From the New York Times, I'm Natalie Kitroof. This is The Daily.

Tariffs are at their highest rate in nearly a century. The labor market is weakening.

Over and over again, Trump has meddled with corporate America and the country's most important economic institutions.

And yet, the S&P at an all-time high. Same for the NASDAQ, by the way.

The stock market has kept on going up and up and up. Markets continue to hit all-time highs.

All of this despite lingering uncertainty caused by President Trump's tariff agenda.

Today, my colleague Joe Renison explains why, at least until now, the market has stayed so strong in such volatile times and what we know about how long this can really last.

It's Monday, October 20th.

Wow. You brought a Bloomberg terminal print out today.

In case you ask me what companies have done well since tariffs, then I'll be prepared.

It's beautiful. I just caught a glimpse of it and that orange that bright orange letter.

It's very distinctive, isn't it?

Yeah. You can't miss it. Yeah. Um, well, Joe, welcome to the show. Thanks for being in the studio.

Thanks ever so so much for having me.

So, we're coming to you because there has been this question on my mind for a while now, and I think it's been on a lot of people's minds.

And the question is, what is up with the markets?

Because it seems as though every few weeks or so, something happens. Whether it's a new Trump policy, whether it's weak jobs data, whether it's new tariffs.

And at least for the past few months or so, the market has not really had a huge or lasting reaction to those things.

Now, a week ago, we did see a decline when Trump threatened new China tariffs, but then the markets seem to recover.

And at this point, they've been in all-time high territory for a while.

And the mystery for me has been, how can that be?

How can it be that all these theoretically destabilizing events are not seriously rattling investors?

Right? Well, you're not alone. There's plenty of people asking that exact same question right now.

And it makes sense from a sort of intuitive perspective when you see so much what at least some people would describe as chaos or at least unorthodox things happening in the world. Why hasn't there been a stronger reaction in financial markets?

Surely there is an economic consequence to these things.

And so it is an important question and it's an important question as well because it's important to understand what the signal is from the stock market.

you know, markets are still doing very well.

Should we take that as a sign that things are okay?

Maybe we're being hyperbolic and we're being worried about nothing.

And so, if that is the signal markets are sending, we should listen to that.

Equally, if there's another explanation, we should understand that explanation as well.

So, you're saying the signals the market sends matter.

Yeah.

What do you mean by that?

You know, believe it or not, a majority of Americans are actually invested in the stock market either through retirement plans or pension plans or the rise of retail investors day trading that kind of picked up during the pandemic.

And then while the stock market might not be the economy and maybe it doesn't feel like it has this kind of direct effect on most Americans lives, the companies in the stock market are huge employers.

They employ thousands and thousands of people. They are responsible for the paychecks of many many Americans.

And if those companies start to do worse or start to come under pressure, that tends to affect how they spend money in the economy, whether that's on labor or infrastructure projects or whatever it happens to be.

So there is this kind of relationship between markets in the economy, even if they don't always send exactly the same message.

And they're also forward-looking.

So markets are constantly trying to understand where we go, not where we are now.

And so they're a really good barometer in a sense of where the many many investors that are putting money to work every single day buying and selling stocks, bonds, currencies, and other things, where do they see things headed?

And again, at the moment, from a very cursory look at the financial markets, one would think that people think we're on a reasonably safe path.

Okay. Well, let's get into the signals that we are getting from investors right now.

It feels like maybe one of the most helpful recent examples of that kind of barometer that you're talking about was during the initial market reaction to Trump's tariffs back in the spring.

The market, the stock market and the bond market reaction in particular were initially negative.

Many people saw that as a strong signal to the administration.

The administration pulls back.

It's not surprising that the market recovered once Trump retreated from those initial really high tariffs.

But what was surprising to me was that the markets kept going up and up.

Even though Trump did eventually raise tariff rates, it was more gradual, but those tariffs hit multiple sectors and multiple countries.

Can you just explain that? Break that down for me.

Absolutely. So coming into this year, we're in a pretty good place.

There was some enthusiasm around Trump being elected, a sort of more pro business president, at least perceived to be a more pro business president and a sort of unleashing of growth and opportunity in the US for big business.

And then the tariffs hit and whilst these were expected, they came through a lot more punitive, a lot more harsh than investors had anticipated.

And so there was a sharp reaction.

And the reason that sharp reaction kind of hit almost more than the tariffs themselves, almost more than sort of what it said about the direction of travel for the administration was that it was unexpected.

Markets investors hate uncertainty.

They can't price uncertainty.

It's impossible to price what you don't know, right?

whether the economy could sustain through such a shock, whether the employment market would come under strain, whether inflation would rapidly rise.

And so you ended up with this kind of paralyzing of business and financial markets because they just didn't know what was going to happen.

Now, where we are now, sure, there's still a lot of uncertainty in the world, but we at least roughly know what the base rate on tariffs is going to be.

We roughly know, we at least have some data on what the income from tariffs looks like to the government,

which is considerable, right?

Yeah. Much higher than people were anticipating initially.

We've seen inflation not get out of control.

Yes, there's pressure on inflation, but it's not got out of control.

There's an awful lot that we've just had a little bit of time to kind of analyze, get our head around to a point where there is at least less uncertainty than there was 6 months ago.

So, it sounds like what you're saying is we moved from this really unpredictable environment to a relatively at least more predictable one and that with that shift, some of the anxiety has fallen away.

Yeah, exactly.

Certainly, some of the big causes of constellation and uncertainty have eased somewhat.

And it isn't just tariffs.

We also have the big beautiful bill, the tax cut that went through.

It's an extension of a tax cut, but it still is a tailwind for the market.

Fed looks like it's now lowering interest rates.

Those lower interest rates will also offer a tailwind to the market.

It reduces borrowing costs. It broadly reduces costs for companies in the stock market.

Tax cuts and reduced interest rates are two things that businesses love.

Good news.

Yes. Yes.

So there's more certainty in a bunch of areas. Tariffs, taxes, and interest rates.

Isn't there though, Joe, still a lot of uncertainty just at a systemic level?

As in, aren't there concerns about how much trust we can have in the ability of the most important economic institutions in this country to do their jobs like the Fed, the Bureau of Labor Statistics.

These have both been attacked by Trump.

He's moved to fire a Fed governor.

He fired the head of the labor agency.

What's the impact of all that?

There is absolutely concern around these sorts of things.

Whether that gets reflected in markets is a little bit different.

Markets aren't moral.

They don't have a system of governance that they are wedded to.

What they fundamentally care about is that policy, especially monetary policy coming from the Federal Reserve, is consistent with the sort of economic fundamentals that we're facing.

In authoritarian governments, that can sometimes become dislocated where the politicians are making those decisions, not the policy makers.

And then you can end up with economic policy that doesn't fit the economy you have.

And that can lead to some very unpleasant results, let's say.

We're not in that situation.

We're in a situation where yes, the administration is putting a lot of pressure on the Federal Reserve.

They're putting pressure on Federal Reserve independents through the attempt to fire Lisa Cook,

the Fed governor.

Yeah. But at least for now, the policy that they are pushing through is consistent with the economic fundamentals we're facing.

So the fact that Jerome Powell is now lowering interest rates is more a coincidence that that's what Trump wants as well.

because you know for a large chunk of this year Trump wanted lower interest rates and it was not the right time and Pal didn't want to do that.

Now they're aligned and so whether that's a question of independence or lack of independence if the policy fits the market then the market will be okay.

You're saying that the markets don't see the Fed's move to lower interest rates as a response to Trump pressure.

They see it as a response to the economic signals.

Yeah.

Okay. But the Fed is cutting interest rates in part because of weakness in the labor market.

Isn't that concerning to investors that weakness?

It is, but we're at the very early days of that right now.

The labor market is still by historical measures very, very strong.

Unemployment is still very, very low.

The Fed is sensing or seeing in the data some turn in that strength.

We are starting to see unemployment tick up slightly.

we are starting to see the number of jobs added sort of slowing down and so they're trying to get ahead of this before the labor market actually buckles and cracks and we get to that point.

So all of this it helps explain why the markets aren't reacting very strongly to some of the more extreme Trump moves.

It doesn't totally explain though why we're in alltime high territory.

What's behind that?

What's that story?

Yeah, sure.

So I think it's good that we're coming to this point now because there is a really big driving force in the market right now and that's artificial intelligence.

The enthusiasm over the sort of transformational potential of AI is driving the stock market through the roof because the biggest companies that stand to benefit from AI adoption are listed in the US.

These companies have grown astronomically over the past sort of four years or so and they have become these bares in the market.

You have the magnificent 7 which is a name given to a group of seven stocks.

It includes Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla.

Those seven companies now are more than a third of the S&P 500.

Wow, I didn't know that.

Right. So there's 500 companies, seven of them are dictating a third of the price.

That's unbelievable.

So if you get a 2% rise in Nvidia one day, it's really hard for the S&P 500 to be down.

A huge impact. Totally outsized.

Exactly.

Big big outsiz impact of the stock prices of just a handful of companies.

And all of those companies pretty much are fairly intertwined with artificial intelligence. Mhm.

And you know when you have such driving force as artificial intelligence in the market, this is a potentially transformational technology that could drive profits in the stock market for a long time.

So even if you're kind of worried about the attack on the Fed's independence or some of the geopolitical situations that are playing out, you probably don't want to miss out on a generational technology that will really bolster US markets, the US economy because other people around the world are going to want to be invested in that trade as well.

And that brings money into the US, right?

It's just very hard to sit this out on the sidelines right now.

Yeah, absolutely.

Okay. And what about the concerns that this AI boom could really just be a big bubble that that these companies are overvalued that they may not deliver on their promise?

Yeah, it's a concern.

Jamie Diamond, the chief executive of JP Morgan, biggest bank in the US, he warned of something similar.

The market does seem overvalued.

It does seem a little bit frothy.

There is room for a pullback here.

And all we have to look at are some of the sort of classical market metrics for assessing valuation.

And on pretty much all of those, let's take a company like Nvidia for example, we're blasting through historical precedent.

We're way outside of normal ranges on what you would pay for a company with the sort of current track record behind it.

And the expectations, you know, when you pay more for a share, the idea at least behind that is that you think this company is going to be able to make that money in the future and give it back to you, you're trying to profit, right?

So, if you're paying more for something, you think it's going to make more money over the long term.

And while some of these numbers look bananas on a piece of paper, Nvidia has met a lot of these targets in recent years.

Like, this is a $500 billion company in 2021 that is now over $4 trillion.

And so, when Nvidia hit a trillion, do you start saying, "Well, it looks a bit overvalued."

When Nvidia hits $2 trillion, do you think it's overvalued?

It's 4 trillion.

Is it overvalued or is it actually worth 8 trillion?

I don't know.

And I don't think a lot of investors know for sure either.

With almost any big fundamental change, whether it's crypto and Bitcoin or whether it's artificial intelligence or whether it's the internet, these sorts of technologies, to some extent at least, when you don't have the full set of numbers you need to value a company, it comes down to belief.

Part of what you're saying is that while this could be a bubble, all of this AI investment, even in that scenario, it's very hard for investors to not throw their money into this sector because the potential windfall that comes from making the right bet on the right company is just huge.

Yeah. And the and the risk of being uninvested in this environment is like you can fall behind very very quickly as an investor.

Maybe it's worth sort of looking back to the.com period.

The internet revolution, the computing revolution that kind of taken hold earlier.

Those things are still with us.

The technologies are still here.

Artificial intelligence isn't going to be going away anytime soon.

The difference is which companies are going to actually still be around in 5 or 10 years.

Is it going to be a case of one of the many companies that went bust in 20201 or is it going to be a case of being Amazon which was also valued? in similar ways that were also off the chart in 1999, that company is still here and it would have made you an awful lot of money to be invested over those 25 years.

One of the concerns that comes up with this, however, is that because of the size of these companies and because of how well they've been performing more recently, they're also able to then mask a lot of the pain that sort of sits just beneath the surface of the stock market.

M

it's quite possible to have a large chunk of the S&P 500 for example down on a day where some idiosyncratic news about Nvidia or Amazon that lifts those stocks 1 2% can outweigh moves in the opposite direction amongst a large chunk of the index.

So it kind of comes back to the message that the market is sending us on any given day that the S&P 500 rises.

Maybe that is a verdict on the administration's policies.

Maybe that is a verdict on the economy at large.

But maybe it's also just artificial intelligence.

H

and if you're only looking at that highle number whether the S&P 500 has risen or fallen, then you may be missing some of the underlying concern that still sits beneath the surface.

We'll be right back.

So let's talk about some of those underlying concerns, these warning signs in the markets.

What are you seeing?

So, one of the most obvious would be gold.

Gold has been rising for a while at this point, but it's really taken off in recent months.

We've gone above $4,000 on gold for the first time.

And the signal that sends is one of worry.

Why do people buy gold?

It doesn't offer any return.

It's not going to enrich you in the way that maybe a rapidly rising stock will.

You go there because you don't want to lose money.

It's less about making money. It's more about not losing that money.

People tend to invest in gold when they're feeling insecure.

Yeah, exactly.

And we've seen central banks around the world move more into gold.

That's a bit of a shift away from dollar assets.

That's a concern about the sort of safety and soundness of US markets kind of continuing in the way that they have for so long.

We're also seeing some of that reflected in money moving away from the US stock market.

Yes, we have these big tech companies that are leading and are at the forefront of AI, but we've also had that for a while.

So, there's been a lot of money come in from international markets into the US market chasing those returns.

We're starting to see that eb a little bit.

We're seeing more money going into European markets or other emerging markets as people dial down some of their exposure to the US.

Got it.

So, so far you've talked about gold, the prices going up, that being a sign of of potential unease.

You've talked about money moving into international markets.

What else?

Perhaps one of the most obvious or classic signs of concern is in defaults.

So, companies unable to pay their debts back and actually going into either bankruptcy or having to negotiate with their creditors.

We saw this recently in the subprime auto lending space.

So, car loans to people that are considered risky borrowers.

It does hint and show there is some fraying of the strength of the consumer that has driven the economy since the pandemic and there is some sign that consumers are coming under strain.

If that follows through, you can see how that lowers consumer spending at big box stores.

You can then see how that flows through into the stock market as revenues decline for some of those companies and things like that.

It sounds like more than just a red flag for markets.

Those rising defaults are a sign that like a growing number of people in the regular real economy are are struggling.

Yeah, it is.

But it is still at the margin. It's not broad-based yet.

When we started talking, I mentioned that there had been this drop in the markets after Trump threatened new China tariffs.

We know obviously that the US China trade negotiations have not been resolved.

Having two major economic superpowers in an escalating trade war certainly doesn't seem like it would bode well for investors.

Is anyone you're talking to worried about these tensions heating up again?

Yeah, absolutely.

It remains a sort of outstanding cause of concern.

This is the big trading relationship.

This is the one that really matters.

And if there is a sense that that relationship is breaking down, then yeah, markets are going to react to that.

We saw that this month with some of the back and forth between DC and Beijing where you know Trump comes out sort of threatens these 100% tariffs on China and that prompted a very strong reaction.

It shows this sensitivity to the unknown to the potential for a crisis coming out of left field.

There are definitely still these risks looming out there and investors are sensitive to them.

So Joe, how worried should we be?

H how should we be interpreting these warning signs?

Is it a signal that the historic run that we've been on is about to end?

I don't know.

Uh darn it.

Yeah,

I was really hoping you did.

Um yeah, I don't know.

It's kind of fascinating in a sort of purely intellectual way, but it it's also baffling in its own right to see how little effect maybe some of the things that we think of as being very impactful in our own lives have not necessarily translated into financial markets.

But it also hopefully uh at the end of this conversation makes a little bit of sense in the sense that the reality that companies are dealing with, the reality that investors are dealing with is not that bad.

You know, I think a lot of people will feel maddened by some of this, especially those who are being affected by Trump's policies.

Yeah. You know, I'm thinking of thousands of federal workers, you know, who who who don't have a job or or the small businesses who are struggling with tariffs

because I think people at least going into this term, they expected markets to be a guard rail, to be a check on the president, for them to be maybe one of the only effective checks on the president's most extreme instincts.

And that just doesn't seem to be happening.

Yeah, you're right.

People certainly did come into this year expecting markets to be more of a guard rail than they have been.

But you know when investors are actually confronted with the landscape in front of them, they have to consider the good and the bad.

Companies are earning.

We've had double digit earnings growth in the first quarter and in the second quarter and we're looking like we might get it in the third quarter as well as we go into earning season now.

And you know, when you consider the attack on Fed independence, when you consider some of the more extreme policies that have kind of come out from this administration, when you consider all these things, do you think Nvidia or Google or Apple, these big companies are not going to be making a lot of money in 5 years

or two years?

I think they're probably going to be doing all right.

And I don't often have opinions.

That's pretty much the mildest opinion I think anyone can have.

think so.

Um, and so, you know, sometimes it's just answering a different question than the one investors are asking of it.

And that's kind of why we are where we are.

You're saying basically that the markets are filtering all the noise of the volatility in this Trump term or or maybe investors are just holding their nose because they can't resist the pull of AI.

Yeah. Yeah,

I mean I I speak to a lot of investors who have talked about how they've evolved their investment process a little bit this year, learning somewhat from the first Trump term, but then also just trying to really, as you said, filter out the noise.

What's real?

You know, if Joe Biden had tweeted something that resembled a policy announcement one random afternoon, then markets would have responded to it and they'd have reacted very quickly because they'd have taken it seriously.

We don't have that level of reaction function now because there is a sense that you know and I do not mean this with any kind of value judgment attached to it but the sense at least among investors is that this administration says and does a lot of stuff that doesn't actually happen

that changes the next day

and so I think investors have really started to try not to react to those more superfluous things and instead focus on what's what's actually happened, what's actually been said and done rather than what might happen.

So to a certain extent, markets have kind of become inured to the daily seessaw of drama that maybe affects us regular folks a little more.

I guess my question is, is there a way in which Trump has also affected the tolerance of investors for the actual things he's doing in some way by throwing us all into this kind of crazy experiment of what unprecedented tariff rates will do to an economy and what unprecedented levels of government intervention will do?

Has he made us more comfortable with some things that before we might have thought were a little out of bounds?

You know, has he normalized these moves to the point where investors are just adapting to them?

Yeah. You know, if you'd asked an economist in January, what would introducing the highest tariffs in what a century do to the economy?

I don't think they'd have said, "Well, I'm pretty sure the S&P 500 will be at a new record,"

right?

Um, but we are in that position.

So, we can look at what's happening to companies.

We can look at what's happening to the data.

We can look at what companies are doing in response to these increased costs.

We can see whether they're trying to absorb those costs or pass them on to consumers.

And certainly, for the first half of the year, it looked like they were absorbing those costs.

Now, it's looking like they're beginning to start passing those on to consumers.

that would potentially be another warning sign.

But you actually end up just having to look at what's really happening, not the sort of gut check or emotional response to what's happening.

It has to be the reality of it and how does it affect company profitability.

We could easily see a future in which the sort of positives driving the market continue to outweigh and I can see a future where some of those negatives that are beginning to creep in could also outweigh.

But at least for now, a lot of the worst fears that were sort of surrounding this stuff at the beginning of the year have not been met yet.

Oh, and before I let you go, I want to actually make use of that printout that you brought.

That was supposed to help you answer a question about what companies have done well since Trump instituted all these tariffs.

So, let's hear it.

Who's killing it?

Oh my goodness.

All right, let's look at the scores on the board.

Looking at this piece of paper in front of me, it's very clear why the market has been doing so well.

There's seven companies on here that have risen more than 100% since the start of April.

Wow.

That's doubling in value.

There's Broadcom, Palunteer, Oracle, companies that have done big business with the government.

It's pretty staggering.

I was really hoping you were going to say the New York Times.

Alas. Alas.

But it's easy looking at that list to understand why the market is doing okay.

Well, Joe, thanks so much.

Thank you.

We'll be right back.

here's what else you should know today.

We want

across the country on Saturday, large crowds gathered for dayong no kings protests against President Trump.

The rallies took place in small towns and big cities and drew particularly large turnouts in Washington DC, New York, and Chicago.

The demonstrations were aimed at calling out what protesters see as the authoritarian actions of the president and were largely peaceful.

Will we sit by while the president slow walks us into authoritarianism?

Will we bend the knee or grace?

And on Sunday, Israel launched its heaviest attacks on Gaza since a ceasefire took hold a week ago and suspended humanitarian aid to the enclave after accusing Hamas of violating the truce by killing two Israeli soldiers.

By nightfall, following a series of significant strikes, the Israeli military said it had quote begun the renewed enforcement of the ceasefire.

Gaza's health officials reported 44 Palestinian deaths across the territory on Sunday.

暴力升级和援助的暂时中止，是对停火协议迄今为止最严峻的考验，该协议是在白宫的巨大压力下谈判达成并由特朗普本人签署的。

which was negotiated under heavy pressure from the White House and signed by Trump himself.

Finally, in a brazen daylight robbery at the Louve Museum in Paris, thieves made off with jewelry of incalculable value.

According to France's interior minister, the heist unfolded around 9:30 a.m. when thieves used a lift mechanism on a truck to break into the museum and snatch eight precious objects before fleeing on motor scooters with their loot.

All within just 7 minutes.

Today's episode was produced by Anna Foley, Ricky Novetsky, and Stella Tan.

It was edited by Lisa Chow with help from Mark George.

Contains music by Marian Lozano and Diane Wong and was engineered by Chris Wood.

That's it for the daily.

I'm Natalie Ketro.

See you tomorrow.