The weekender: September’s cliff, AI turns to ballast, China liquidity burns hot, and Gold stands tall

The tape closed August with a reminder that gravity still works, even on the high-flyers. Tech, the same engine that powered April’s comeback caravan, ran into month-end rebalancing like a convoy hitting a ditch. The Nasdaq gave back 1.2%, the S&P slipped from record highs, and traders found themselves bracing for September — Wall Street’s statistical bogey month — when institutional rebalancing, softer retail flows, and seasonal volatility often collide.

The narrative that carried the Magnificent 7 to the stratosphere suddenly feels less bulletproof. MIT tells us AI projects don’t pay yet, Apple lectures that LLMs don’t actually think, Meta quietly freezes hiring, and Sam Altman muses about bubbles. What was once the cleanest growth story now looks more like a feast where the plates are full but the calories aren’t translating into muscle. Bigger servers and fatter GPUs aren’t the breakthrough; the real return may only come from more elegant architectures or quantum leaps in technology. Until then, the easy phase of the S&P’s vertical ascent could be behind us.

China’s market engine, on the other hand, is roaring again, but the smell of fumes is impossible to ignore. Liquidity has been pumped into the system with a firehose, and stocks have surged ahead of their Western peers. Yet the true accelerant isn’t growth fundamentals, it’s leverage — margin debt sloshing in the tank like gasoline. The rally feels less like a finely tuned machine and more like a drag racer revving at the line: fast, flashy, and thrilling, but one wrong gear shift and the whole thing risks spinning out.

While US stocks sagged into the month's end, bullion basked in August’s glow. Yields bull-steepened, short-end Treasuries ran hard, and gold set fresh record closes. Rate-cut conviction grew louder after the weak August 1 payrolls print, dovish Fedspeak, and sticky-but-contained inflation. Barring a blowout jobs report next Friday, the market has all but penciled in a September 17 Fed cut. Yet, with Fed independence under political scrutiny, the dollar feels a little less wanted on the world stage — and gold a little more necessary.

Did gold break out?

Under the hood, it’s narrow. Mag 7 underperformed the S&P 493, hedge funds eked out crumbs, and momentum longs suffered their worst month since mid-2024. Meanwhile, speculative froth bubbled in penny stocks and unprofitable names — Goldman’s Speculative Trading Indicator shot to levels only seen in 2000 and 2021, both preludes to carnage. The S&P 500 now trades at 23x forward earnings, valuations stretched like a rubber band in the sun. Low vol at 15 on the VIX is not comfort, it’s complacency.

US consumer spending surprised with resilience, keeping growth alive even under tariff strain, while inflation’s core impulse is stuck in services. Job growth, however, has slipped from a sprint to a shuffle — Goldman pegs underlying monthly gains at ~25k, down from 200k at the year’s start. That’s the kind of erosion that eventually cracks the Fed’s resolve. And though financial conditions have loosened, equities are facing a wall of worry: high valuations, political noise, and historically the worst month for risk.

So we enter September with stocks priced for perfection, breadth narrowing, vol asleep, and macro carrying enough contradictions to keep traders second-guessing. Dip buyers may win the next skirmish, but the calendar itself is a foe — the S&P has fallen in 56% of Septembers since 1927, with an average loss over 1%. Seasonals alone don’t topple markets, but they do add grease to the downhill slope. For now, August closes with bonds and gold as the month’s heroes, stocks as the reluctant laggard, and AI shifting from pure rocket fuel to something that looks more like heavy ballast.

Take the swing for EUR/USD 1.20+?

It shouldn’t surprise anyone that the dollar’s path of travel is lower. The real game isn’t if it weakens, but when you size the trade — especially with the drag of negative carry always gnawing at the position.

We tried to get cute this week, picking up EUR/USD around 1.1500 on French politics and late-summer shakeouts. That never materialized. By midweek, once PCE looked pinned to consensus, we were back in chase mode instead of bargain-hunting.

The bigger story, though, is Fed independence. If Lisa Cook is forced out — and the mortgage filings make that outcome hard to dodge — Trump gets another loyalist at the table. Stack her replacement next to Miran, Bowman, and Waller, and you’ve got a bloc ready to cut. Powell’s eventual exit shifts it even further. They don’t control the FOMC yet, but don’t overlook the governors’ leverage: they hold the keys to reappointing all 12 regional Fed presidents in 2026. That’s where the long-term shake-up risk lives.

Waller is the one to watch. He was openly pushing a 25bp cut this week with the clear suggestion of more to come. Markets are already whispering he’s the next chair. If that’s right, the Fed independence fight won’t just be background noise — it will drive policy.

And then there’s payrolls. The jobs data has been staggering like a drunk across cobblestones. Revisions already leave May and June basically flat. If the next release prints negative — rare outside a recession — then September’s cut is not a probability, it’s a lock. It goes straight to 100%. From there, October and December fall in line like dominoes. That chain isn’t priced yet, which makes the next payrolls release more tripwire than data point.

That’s why I think EUR/USD at 1.20 into year-end is worth a swing. Independence risk, Waller’s ascent, and a fragile jobs backdrop stack the deck. The dollar may not collapse in one straight line, but the slope of the hill is clear — and the trip hazards are lining up.

Tariffs are not yesterday’s news

Tariffs are not yesterday’s story — they’re today’s price action and tomorrow’s headline risk. A liberal appeals court in Washington may have ruled Trump’s tariffs illegal, but nobody on the Street believes that’s the end of it. This case is headed for the Supreme Court, where a Republican majority makes it more likely the gavel falls in favor of keeping tariffs alive.

The reality is that tariffs have whipsawed this year like a futures pit on thin liquidity. From April’s post-“Liberation Day” spike near 28%, down to the 12% lull after a U.S.–China détente, and now back around 18%. We’re staring at the heaviest import burden since the 1930s — and that’s a number that belongs in a history book, not a modern trading screen.

Short-term skirmishes keep traders guessing. Will Washington actually slap tariffs on pharma under the banner of “national security”? Hard to see it without major carve-outs. Will India ease its punishing 50% rate? And in Zurich, optimism runs that Switzerland’s eye-watering 39% toll will come down toward the EU’s 15% norm. These are moving targets, each one a headline that can shift risk sentiment in a heartbeat.

But the bigger picture is darker: tariff wars don’t unwind, they metastasize. The EU’s temporary truce is fragile, and Washington’s patience with Brussels could snap if Europe drags its feet on Ukraine. That’s a flashpoint waiting to ignite. And while financial markets once leaned hard on the White House to dial back the protectionism, that pressure valve has been released. Since April, equities have run ahead and credit spreads have narrowed, giving the administration more breathing room to turn the screws.

The true wildcard isn’t political but legal. If the Supreme Court actually strikes down Trump’s country-specific tariffs, the immediate aftermath would be chaos — an open field without rules, where importers and exporters scramble to reprice contracts, and risk desks run VaR limits red. But make no mistake: even if one lever is knocked away, the executive still holds enough instruments to re-weaponize tariffs in another form.

Bottom line: the path of least resistance isn’t lower tariffs, it’s higher — and markets that treat protectionism as noise will find it’s a signal with teeth. Tariffs today aren’t just about trade flows; they’re about inflation, central banks, and risk premia across every asset class.

Chart of the week: The Fed independence trade has steepened the curve