VRA Investment Letter: Here Come The Rate Cuts. Why The Bears Have The Economy & Markets Wrong.
/Good Thursday morning. As we came into Q2 earnings reports we explained why Wall Street was being far too pessimistic. As you read these excellent Q2 earnings below, featuring earnings growth for the S&P 500 of 11.8%, remember that Wall Street was forecasting growth of just 4.9% (vs our estimates 8–10% growth).
Q2 for S&P 500
– 83% of S&P 500 companies have reported earnings above analyst expectations for Q2 2025.
– On average, earnings beat expectations by 7.1%.
– Technology had the highest beat rate at 94%.
When companies are beating earnings by this much…specifically from the markets leaders (semis/tech)…it makes the ongoing pessimism about the Trump Economic Miracle look that much more silly.
What else is Wall Street getting wrong? (hint; Trumps tariff policies, inflation and GDP growth).
Here Come the Rate Cuts
Another solid session yesterday featuring all-time highs in S&P 500 and Nasdaq, with back to back days of stellar market internals. We are getting a bit of short term froth in this seasonally weak time frame as the put-call ratio opened at .63 and remained low throughout the day. In addition, the VIX (Volatility Index) closed at 14.49, which was the lowest price for 2025. By no means is this a sell signal….there’s just too much liquidity in the US, with trillions more headed our way from global investors…with excellent corporate earnings and a record level of share buybacks. This morning’s PPI also came in hot, with producer prices rising .9% last month vs estimates of a .2% increase.
Importantly, with Treasury Secretary Bessent backing a .50% cut at next months Fed meeting and a total of 150–175 bp cuts going forward, this infamous quote from the late great Marty Zwieg comes to mind; “Don’t fight the tape, don’t fight the Fed”.
Bessent on “Everything”.
According to a WSJ Survey from June, 84% of economists polled said that “yes, Trumps tariff policies will add a considerable level of inflation”. You know our views; anytime the vast majority of economists agree on anything we’re taking the flip side of that position. Think Paul Krugman on steroids. But more than anything we’ve believed that the exporting countries would eat the majority of the tariffs by simply lowering their prices. Over the last several months, as we’ve supported Trumps tariff policies (post the reckless rollout), we’ve consistently made the case why Trumps tariffs would not be inflationary. We’ve believed that exporting countries would eat the majority of the tariffs, by simply lowering their prices…which is just whats happening.
Yesterday morning, Treasury Secretary Scott Bessent was on Bloomberg in what was an excellent interview talking about “the brilliance of tariffs, where exporting countries are absorbing the tariffs by lowering their prices”. Bessent also said the following:
– Good chance of 50 bp rate cut (bullish)
– Rates should be 150–175 bp lower (hugely bullish)
– Referring to the resigning Fed Gov Kugler, Bessent said “one of the most politicized Fed govs is off the board.” We suspected this might have been the reason for her hasty resignation… now it’s been confirmed. Trump just destroyed J Powell and his politicized Fed from within.
– Bessent bellies new Fed Gov Stephen Miran should be confirmed by the September Fed meeting
– He also added that new BLS Commissioner Antoni will restore “the integrity of the numbers” (finally!)
VRA Bottom Line; Trump is doing what he wants, when he wants. While not everyone will agree with this style, the moves he is making are HIGHLY bullish for the economy and markets. And Bessent was an excellent choice.
In my Tuesday Fox Business interview with Gerri Willis (Charles was off), Gerri stopped me when I said that “the housing market is structurally strong”. What surprised her, and in our experience surprises many, is that 40% on homeowners have no mortgage with home equity also at a record 70%, as consumer net worth continues to make ATH’s. This is the definition of structural strength. Once rates begin to plummet (our call) with 30 yr mortgages falling below 5% (also our call for 2026), a frozen housing market will come roaring back to life. This is why we own the homebuilders (find our buy recs at VRAletter.com)
Investment advisor touts America being increasingly ‘RED PILLED’
Vertical Research Advisory founder Kip Herriage weighs in on Big Tech workers reportedly being Democratic socialist Zohran Mamdani’s top donors and describes the ‘Trump economic miracle’ on ‘Making Money.’
Finally for this morning, US Companies Will Buy Back a Record $1.2 million of Their Own Stock in 2025
It’s hard for the markets to fall when the largest companies in America are buying back their own shares at a record pace. Combined with retail investors buying every dip, prepare for more blue skies ahead.
Hedge Funds Have the Largest Short Position in Small Cap Futures in History
Bullish for small caps. Whenever you have an opportunity to bet against the group think of Wall Streets hedge funds, take it.
Until next time, thanks again for reading.
Kip
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