I. Market Overview: Quiet Session, Indices Rebound
On Tuesday, August 26, U.S. equities posted a modest rebound in subdued trading. Despite broad weakness across large-cap tech, gains in NVIDIA helped offset declines in communication services and other sectors. Market participants largely stayed on the sidelines, with attention focused on rising tensions between Trump and the Federal Reserve, India’s tariff policy shifts, and ongoing U.S.-China trade talks.
II. Key Events: Trump vs Fed, India Tariffs, U.S.-China Dialogue
1. Trump Dismisses Fed Governor Quarles — Independence at Risk
Trump signed an order removing Fed Governor Quarles effective immediately. Quarles vowed not to resign and will pursue legal action, potentially escalating to the Supreme Court.
Background: Allegations of “financial fraud” stemmed from minor personal filings (two primary residences), sparking controversy given Trump’s own record.
Market Impact: A blow to Fed independence could erode confidence in its inflation-fighting credibility. For now, markets reacted mildly, awaiting clarity on whether further Fed officials might be targeted.
2. U.S.-India Trade Talks Collapse — Tariffs Escalate
Talks broke down, with the U.S. imposing 50% tariffs on Indian goods starting Aug 28, citing Russian oil imports. India refused to expand agricultural imports, with Modi pledging to protect farmers “at all costs.”
Response: Indian refiners will reduce Russian crude purchases but not cut ties. The government pledged fiscal support for exporters and will diversify trade toward China, Latin America, and the Middle East.
3. U.S.-China Talks Show Progress
Vice Minister Li Chenggang traveled to the U.S. for meetings, signaling some progress in bilateral negotiations.
III. Technicals & Liquidity: Nasdaq Capped, September Risks
Nasdaq Resistance: The Nasdaq 100 remains capped by its 10-day MA, with traders holding back ahead of NVIDIA’s earnings.
Liquidity Risks in September: Dallas Fed’s Logan warned corporate tax season could tighten short-term liquidity, pushing up rates and pressuring high-leverage trades (growth stocks, banks).
Historical Reference: A similar June episode caused overnight funding spikes and equity volatility.
Fed’s Position: With $3.3T in reserves (vs. $2.7T minimum), the Fed has tools to prevent systemic stress, though “flash-crash” style volatility cannot be ruled out.
IV. Crypto: Bitcoin Bounce, ETF Divergence
Price Action: Bitcoin briefly dipped below $109k, triggering ~$813M liquidations (~180k traders), before rebounding.
ETF Flows: Spot Bitcoin ETFs saw $2.7B net inflows in August (total $12.4B YTD), now holding ~$30.5B (5.2% of BTC market cap). Futures-linked ETFs saw $12.1B net outflows.
Seasonality: September historically brings corrections, but greater institutional ownership may buffer volatility.
Ethereum: BMNR boosted ETH holdings by 33% last week to $8.8B, becoming the largest ETH reserve holder.
V. Credit Stocks: BNPL & AI Lending Diverge
BNPL:
Affirm (AFRM): +28% YTD, 98% U.S. revenue, insulated from tariffs. Gains from Klarna’s upcoming U.S. IPO (valuation $13–14B, down from $50B peak). Short-term positive, but longer-term competition risk.
Sezzle (SEZL): Focused on lower-income, fast-fashion payments. Tripled earlier this year, but dropped 34% on weak guidance. Attractive for tactical trades under easing conditions.
AI & Fintech:
Upstart (UPST): Stabilized at 200DMA after sharp correction. JPM upgraded rating on stable credit backdrop + rate cut hopes.
SoFi (SOFI): Diversified fintech bank model outperforms peers, supported by new product lines (gold, remittances, PE funds).
LendingClub (LC): Strong earnings (+156% YoY net profit), but trades at “traditional bank” multiples.
Small Caps (PGY, OPFI): PGY +270% YTD (AI loan securitization), OPFI +44% YTD (bank-license rental model). Outperforming larger peers.
VI. Stock Movers
SATS (EchoStar): +70% after AT&T offered $23B cash for spectrum assets. Deal priced in; chasing risk high.
Lilly (LLY): +6% on successful Phase 3 obesity/diabetes pill trial. Plans FDA filing in 2025. Novo Nordisk (NVO) -1.8% on competitive pressure.
UnitedHealth (UNH): Plunged post-close as criminal probe may expand into commercial insurance and network management. Legal/financial risks rising; short-term avoid until clarity emerges.
VII. Conclusion & Strategy
Markets stayed muted ahead of NVIDIA’s earnings and amid political/trade turbulence.
Watch: Trump-Fed showdown, India tariffs, UNH probe.
Opportunities: Quality credit names (AFRM, SOFI), defensive positioning in case of liquidity stress.
Risks: September flash-crash risk, heightened volatility in crypto, probe fallout for healthcare names.
Strategy: Avoid crowded trades, use dips to accumulate strong fundamentals in tech, growth, and rate-sensitive sectors.
