September rate cut odds, Goldman's response to Trump and more in Morning Squawk

Cooler inflation data has solidified expectations for a September Federal Reserve rate cut, driving the S&P 500 and Nasdaq to new highs and fueling small-cap rallies. This monetary policy outlook coincides with reports of President Trump considering 11 candidates for the next Fed Chair, including prominent market figures. Concurrently, Alphabet faces heightened regulatory pressure regarding a potential DOJ-ordered breakup of its vast assets, while Goldman Sachs maintains its forecast that consumers will bear the brunt of Trump's tariffs despite political pushback. Separately, Eastman Kodak faces significant debt and operational concerns despite a niche film revival.

Analysis

Market sentiment is being driven by macroeconomic policy expectations, with Fed funds futures indicating a nearly 100% probability of a September interest rate cut following a cooler-than-expected consumer inflation report. This has propelled the S&P 500 and Nasdaq Composite to consecutive all-time highs and spurred a rally in rate-sensitive small-cap stocks. However, this optimism is tempered by emerging political and regulatory risks. Uncertainty around future monetary policy is amplified by reports that President Trump is considering 11 candidates to succeed Fed Chair Jerome Powell. Concurrently, Goldman Sachs is in direct conflict with the administration over its forecast that consumers will bear two-thirds of the impact from proposed tariffs, a view shared by other economists, signaling a significant risk to future inflation and consumer spending. On a micro level, specific companies face distinct headwinds. Alphabet (GOOGL) is under a regulatory cloud as it awaits a potential DOJ-ordered breakup following a monopoly ruling, putting its valuable non-search assets like Chrome and YouTube under scrutiny. Meanwhile, Eastman Kodak (KODK) presents a high-risk dichotomy; despite a niche revival in film photography driven by Gen Z, the company is grappling with severe debt and financial challenges that have raised doubts about its ability to continue operations.

Key Decisions for Investors

• Given the high market probability of a September rate cut, investors may consider overweighting rate-sensitive assets like small-cap stocks, while closely monitoring the upcoming Producer Price Index for confirmation of the disinflationary trend.
• For Alphabet (GOOGL), the primary focus should be the regulatory overhang; the outcome of the DOJ's remedy decision on a potential breakup presents both a risk of near-term disruption and a long-term possibility of value unlocking from its individual business segments.
• Investors should factor in the risk of tariff-induced inflation on consumer-facing sectors, as forecast by Goldman Sachs, and be aware of the heightened political risk for Goldman Sachs (GS) itself due to its public disagreement with the administration.
• Extreme caution is warranted for Eastman Kodak (KODK), as the company's explicit warnings regarding its financial viability and ability to continue operations should significantly outweigh the positive but niche narrative of a film revival.