14 Charts: Meta vs ChatGPT, A Healthy Consumer, and Rate Hikes.
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Big Picture
💡 The Fed hiked. History says stocks are fine. Meta Muse landed, the consumer is holding up, and survey data is the most bearish it has been all year.
The Fed hiked this week. Expected, and priced in for weeks. When futures are pricing a move, the Fed almost always delivers, and that is exactly what happened. Should they have hiked? Our view is no, and we are in good company on that. Rick Rieder at BlackRock and Mohamed El-Erian have both made the same call. Hiking does not fix the actual issue, which is mostly energy driven, so yields are going to be tied to what happens in the energy market more than anything the Fed does with the front end. We showed last week that the rate-sensitive parts of inflation are actually running softer than the non-rate-sensitive parts, so raising here mostly buys the Fed a layer of perceived credibility. I am not sure I buy that framing, but it is the discussion.
For what it means to the market, we have the data below. In periods where you have both a rate-cutting cycle and elevated-and-rising rates, the market has historically performed fine. That lines up with the read that the economy is holding up and earnings and revenue are growing alongside. There is real precedent here, so investors should not be overly concerned that rate hikes have arrived. 25 basis points is not material at this juncture. Unless inflation spikes meaningfully in the next month, October is most likely a hold, and the ceiling I see is 50 more basis points of hikes from here, which does not change the economic picture given we were 50 basis points higher inside the last three years and growth was slower then.
Under the hood, we have seen a little rotation back and forth between software and semis, and both areas are still executing at the company level. On AI, the "AI ends humanity" narrative that ran from last weekend through Monday pushed a sharp rally in cybersecurity and added some fear to software. I think people are extrapolating. If AI can do that, it can also do software. Then Salesforce Dreamforce happened, with Sam Altman, Jensen Huang, and Dario Amodei all on stage, and that says a lot about how strategically important the legacy software players are to the model labs. The labs need the distribution, they need the buy-in, and these are arguably their biggest customers. The smart software vendors are attacking this three ways. They are building a harness so businesses can orchestrate and govern AI through a single interface. They are embedding AI across their existing platform. And they are going headless, exposing their database so other AI tools can interact with it inside a customer's own harness. Salesforce laid all three out cleanly. Meta Muse also launched this week, Meta's personalized agent app, and I have a podcast on it worth queueing up before our take below.
[ 1 ] App Store rankings show AI is now consumer default.
Consumer AI usage keeps compounding. App Store rankings show the AI apps are now sitting alongside social and utilities in the top-ranked slots, and the trend is broadening beyond ChatGPT.
[ 2 ] Model capability keeps clearing last quarter's ceiling.
Model capability is also moving. The new generation of models is clearing benchmarks that were the ceiling six months ago, and the pace is not slowing.
[ 3 ] AI referrals are taking share on high-intent queries.
You can see the impact on how people search. AI-driven referrals for high-intent commercial queries continue to grow their share, and the traditional search interface is losing ground on the categories that matter most.
[ 4 ] OpenAI took the model wallet crown back.
Under the hood at the model layer, the leaderboard flipped this month. OpenAI moved back to majority share of OpenRouter wallet volume for the first time since February 2024, with Astra driving the change. Anthropic is still right there, but the crown is back on OpenAI for now.
[ 5 ] YOU MAU is compounding month over month.
An AVRY holding worth watching, YOU MAU has continued to build. The user base keeps compounding month over month, and that is the setup we want in a name at this stage.
[ 6 ] OpenTable says the consumer is fine.
Beyond the portfolio, alt-data is telling us the consumer is fine. OpenTable US seated diners are running plus 13 to plus 17 percent year over year through late August and early September. Labor Day pulled the print negative for two days, and then the snapback took it right back to plus 21 to plus 37 percent on the days after.
[ 7 ] Hormuz throughput is rebuilding toward normal.
On the geopolitical front, Kpler shipping data through the Strait of Hormuz shows the recovery is real. We collapsed from around 22 million barrels per day to 3 to 4 million barrels per day this spring, and we are now back near 12 million barrels per day. Not fully restored, but the throughput is trending in the right direction.
[ 8 ] Weekly Economic Index is running above trend.
The Weekly Economic Index is still running at plus 3.07, and the eight-week change is plus 0.20. That is materially above the three-year average of plus 2.31, so the growth impulse is broadening rather than fading.
[ 9 ] ADP weekly pulse is adding real hiring.
ADP's weekly pulse is adding real hiring. The eight-week trend on private employment sits at plus 11.7 thousand per week, so the labor market is stabilizing, not deteriorating. That is the piece the Fed is watching and it is holding up.
[ 10 ] Retail sales continues to show a resilient consumer.
Headline plus 1.2 percent month over month against a plus 0.8 forecast, ex-autos plus 1.4 versus plus 0.6, and July revised from minus 0.6 to minus 0.4. The bar was set low and the consumer cleared it comfortably.
[ 11 ] The whole curve rallied on the day of the hike.
The whole curve rallied on the day the Fed delivered its expected hike. 2Y down 5.7 basis points, 10Y down 7.4, 30Y down 5.5. Every tenor closed lower as the market read the accompanying guidance as more dovish than the move itself. The 5Y and 7Y each moved more than 8 basis points, a full half standard deviation for the day.
[ 12 ] High and rising rates have historically been fine for stocks.
History has actually been kind here. In the high-and-rising rate regime we are in now, using the Cleveland Fed's modeled real yield above 2 percent and rising, forward 12-month S&P 500 returns have averaged plus 11.0 percent. So the setup of higher rates plus a functioning economy has historically been a fine one for equities.
[ 13 ] Contrarian alert, investors are the most bearish all year.
AAII bearish sentiment jumped to 53.3 percent for the week ending September 16, one of the highest reads of the cycle. Bullish fell to 28.8 percent. Bull less bear sits at minus 24.5 percent, one of the widest negative reads all year. The long-run averages are 37.5 percent bullish and 31.5 percent bearish, so both sides are roughly 20 points away from normal in the wrong direction.
[ 14 ] Realized vol is back in the calm zone.
Volatility is telling the same story from the other side. The S&P has spent 14 percent of the VIX era in the "calm zone" of VIX 14 to 16, and we are back there now. Calm tape with panicky survey data is usually a setup that resolves in one direction.
Net Net
The Fed hiked, and the bond market treated it like a done deal with dovish guidance underneath. Rate-sensitive parts of inflation are already cooling. Growth is broadening, the consumer is spending, labor is stabilizing, and corporate execution is holding up. The AI investment cycle is real, the model leaderboard is competitive, and the legacy software vendors are strategically positioned rather than obsolete. Meanwhile, the survey crowd has moved to the most bearish print of the year while realized vol sits in the calm zone. That combination has historically been a setup for the tape, not against it.
Have a good weekend.
That's all for this week.
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