Thoughts from Themes: Green Light, Yellow Tape

Markets want to run — but the guardrails got much clearer this past week.

Powell cooled December cut expectations, Trump/Xi drew new lines around trade, and capital is quietly redefining what a weaker dollar means in a world where crypto is now a legitimate alternative store of value. The rally continues, but inside a narrower lane.

Fed Facts

Federal Reserve Chairman Jerome Powell isn't a college football player, but he certainly gave "the Heisman" to politicians on both sides and investors that have been demanding continued rates cuts when he announced a December rate cut "is not a forgone conclusion." A statement that forced an optimistic market to pause and take a breath, even though it just received a 25-basis point break earlier that afternoon.

At its October meeting, the Federal Reserve implemented a second consecutive 25 basis point rate cut, lowering the federal funds rate to a range of 3.75%–4%. This move reflects the Fed’s response to moderating inflation, which rose just 3% last month, below expectations, and slowing job growth, with unemployment edging up slightly. However, Chair Jerome Powell emphasized that the economic outlook remains clouded by uncertainty, especially due to limited data availability amid a government shutdown, likening the situation to “driving in the fog.”

The Fed’s decision was not unanimous: Governor Stephen Myron advocated for a more aggressive 50 basis point cut, while Kansas City Fed President Jeff Schmid preferred to hold rates steady. This internal division underscores the complexity of balancing inflation control with employment support. Additionally, the Fed announced plans to end its quantitative tightening program, the reduction of asset holdings, by December 1, signaling a broader pivot toward liquidity support.

Markets reacted with mixed signals: equities rallied then stabilized, Treasury yields reversed higher, and the U.S. dollar weakened modestly. In the crypto sector, assets like Bitcoin and Ether saw short-term gains due to lower yields and a softer dollar, though institutional caution persists. Looking ahead, the Fed’s path remains data dependent. But if the fog of a government shutdown continues, that data may not come.

While another rate cut in December is possible, Powell’s remarks suggest no guarantees. The central bank remains focused on its dual mandate, maximum employment and stable inflation, but acknowledges rising downside risks to the labor market. Investors and policymakers will closely watch upcoming labor and inflation reports to gauge whether the Fed will continue easing into 2026.

Tariff Talks

The expanded U.S.-China trade agreement signals a thaw in economic tensions, with potential upside for global markets, commodity exporters, and select industrial sectors. Following high-level talks in Kuala Lumpur and a meeting between Presidents Trump and Xi in Busan, the U.S. and China reached a framework agreement that includes tariff reductions, suspension of rare earth export restrictions, and eased port fees.

The U.S. cut tariffs on Chinese imports from 57% to 47%, while China agreed to resume large-scale purchases of American soybeans and maintain rare earth exports under a one-year renewable deal. This détente could have a positive impact on equity markets, particularly in sectors exposed to global trade. U.S. agricultural producers, especially soybean exporters, stand to benefit from renewed Chinese demand. Likewise, semiconductor and electronics manufacturers may gain from improved supply chain fluidity, although advanced chip access remains restricted. Industrial metals and logistics firms could also see tailwinds from reduced port fees and stabilized rare earth flows. For China, the agreement offers relief from export bottlenecks and a path to re-engage with U.S. tech and consumer markets. The deal’s temporary nature — especially the one-year rare earth clause — means investor sentiment may remain cautious, awaiting signs of longer-term stability.

In the broader context, this agreement may lay the groundwork for a more institutionalized trade framework, reducing volatility and fostering strategic cooperation. However, geopolitical risks and enforcement mechanisms remain key variables and there is still more work to be down to achieve a long-term agreement.

Crypto Capital Capture

The U.S. Dollar Index (DXY) has declined by 9–11% year-to-date, marking one of its steepest drops in decades. This depreciation stems largely from Federal Reserve rate cuts, moderating inflation, and shifting investor sentiment toward risk-on assets. As traditional yields fall, investors are increasingly reallocating capital into

cryptocurrencies, especially Bitcoin and Ethereum, which are perceived as alternative stores of value and hedges against dollar volatility.

Analysts note that Bitcoin often rallies when the dollar weakens, not necessarily as an inflation hedge, but due to its inverse correlation with the greenback. In recent months, Bitcoin surged over 6% while the dollar fell 3%, suggesting a capital rotation effect. Institutional investors and multinational firms are also reportedly diversifying into crypto to mitigate currency risk and macroeconomic uncertainty.

However, it’s important to recognize that crypto inflows are a symptom, not the sole cause of dollar weakness. The dollar’s decline is primarily driven by monetary policy shifts, global de-dollarization trends, and softening economic indicators.

Crypto’s rise amplifies the dollar’s downward pressure and though it does not originate it, it may someday be the alternative and end to the once mighty and powerful greenback.

Tesla Takes the Vote

Tesla’s November 6 annual meeting could set a precedent for modern corporate governance, with shareholders deciding on Elon Musk’s proposed pay package, potentially worth up to $1 trillion.

This vote follows a Delaware court ruling that invalidated Musk’s prior $50 billion package, calling it “fundamentally flawed.” Tesla’s board argues that if the package is rejected, the company risks losing Musk’s time and leadership. Critics counter that no CEO should hold this level of unilateral power, and proxy firms ISS and Glass Lewis have urged investors to vote “no,” saying the plan is excessive, dilutive, and weak on accountability.

Ultimately, the debate has become bigger than Tesla. It’s a test of whether U.S. investors will continue to tolerate extreme founder power and ultra-concentrated executive pay or demand tighter guardrails on the people who control trillion-dollar companies. Either way, the whole world will be watching when Tesla takes the vote on Thursday.

Mag7 Minute

With more than $11 trillion in market cap reporting on Wednesday alone, we reignite a central question that has defined 2024–25: can the Magnificent Seven continue powering U.S. markets higher?

Microsoft, Alphabet, and Meta all reported strong top-line results, but the reaction was mixed. Microsoft’s 40% Azure growth was solid, yet shares fell on capex and margin concerns. Alphabet surprised to the upside on cloud and ads and was rewarded. Meta beat revenue expectations but cratered on its enormous AI-related capex ramp. Across all three, one theme stands out: AI is driving revenue and driving costs — fast. Combined spending last quarter was $78 billion, up 89% year over year.

With the S&P 500 trading near record highs and investors increasingly unforgiving on “in-line” results, the broader rally rests on narrow leadership. Half of the S&P has reported, 81% have beaten expectations, yet market breadth is thinning sharply and valuations remain stretched. Nvidia has become the market’s sentiment barometer — a proxy for the AI boom itself — and its moves are increasingly steering index direction.

Bottom line: Big Tech earnings are delivering, but until costs normalize, or leadership broadens, markets may face diminishing upside from here…

Research Spotlight

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6 Stocks at the Heart of the Generative AI Revolution

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This Week’s Major US Economic Reports & Speakers

Monday, November 3

9:45 AM S&P final US manufacturing PMI

10:00 AM ISM manufacturing

10:00 AM * Construction spending

12:00 PM San Francisco Fed President Mary Daly speech

2:00 PM Fed governor Lisa Cook speech

TBA Auto sales

Tuesday, November 4

6:35 AM Fed Vice Chair for Supervision Michelle Bowman speech

8:30 AM * US trade deficit

10:00 AM * Factory orders

10:00 AM * Job openings

Wednesday, November 5

8:15 AM ADP employment

9:45 S&P final US services PMI

10:00 AM ISM services

Thursday, November 6

8:30 AM * Initial jobless claims

8:30 AM * US productivity

10:00 AM * Wholesale inventories

11:00 AM Fed governor Michael Barr speech

11:00 AM New York Fed President Williams speaks

3:30 PM Fed governor Christopher Waller speech

4:30 PM Philadelphia Fed President Anna Paulson speaks

5:30 PM St. Louis Fed President Alberto Musalem speaks

Friday, November 7

3:00 AM New York Fed President John Williams speech

7:00 AM Fed Vice Chair Philip Jefferson speech

8:30 AM * US employment report

8:30 AM * US unemployment rate

8:30 AM * US hourly wages

8:30 AM * Hourly wages year over year

9:30 AM Dallas Fed President Lorie Logan speaks

10:00 AM UMich Consumer sentiment (prelim)

3:00 PM Consumer credit

3:00 PM Fed governor Stephen Miran speech

* Data subject to delay if government shutdown continues

Disclosures:

All data sourced from Bloomberg as of October 31, 2025, unless otherwise cited.

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