More progress on trade deals… beware the month of August… a preview of what’s coming for the Mag 7s… when will their AI spend be a problem?… Microsoft’s winners and losers
Good news on the trade war.
Over the weekend, the U.S. and EU agreed on a framework deal that sets a 15% tariff on most EU exports to the U.S. – down from a threatened 30% and sharply reducing trade war risk.
The EU also agreed to massive commitments: $750 billion in U.S. energy purchases and roughly $600 billion in investments, including military equipment.
Key sectors like autos, semiconductors, aircraft components, chemicals, and generics are exempted under “zero‑for‑zero” rules.
Meanwhile, U.S.–China talks are expected to extend the current 90‑day tariff truce past the August 12 deadline, helping avoid sudden tariff shock to markets.
Adding to the good news, this morning, President Trump indicated that the baseline universal tariff rate for many partners may fall from 20% to around 15%, easing pressure on trade across the board.
Overall, with the August 1 trade deadline looming for multiple partners, these developments tilt the picture slightly bullish: trade risk is receding, and greater clarity is emerging ahead of key shutdown dates. This is welcome news because…
Ready or not, here comes August
If that doesn’t send an icy shiver down your spine, let me elaborate.
A few years ago, Sam Stovall, chief investment strategist at CFRA, crunched the numbers. With data beginning in 1945, he found:
The S&P 500 posted its third-worst average monthly return, and third most volatile performance, in August.
To make matters worse, while the S&P 500 was higher 55% of the time in August, that batting average fell to only 35% following the 23 years in which the S&P set one or more new highs in July.
And to add insult to injury, following the 13 Julys that set six or more new all-time highs, the S&P 500 declined an average 2.4% in August, and fell in price 12 of 13 times.
Numbers like these are why legendary investor Louis Navellier just wrote “I have a confession to make… I hate the month of August.”
Now, throw in a few potential grenades like tariff deadlines, interest rate curveballs from the Fed, an unexpected uptick in inflation, and a black swan geopolitical shock, and suddenly, August starts to look like a potential minefield rather than a summer stroll.
But with a little planning, we don’t have to be victims.
There are three productive ways to respond – sell speculative positions today, trade volatility lower, or be ready to buy if/when lower prices arrive
Last Tuesday, Louis and TradeSmith CEO Keith Kaplan profiled a “seasonal trading tool” that can help with all three action steps.
As a quick recap, this seasonality tool highlights the exact days to buy and sell a stock based on that stock’s unique, historical “seasonal” patterns. But because it shows you – visually – a stock’s historical trend line, you can use it for multiple purposes.
To illustrate, let’s use tech and AI giant, Microsoft (MSFT). (Disclaimer: I own MSFT.)
First, here’s Microsoft’s chart viewed through the seasonality tool.
If you’re having trouble seeing it, MSFT’s stock price is blue. The aqua line is MSFT’s seasonal trend line using data from the last 15 years.
So, here’s how we might use this:
- Short-term traders sitting on gains: The chart shows us that MSFT has already entered an historically weak time of year. The seasonal trend line – now in a downtrend – suggests profit-taking should be considered.
- Short-term traders wanting to open a trade: The seasonal trend is bearish until early October, so going short is the default play right now. The data suggest some brief rallies in August and September, but “down” is the prevailing direction until October.
- Long-term investors looking to capitalize: Sit on the sidelines until early October. That’s when the data suggests you’ll have a much lower entry point for your long-term MSFT position. Note that, starting on October 8, the seasonality tool highlights an “Optimal” period in which MSFT returns 7.16% through December 2.
By the way, it’s not just Microsoft. If you’re considering a Mag 7 trade today, here’s Keith, who just ran them through the seasonality tool:
If you’re thinking of buying Apple (AAPL), Tesla (TSLA), Nvidia (NVDA)—or any of the other giant AI stocks—history says it’s best to hold off buying until the end of the year.
A “winter” is coming for popular tech stocks.
Overall, Keith is looking for the entire tech sector to cool as we enter the fall before rallying once we get into Q4. This parallels Louis’ views on August weakness.
For more on how the seasonality tool works, you still have time to catch the free replay of Keith’s and Louis’ broadcast last week. They’ll walk you through the bells and whistles, showing how it eliminates guesswork and helps you better pinpoint your buy/sell timing.
I’ll give Louis the final word:
If you’ve ever wondered when to trade, not just what to trade, this is the most important market briefing you’ll see all summer.
Circling back to the Mag 7s…
Last week, President Trump unveiled what he’s calling America’s AI Action Plan – a sweeping, deregulatory push to cement U.S. dominance in artificial intelligence.
At the heart of the plan is a simple message to AI innovators: go faster.
Here’s The Wall Street Journal:
The plan, which also has been embraced by the broader tech and business community, promises to clear away red tape around the development and use of AI and boost exports of American tech—including semiconductors essential for AI.
Additionally, it aims to streamline the creation of data centers and make energy for them more readily available.
In Trump’s words, the government should be “rewarding innovators with a green light,” not choking progress with bureaucracy.
Sounds like a great reason to plow more money into Big Tech stocks, right?
Not necessarily, according to our macro expert Eric Fry:
The White House has, essentially, pulled back restraints on big tech companies as they power forward in developing AI.
However, while big tech may be celebrating, I wouldn’t touch a single overhyped tech stock right now.
Collectively, the major tech companies are spending hundreds of billions of dollars to develop leading-edge AI capabilities. This monstrous investment imperative could stifle their profit growth and hinder free cash flow generation over the next few years.
We can see this already happening with the popular “Magnificent Seven” tech stocks.
The problem isn’t revenue. The Mag 7s are still raking in the dough. The issue is the mindboggling spending associated with AI.
Eric highlights how the four leading “hyperscaler” data center operators – Amazon, Microsoft, Alphabet, and Meta – have invested an astounding $1.5 trillion during the last five years in research and development, plus property, plant, and equipment (i.e., data centers). (Disclaimer: I own AMZN, MSFT, and GOOG.)
And that pace isn’t slowing. Back to Eric:
These four companies are on pace to spend more than a half-trillion dollars this year on R&D, plus property, plant and equipment.
For perspective, their combined annual net income last year was only $315 billion.
In other words, investing in AI technologies has become so mind-bogglingly expensive that winning the AI race could prove to be the ultimate Pyrrhic victory for the tech giants.
So, when does this become a problem?
The problems begin if the return on all that AI spending fails to justify the cost.
Today, investors are betting these investments will produce massive future returns – higher productivity, new revenue streams, and permanent dominance in AI.
But if those expectations don’t materialize, or even just take too long, that spend turns into a drag on earnings and stock performance. And that’s when I’d guess we see the following tipping dominos…
- Margins compress
- High interest rates (if Powell is still around) make the cash burn costlier
- Competitive parity between the various Mag 7 chatbots and AI offerings neutralizes their individual advantages, impacting profits
- Eventually, Wall Street’s patience runs out
Bottom line: When the market stops believing the AI payoff will justify the mindboggling cost, the tech giants will start bleeding.
Eric is urging investors to avoid getting caught up in that reckoning by rotating into what he calls “lesser known, but greener, pastures”
From Eric:
These are the types of companies that are often overlooked and underappreciated, but which are capable of delivering great results… especially when popular investments are not.
Clearly, I don’t recommend investing in any of the Magnificent Seven companies right now – or any other overhyped tech stock, for that matter.
For the safer alternatives, Eric has compiled a list of three companies that he believes are “Buys.” Most investors aren’t paying any attention to them now – but Eric says it’s just a matter of time.
So, today’s early buy-in opportunity could help you protect and multiply your money if/when the Mag 7 reckoning begins kneecapping investors.
From Eric:
You can find the details of these companies – ticker symbols and all – in my brand-new special broadcast, free of charge.
What’s more, I also share four names that I believe are “Sells,” so you also know which stocks to avoid.
These are companies with significant headwinds that could drag down your portfolio.
Finally, MSFT: A tale of two worlds
Last week, CNBC ran a story with the following headline:
Microsoft’s Satya Nadella says job cuts have been ‘weighing heavily’ on him
Well, perhaps he’s finding solace in MSFT’s stock that has been making new all-time highs almost daily since late April.
The company has cut over 15,000 people in 2025, and investors have rewarded Microsoft for it, pushing the stock’s closing price above $500 for the first time on July 9.
This is an illustration of the point we’ve been hammering here in the Digest for months…
AI is enabling companies to do more with less. This means more people will be losing their jobs – with all that related employee expense remaining within the company, funneling down to the bottom line, driving the stock price higher.
I asked ChatGPT (in which Microsoft is a key owner) to ballpark how much Microsoft has saved on its job cuts this year.
Here’s part of the answer:
A typical Microsoft employee costs around $150,000 per year when salary is combined with benefits (about 30% extra). Multiplying that by 15,000 gives:
Annual payroll savings ≈ $2.25 billion
This figure excludes ongoing perks like stock options or long-term incentive payouts—it focuses strictly on salary and benefits.
So, here’s our quick sum-up…
Some Microsoft employees run into financial headwinds as they lose their jobs… some Microsoft investors toast financial tailwinds as their portfolios swell.
Expect a lot more of this dynamic from corporate America in the years to come.
Now, there is one caveat, circling back to that $2.25 billion potential cost savings from the Microsoft layoffs…
That’s a lot of money – until viewed through the lens of Microsoft’s AI initiatives that will run – this year alone – about $80 billion.
And this circles us right back to Eric:
Investing in AI technologies has become so mind-bogglingly expensive that winning the AI race could prove to be the ultimate Pyrrhic victory for the tech giants.
Perhaps it is time to do a little portfolio rotating as Eric urges.
Have a good evening,
Jeff Remsburg
