Consumer Sentiment Falls to Near Record Lows | Bloomberg Businessweek Daily 11/21/2025

Key Concepts

A-Pillars Economy: A framework suggesting the U.S. economy is increasingly reliant on three narrow, interconnected drivers: affluent consumers, AI-fueled investment, and asset price gains.
K-Shaped Economy: An economic model describing a polarized recovery where some sectors or individuals thrive while others stagnate or decline.
Monetary Policy: Actions undertaken by a central bank to manipulate the money supply and credit conditions to stimulate or restrain economic activity.
Federal Funds Rate: The target rate that the Federal Reserve sets for overnight lending between banks.
Restrictive Monetary Policy: Monetary policy aimed at slowing down an economy, typically by raising interest rates to curb inflation.
Neutral Rate: The theoretical interest rate at which monetary policy is neither expansionary nor contractionary.
Supply Shocks: Unexpected events that affect the supply of a product or service, such as natural disasters, trade policies, or technological advancements.
Demand Shocks: Unexpected events that affect the demand for a product or service.
FOMO (Fear of Missing Out): A psychological phenomenon that can drive investment decisions, leading individuals to invest in assets or trends they perceive as rapidly appreciating, even without thorough analysis.
Private Credit: Debt financing provided by non-bank lenders, such as hedge funds and private equity firms, to companies.
G20 Summit: A forum for leaders of 20 major economies to discuss global economic and financial issues.
AI Chips: Specialized microprocessors designed to accelerate artificial intelligence workloads.
H200 Chip: A powerful AI chip from NVIDIA, considered a prior generation but significantly more capable than the H20.
Blackwell Architecture: NVIDIA's next-generation AI chip architecture.
ASPs (Average Selling Prices): The average price at which a product is sold.
Geopolitical Friction: Tensions and conflicts arising from political and economic relationships between countries.
Multilateralism: The principle of participation by three or more parties, especially by the governments of all countries of a particular region, in an international organization.

Summary

Market Rally and Economic Indicators

The broadcast opens with a report on a broad-based market rally, with 462 names in the S&P 500 trading higher. This rally was partly fueled by news that the Trump team is internally discussing the possibility of allowing NVIDIA to sell its H200 artificial intelligence chips to China. NVIDIA shares saw a positive reaction, moving higher by 1.3%.

Earlier in the day, a significant comment came from John Williams, President of the New York Fed, at the annual conference of the Central Bank of Chile. He stated, "I view monetary policy has been modestly restrictive, although somewhat less so than before our recent actions. Therefore, I still see room for further adjustment in the near term to the target range for the federal funds rate to move this handsome policy closer to the range of neutral, thereby maintaining the balance between the achievement of our two goals." This statement injected optimism into the market, contributing to the broad-based buying.

The "A-Pillars" Economy Framework

A key segment of the broadcast delves into the U.S. economy through the lens of the "three A-pillars" framework, developed by Greg Daco, Chief Economist at EY Parthenon. This framework posits that the economy is increasingly dependent on:

Affluent Consumers: Spending driven by wealth effects from asset price gains.
Artificial Intelligence (AI) Fueled Investment: Significant capital expenditure in data centers, semiconductors, software, and R&D. Approximately one-third of GDP growth in the first half of the year was attributed to AI investment.
Asset Price Gains: Stock market optimism driving valuations and a subsequent wealth effect.

Daco emphasizes that while these pillars are interconnected and currently in a virtuous cycle, there are significant downside risks if any one pillar falters. He notes that the stock market itself is "K-shaped," with not all firms benefiting equally. The fear of missing out (FOMO) can lead to inadequate capital allocation if the end-use and productivity gains of AI investments are not carefully considered.

The discussion also highlights a shift in the economic paradigm from demand-side dynamics to supply-side dynamics, influenced by factors like trade policy, demographics, climate change, and the AI revolution. These supply shocks can have countercyclical effects on output and inflation.

Federal Reserve Policy and Economic Data

The conversation touches upon the Federal Reserve's upcoming meeting and the challenges posed by a lack of definitive data. Fed Governor Stephen Myron expressed continued support for further Fed rate cuts, stating that the absence of data doesn't negate their forecast and that available information has inclined him towards easing.

Greg Daco, however, suggests a more polarized environment within the Fed, with policymakers grappling with three key questions: the persistence of inflation shocks from tariffs, the weakness of labor demand, and proximity to the neutral rate. He argues that the labor market appears to be softening, with rising unemployment and participation rates indicating a demand-side slowdown, which should lead to less wage pressure and support further monetary easing. He expresses sympathy for Governor Waller's view, noting that tariff pass-through into inflation has been gradual and uneven, suggesting a one-time shock rather than a persistent one.

Geopolitics and Global Investing

The broadcast shifts to geopolitical developments impacting global investors:

Russia-Ukraine War: Ukraine risks losing a key partner as the U.S. reportedly threatened to cut off support unless Kyiv agrees to a peace deal involving territorial concessions, military size caps, and a pledge not to join NATO.
U.S.-China Tech Relations: U.S. officials are in early discussions about allowing NVIDIA to sell its H200 AI chips to China, a move that would be a significant win for NVIDIA.
G20 Summit: The upcoming G20 meeting in South Africa is overshadowed by diplomatic disputes between the host nation and the United States over participation and priorities. The U.S. has expressed misalignment with South Africa's theme of "solidarity, equality and sustainability." There's a concern that this bickering could undermine the forum and impact future U.S. hosting of the summit. Despite U.S. reservations, private sector leaders at the B20 meeting expressed alignment on key recommendations, particularly regarding debt and development in emerging markets.

Global Market Outlook and European Equities

Rafael de Turenne, Head of Capital Market Strategy at Tokyo Capital, discusses the global investment landscape. He notes a resilient market driven by macro and earnings resilience, despite anxieties around tariffs, the AI bubble, and geopolitics. He anticipates a reacceleration of growth in the U.S. and Europe by 2026, with German stimulus expected to impact the real economy.

De Turenne highlights the outperformance of European markets (FTSE 100, DAX) over the S&P 500 year-to-date, attributing this to a rebalancing of global investment flows away from the historically dominant U.S. market. He points to valuation discounts in European equities and the potential impact of German stimulus as catalysts for continued outperformance.

Regarding private credit, de Turenne acknowledges some deceleration in credit quality but does not foresee systemic risk brewing in dollar terms.

NVIDIA and the U.S.-China Tech Dynamic

Kuhn John, Senior Semiconductor Analyst at Bloomberg Intelligence, provides insights into NVIDIA's potential to sell H200 AI chips to China. He explains that the H200 is a powerful, prior-generation chip, significantly more capable than the H20, which NVIDIA is currently allowed to ship but is not seeing strong demand for. A license for the H200 would represent a substantial opportunity for NVIDIA, with higher ASPs.

John notes that while the H200 would be a significant upgrade for China compared to its current alternatives, it is not as powerful as NVIDIA's upcoming Blackwell architecture. He cautions that even with a license, geopolitical tensions and China's preference for domestic solutions could limit actual sales. He also suggests that restricting access to advanced chips can accelerate China's domestic innovation, citing past data.

Pittsburgh International Airport Overhaul

Christina Costas, CEO of Pittsburgh International Airport, discusses the recent opening of its new terminal, a project that took 14 years and cost approximately $1.7 billion. She emphasizes the airport's readiness for record Thanksgiving travel demand and highlights the improvements in customer experience, including a new terminal, garage, roadway system, and customer service building. Costas also addresses the importance of safety and security, noting the absence of construction-related fatalities in the new build and the dedication of TSA, Customs and Border Protection, and air traffic control partners during a recent government shutdown. She advocates for more consistent funding and technological upgrades for air traffic control.

Stocks on the Move

Ross Stores: Outperforming in both the S&P 500 and Nasdaq 100, reaching a record high. This is attributed to consumers seeking affordability, with shares up approximately 15% year-to-date.
NVIDIA: Shares are up slightly after news of potential U.S. discussions regarding H200 chip sales to China. The stock has been volatile, up about 35% year-to-date.
Gap: Shares are higher, experiencing their best day since May, driven by strong performance from its Old Navy and Banana Republic brands, and celebrity partnerships.
Eli Lilly: Surpassed the $1 trillion market capitalization mark, becoming the first healthcare company to do so. This surge is largely due to optimism surrounding its weight-loss drug, with projections of $95 billion in sales by 2030. The stock is up nearly 38% year-to-date.

Conclusion

The broadcast concludes with a recap of the day's trading, highlighting a broad-based rally that ended a volatile week. The market's movement was influenced by a mix of positive economic sentiment, Fed commentary, geopolitical developments, and specific company news, particularly concerning NVIDIA's AI chip sales to China. The "A-pillars" framework provides a nuanced view of the U.S. economy's current strengths and vulnerabilities, while global events and infrastructure projects like the Pittsburgh airport upgrade underscore the interconnectedness of economic and political landscapes.