🧚 The “confidence fairy” returns

Back in April 2012, Paul Krugman eulogized the death of the "confidence fairy,” detailing how arguments that proponents of fiscal austerity used to justify their stances — that lower government would be more than offset by positive side effects from more optimistic consumers and businesses —  had fallen flat.

Well. Guess who’s back.

• The most recent nowcast from the Atlanta Fed suggests consumer spending will add nearly 1.5 percentage points to economic growth (quarter-on-quarter, annualized) in Q3, which would be its strongest contribution this year.

• Bank of America aggregated credit and debit card data showed US spending up 2.8% year-on-year for the week ending August 30. From mid-May through the end of June, this was running close to flat.

• US consumption is top-heavy. The top 40% of earners drive more than 60% of spending, and a recent Federal Reserve paper showed that the resilience of the US consumer since 2021 is thanks to those earning over $100,000.

As of the first quarter of this year, stock investments accounted for 22.4% of net worth, just off the all-time high it hit the quarter prior. 

If we run with the following set of facts and assumptions: 

• US consumption is disproportionally driven by higher earners;

• Higher earners are more likely to own stocks than lower earners;

• Retail traders aggressively bought the dip in the US stock market;

• Tariffs hurt the purchasing power of lower-income Americans more than higher-income earners;

• The stock market is pretty much near all-time highs…

The conclusion that emerges is pretty clear.

The Takeaway

We can intuitively suspect that this wealth effect might be a pretty potent countervailing force to tariffs, which the Budget Lab at Yale estimated to be a $2,300 hit in after-tax terms to the average American household. It took confidence to buy the dip. That confidence was rewarded, as walk-backs on some trade levies and robust corporate earnings (in large part thanks to the AI boom) helped return the S&P 500 to all-time highs by June. That retail traders — also known as US consumers — were intense buyers of the downside in US equities relative to hedge funds means they disproportionately benefited from this recovery.

Read more.

• Pepsi’s challenge: With Elliot Investment Management taking a $4 billion activist position in PepsiCo, the company’s performance is in the crosshairs. And so far, things are not going great, with its North American sales going flat and its flagship soda slipping down to a new low in the rankings. That’s culminated with Pepsi now having the widest valuation gap to rival Coke in 25 years, as is made plain in this chart.

• What’s in a nAIme? When your ticker is “AI,” people expect you to be riding the wave better than anyone else — that hasn’t happened for C3.ai. Shares popped after its IPO, but are now down ~90% from its peak, seriously missing the AI rally that’s defined the last two years. We charted which AI stocks are flourishing in AI the boom and which ones are floundering.

BlueChew’s CEO has been playing the long game in a small, noisy category

BlueChew, an ED-focused startup that sprouted around 2017, when the patents on Viagra and Cialis expired, is unique from its peers in that it’s self-funded. We interviewed the CEO Steve Sullivan on how he’s building a brand that’s "synonymous with better sex.”

Read about BlueChew’s big plans

We built this interactive diagram to show you which tech execs and founders were there, but perhaps just as interesting: the billionaires who didn’t attend.

• Lucid surged after a news story failed to factor in its reverse stock split and misreported its lower price target as a good thing 

• Apple’s iPhone is getting a hardware upgrade, and Google’s Pixel is getting a software overhaul.

• The world’s biggest illegal sports streaming platform just got shut down.

• Tesla’s board is offering Elon Musk a record $1 trillion pay package but wants him to stay out of politics.