 500 Semiconductor stock price index eased slightly along with Nvidia today (chart). It was mainly profit-taking following a remarkable melt-up since the April 8 bottom. The tech bulls may be getting tired of charging ahead so far, so fast. They probably need a rest.

While we continue to recommend overweighting the S&P 500 Information Technology and Communication Services sectors, they aren't cheap. Still, they aren't as expensive as they were during the Tech bubble of the late 1990s. Together, they account for 43.3% of the S&P 500's market capitalization (chart). That exceeds the peak of 41.0% during the Tech bubble. However, the earnings share of these two sectors, currently at 36.4%, is well above the peak that preceded the Tech Wreck.

The aggregate forward earnings of these two sectors has been rising to new record highs over the past couple of years (chart). It fell sharply during the Tech Wreck.

The ratio of the market cap share to the earnings share of these two sectors is much lower than it was during the Tech bubble (chart).

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