Equities markets continued to hold near record highs this week, with traders ignoring warnings that the risks of a recession in the US are rising. The Nasdaq and the S&P 500 are trading at near record levels amid optimism about big payoffs from artificial intelligence (AI) investments, a strong second-quarter earnings season, and the growing likelihood of upcoming interest rate cuts.
Investors are tuning out of a wide range of risks and negative indicators. Last week, the US Bureau of Labor Statistics revised job numbers downwards, indicating that the job market is softer than previously thought. That prompted US President Donald Trump to fire the Bureau’s commissioner – a deed which in itself might have unnerved markets.
Some economists are flagging the possibility that the US may enter a recession in the coming months. Moody’s Analytics chief economist Mark Zandi this week cautioned that the US economy is “on the precipice of recession,” citing weak consumer spending, falling labour participation and contracting construction and manufacturing sectors. Goldman Sachs, meanwhile, is giving a 30% probability to a US recession.
Lower labour participation, reduced immigration, and the future potential impact of tariffs on the profits of companies and the purchasing power of households are among the downside risks that traders are ignoring. Traders are also shrugging off the volatile geopolitical climate, with wars still raging in Ukraine and the Middle East.
One of the factors that is supporting momentum in the markets is the anticipation of upcoming interest rate cuts, a policy placed firmly on Trump’s agenda. Swaps traders are now pricing in more than 100 basis points of Fed easing by mid-2026, with growing confidence that we could see the first 25bps cut as early as next month. Weak economic data might force the Fed to act faster on interest rates – somewhat paradoxically helping to drive equities markets higher.
Nonetheless, inflation could still cloud this picture. If tariffs start to feed through into consumer prices, that could complicate the Fed’s path to cutting interest rates. The Fed may face a tricky balancing act in keeping prices down while supporting the labour market, consumer spending, and business investment. A rising gold price this week could be a signal that the risk of stagflation is on some traders’ radars.
The impact of politics on the Fed is a wildcard in this already uncertain environment. Fed Governor Christopher Waller has emerged as a possible favourite to replace Jerome Powell as Chairman next year. He may be viewed as more aligned with Trump’s calls for lower rates, but May 2026 appears a long way off. UBS Group has flagged concerns about the independence of US institutions as a downside risk to the US dollar and Treasury yields.
In the short term, momentum, liquidity, and excitement about AI’s potential appear to be overpowering caution. But in the longer term, fundamentals, whether positive or negative, will reassert themselves. Weak performance from Main Street might not dampen Wall Street’s enthusiasm if interest rates start to fall. Much will also depend on whether earnings remain robust in the quarters ahead and on how the Fed navigates the trade-off between price stability and economic growth.
“The key point is that the market can’t look far enough. This is why it will ignore the recession risk.”
– Goldman Sachs trader, Paolo Schiavone
“The market is clearly expecting cuts, but the upside risks to inflation are significant. The bottom line is that the stagflation theme in markets is intensifying.”
– Torsten Slok, chief economist at Apollo Management
Global News
- US stocks are hovering near record highs, driven by strong corporate earnings and expectations of lower interest rates, which are outweighing concerns over widespread tariffs. Investors have also poured back into major tech stocks and AI-related trades, even as economic indicators point to a potential slowdown in growth. Goldman Sachs macro trader Paolo Schiavone warned that global stock markets are brushing off recession risks, notwithstanding a 30% probability of a US downturn, because investors are captivated by strong liquidity and structural growth themes like fiscal stimulus and AI. He noted that sentiment is so bullish that shorting the market feels “almost irrational,” as trend-following investors continue to pour money into equities, pushed by robust corporate earnings and expectations of lower interest rates.
- Wall Street strategists warn the US economy may be heading toward stagflation as trade tariffs begin to take effect, potentially limiting the Fed’s ability to cut interest rates. Although investors have mostly ignored these warning signs, data suggests a rising inflation rate coupled with sluggish economic growth. So far, these concerns have mainly affected the US dollar, which has dropped circa 9.2% against a basket of developed market currencies year-to-date. Meanwhile, the S&P 500 continues to hit record highs, and US Treasuries are on track for their best performance since 2020. Yet traders betting on a rate cut could be proven wrong as higher prices from tariffs get passed on to consumers and companies, threatening to lift prices.
- Trump’s tariffs have brought in about $152 billion in customs revenue through to July, but they’re also straining the US economy. Businesses are warning of rising costs for foreign components, leading to higher consumer prices on items like appliances and clothing, with prices set to rise further, according to Fitch’s Head of Economic Research. Economic growth remains sluggish, inflation is climbing, and hiring slowed sharply in July. The new tariffs, starting at 15% and going as high as 50%, target imports from countries including Brazil, India, and Taiwan, with some seen as political retaliation.
- Global concerns about nuclear conflict are resurging, driven by escalating geopolitical tensions and weakening arms-control frameworks. As the 80th anniversary of Hiroshima passes, experts warn that risks reminiscent of the Cold War are reemerging; US-Russia treaties like New START are nearing expiration; China, North Korea, and Iran are expanding or accelerating their nuclear capabilities; and nuclear rhetoric from leaders such as Putin and Trump is becoming increasingly brazen. With non-proliferation norms eroding and little global outcry in response, analysts say we are entering a new, dangerous era of nuclear instability.
- Early this morning, Israeli Prime Minister Benjamin Netanyahu’s Security Cabinet approved a phased plan to seize control of the entire Gaza Strip, a move opposed by the military and seen as taking the nearly two-year conflict into uncharted territory. After 10 hours of debate, most Cabinet members backed preparing to capture the heart of Gaza City, with later stages pushing into central areas where Hamas is believed to hold hostages and where troops have largely avoided operating. The plan aims for a decisive victory over Hamas, which carried out the 7 October 2023 attack, while ensuring humanitarian aid reaches civilians outside combat zones.
- US Envoy Steve Witkoff held a three-hour meeting with Russian President Vladimir Putin in Moscow on Wednesday, described by the Kremlin as “useful and constructive,” ahead of today’s looming deadline set by Trump for a peace deal in Ukraine. Despite the reportedly positive tone, US officials confirmed that secondary sanctions targeting nations that purchase Russian oil are still expected to be imposed. Trump signalled a “good chance” of a forthcoming meeting with Putin, potentially including Ukrainian President Zelenskyy, though no specifics on timing or location have been released. Presidents Putin and Trump will meet for summit talks within the next few days, the Kremlin announced on Thursday.
- Trump said on Tuesday that Vice President JD Vance is “most likely” to succeed him as the leader of the MAGA movement, marking his strongest public endorsement of Vance’s political future. While Trump has previously mentioned a possible third presidential run in 2028, the Constitution prohibits it. Speaking at the White House, Trump said it was too early to discuss succession but praised Vance’s performance and called him “probably favourite at this point”.
- China’s exports rose by a stronger-than-expected 7.2% year-on-year in July, the fastest pace since April, defying concerns over the impact of new US tariffs introduced by Trump. While shipments to the US plunged 22%, overall export performance was buoyed by robust demand from other regions, including the European Union and Southeast Asia. Analysts suggest that some exporters may have rushed orders ahead of further tariff hikes, while others credit broader global resilience. The surprise rebound highlights China’s continued trade adaptability, even amid intensifying geopolitical and economic pressure.
- The Bank of England (BoE) cut its key interest rate by 25bps points to 4% yesterday, the fifth reduction since August 2024 and the lowest level since March 2023. The decision followed an unprecedented second round of voting within its Monetary Policy Committee, ultimately passing by a narrow 5 to 4 margin, reflecting deep divisions over how to balance mounting inflation risks and a weakening labour market. While inflation is expected to peak near 4% before easing toward the 2% target by 2027, the economy remains fragile, prompting the BoE to pursue a cautious and gradual path forward.
- Apple has pledged an additional $100 billion in US manufacturing investment under its American Manufacturing Program, bringing its total domestic commitment to $600 billion over the next four years. The announcement was made ahead of a White House event with Trump and forms part of Apple’s effort to expand its US supply chain and advanced production footprint through partnerships with companies like Corning, Applied Materials, and Texas Instruments. Apple shares were up 8.72% for the week.
- Uber Technologies’ rideshare division missed Wall Street estimates, disappointing investors despite overall strong gross bookings in the second quarter, boosted mainly by its food-delivery unit. Following the report, Uber’s stock dropped as much as 3.5% on Wednesday but remains up 47% year-to-date, outperforming the S&P 500. The market reaction overshadowed a rosy third-quarter outlook. The bookings forecast for the current period represents an 18% to 21% growth rate, according to Bloomberg calculations, faster than the 17% gain Uber saw in the second quarter.
- Novo Nordisk’s shares surged about 13.6% on Thursday following disappointing trial data from Eli Lilly’s experimental weight-loss pill, Orforglipron. Though the drug achieved an average weight loss of 12.4% over 72 weeks, it fell short of market expectations and trailed behind Novo’s injectable competitor, Wegovy, in efficacy and tolerance. The underwhelming results have eased competitive pressure on Novo, helping to restore investor confidence after recent declines tied to downgraded growth forecasts
- As at Thursday’s close, the S&P 500 was 1.63% up for the week.
Local News
- The JSE All Share Index was trading at 100,902 at the time of writing, marking a notable rebound after last week’s brief dip below the 98,000-point threshold. The index’s recovery has been swift, with broad-based gains pushing local equities higher across the board. The JSE’s steady momentum was supported by a firmer rand and strong performances in key sectors such as telecommunications, technology, and precious metals and mining. By mid-afternoon today, the rand had strengthened to R17.71 against the US dollar, continuing its recovery from last Thursday’s intraday R18.19.
- Finance Minister Enoch Godongwana said last Friday that he won’t announce a lower inflation target in the medium-term budget policy statement in October. He stated that any change to the policy would be determined by him, the Cabinet, and the President. His comments followed South African Reserve Bank Governor Lesetja Kganyago’s announcement last Thursday that the bank will now use forecasts with a 3% inflation anchor to guide rate decisions. Ratings agency S&P warned that the government risks overspending, revenue miscalculations, and inflation expectations drifting off course if the target is lowered.
- In his closing address after the ANC’s national executive committee meeting over the weekend, President Cyril Ramaphosa announced that the party had resolved to include other parties in the government of national unity (GNU). The ANC is set to engage with parties that will enable it to achieve its aims of driving inclusive growth and job creation, reducing poverty, tackling the high cost of living, and building a capable developmental state. This decision, which was not a surprise given how many ANC members wanted a reconfigured GNU, will likely pit the ANC against the DA.
- Ramaphosa spoke with Trump on Wednesday to discuss bilateral trade, the Presidency said. While no specifics were disclosed, both leaders agreed their trade teams would continue detailed negotiations. The call coincided with a meeting between South Africa’s International Relations Minister, Ronald Lamola, and US Chargé d’Affaires David Greene in Pretoria, and came a week after Washington confirmed a 30% tariff on South African goods. Ramaphosa also spoke with Putin yesterday, at Putin’s request for a briefing on the Ukraine peace process, with both leaders discussing other bilateral matters.
- Trade, Industry, and Competition Minister Parks Tau and Lamola on Monday announced a temporary exemption from antitrust rules for exporters affected by a 30% US import tariff that starts today. This exemption will let exporters collaborate on infrastructure, logistics, and market intelligence without risking cartel charges. Additional support includes a new export help desk and funding from the R340 million Localisation Support Fund (LSF), with the Industrial Development Corporation inviting applications to help companies reduce costs. Also on Monday, Ramaphosa urged government investment in the African Continental Free Trade Area following the tariff imposition.
- The LSF warned in a new report that offshore e-commerce retailers like Shein and Temu have already cost South Africa more than 8,000 jobs and millions of rands in lost manufacturing sales between 2020 and 2024. If their local sales grow by 20.8% annually to 2030, combined revenue could reach R22.6 billion, with a 63% share of the e-commerce retail market. This could threaten more than 34,000 jobs across retail and manufacturing, the report said, adding that urgent digital transformation, including AI adoption, is needed.
- ANC Secretary-General Fikile Mbalula said on Monday that the Government of National Unity would not abandon its transformation agenda under US pressure. This follows criticism from the US over South Africa’s BEE and land expropriation laws. In July, US legislators voted to advance a Bill proposing a review of US-South Africa relations and possible sanctions on government officials. The Bill must still pass the House and Senate to become law, and many such measures never reach a vote.
- Shoprite expects to report a more than 20% rise in annual earnings as it continues to advance its omnichannel growth strategy, powered by its core local supermarkets business, it said on Monday. Headline earnings per share, a key measure of profitability, for the 52 weeks to 9 June could be as much as 25.2% higher. Petshop Science added 60 new stores to total 144 stores; Checkers Outdoor added eight new stores to total 28 stores; Uniq clothing by Checkers added 10 new stores to total 30 stores, and Little Me opened one new store to total 11 stores.
- Pick n Pay on Tuesday said it had appointed former Massmart CEO Grant Pattison to its board as it works to recover from years of losses in its core supermarket business and re-establish operational stability under returned CEO Sean Summers. This is part of a broader effort to strengthen governance and execution capacity as the group implements its five-point turnaround strategy. Summers recently outlined his recovery strategy and told investors that the group had moved beyond planning and was focused on execution.
- Capitec has partnered with fintech operator Mama Money to secure a larger share of the cross-border payment market with cheaper transfer prices. On Tuesday, South Africa’s largest bank by customer numbers said it had signed a deal with Mama Money, which specialises in remittances to “dramatically reduce the cost and simplify sending money across borders for the country’s 2.4 million migrants”. The bank is targeting Kenya, Lesotho, Malawi, Mozambique, Uganda, Zambia, and Zimbabwe, which typically have high fees and complex processes for those sending money home to support their families.
- Shares of global resources giant Glencore dropped almost 5% on Wednesday after it reported a wider loss for the first half of 2025 as coal prices weakened, and copper production fell. The global resources giant, which has several operations in South Africa, including those related to ferrochrome and coal, reported a loss of almost triple that of the prior year. It was hit by weaker coal prices and the impact of the lower copper production in the first half of the year.
- As at the time of writing, the rand was 1.76% stronger against the dollar, and the ALSI was 3.14% up for the week.
Sources: Dynasty, BusinessLIVE, Bloomberg, CNN, IOL Business, Business Report, Reuters, NYT, WSJ, ITWeb, etc.
