• Commodities: WTI crude, the US oil benchmark, joined Brent crude above $100 per barrel this morning on reports that Trump administration advisors are preparing for the war with Iran to last until 2029. Saudi Arabia’s warning that its oil production has fallen to the lowest level since 1990 only exacerbated crude’s climb.
• Bonds: Higher energy prices mean higher inflation, so bond traders want a bigger payout for holding US debt—which is why the 10-year Treasury yield reached an intraday high of 4.927%, its loftiest level since October 2023.
• Stocks: The odds of a rate hike after the Fed’s meeting next week have soared from 49% last week to 73% today. The combination of interest rate fears, high crude prices, and rising bond yields was enough to send indexes tumbling for a fourth straight session.

Earnings

Morning Brew Inc, Photo: Adobe Stock

You probably know American Eagle Outfitters from the mall, back-to-school shopping, or Sydney Sweeney and her famously “great jeans.”

Yesterday, the retailer reported earnings of $0.79 a share, way above the $0.22 Wall Street expected, while revenue rose 8% year-over-year to a record high. Operating profit more than doubled to $211 million from $103 million, and American Eagle raised its full-year operating income target by around $145 million at the midpoint.

Those headline numbers looked great—so why did the stock tumble 14.03% this afternoon?

A big reason behind the selloff is that tariffs are masking a lot of weakness below the surface. American Eagle received a $196 million tariff refund, which added $161 million to operating profit after related compensation expenses. In other words, roughly 76% of the company’s operating profit came from that one-time benefit.

Margins tell the same story: American Eagle’s gross margin rose nearly 10 percentage points, but strip out the tariff boost and the company’s underlying merchandise margin actually fell 3.3 points.

The underlying numbers help explain AEO’s softening core business. Comparable sales rose 6%, short of Wall Street’s 6.7% estimate, as a 1% decline in sales at the namesake American Eagle brand offset a 19% jump at Aerie. Executives said they misjudged fashion trends, leaving the company stuck with older inventory that had to be marked down.

Macy’s mixed message

Like American Eagle, fellow retailer Macy’s also topped Wall Street’s sales and earnings estimates. And, like American Eagle, its stock still fell 4.77% today.

The difference is that Macy’s results held up better after the tariff boost. The company received $116 million in refunds, but still beat Q2 earnings estimates even without them.

Macy’s is putting $96 million of that windfall toward longer-term improvements rather than temporary price cuts, including closing weaker stores, upgrading stronger ones, and leaning further into premium merchandise. There are signs that the turnaround is gaining traction: Bloomingdale’s comparable sales rose 11.3% year-over-year, while Bluemercury revenue climbed 6.2%.

But investors were unimpressed with the outlook: Macy’s expects an adjusted loss of $0.19 to $0.23 per share in the third quarter, far worse than the $0.06 loss Wall Street expected, as spending on the turnaround weighs on near-term profits.

Zoom out: For all the mixed signals coming from retailers, the consumer is still “kicking along,” according to Bank of America CEO Brian Moynihan. He said the bank’s data shows that spending rose about 4% in August from a year ago, following 5% growth last quarter, even as gas prices climbed.

For retailers, a healthy consumer comes with an uncomfortable downside: fewer places to hide when your own numbers disappoint. Sometimes, the jeans just aren’t so great.—SY

      

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Stocks

🟢 What’s up

• Apple climbed 3.56% following the debut of its long-awaited foldable iPhone Duo.
• SpaceX gained 0.43% ahead of the planned launch of a classified payload for the US Space Force.
• AeroVironment jumped 4.45% on strong quarterly results fueled by continued demand for its drones and related products.
• Elevance Health rallied 5.34% after its CFO said third-quarter earnings are tracking ahead of the company’s previous outlook.
• Skyworks Solutions and Qorvo rose 9.79% and 6.77%, respectively, as their planned merger moved into the final stage of a Chinese regulatory review.

🔴 What’s down

• TSMC slipped 1.68% despite reporting record monthly revenue for August.
• Navan tumbled 21.75% as investors focused on rising operating costs and widening losses at the corporate travel company.
• Oracle fell 5.38% ahead of its earnings report.
• Biohaven sank 14.76% after the FDA partially halted testing of its experimental epilepsy treatment over a potential safety concern.
• CooperCompanies dropped 14.67% on a fiscal fourth-quarter outlook that fell short of Wall Street estimates.
• Intel declined 5.57% following a Piper Sandler Neutral rating that argued the stock looks fully valued after its recent rally.

Stats of the day

So, what happens next?

Morning Brew Inc, Photos: Adobe Stock

Finding a signal in the constant economic noise isn’t easy for investors managing their portfolios, so imagine what a headache it must be for central bankers trying to steer the entire economy.

Their job isn’t getting any easier after a day of mixed signals about the state of inflation. On the one hand, the big news moving markets today was WTI crude temporarily climbing above $100 per barrel for the first time since May, while Brent crude briefly broke above $105. As energy costs rise once more, investors are fretting that higher fuel prices will raise inflation and push the Fed to hike rates at its meeting next week.

But not so fast: Today’s PPI reading, which provides a look at wholesale inflation, arrived in line with economists’ expectations, while Core PPI actually came in below forecasts. It was surprisingly good news, but it doesn’t mean we’re out of the woods just yet—energy prices still pushed PPI higher year-over-year. Ultimately, tomorrow’s CPI report will provide the Fed with a clearer look at how inflation is faring.

In the midst of these conflicting signals, the Fed is keeping an eye on how its counterparts are faring. Early this morning, the European Central Bank voted to raise interest rates for the second time this year as it looks to put a lid on inflation in Europe, which rose to a three-year high in August. And the day after the Fed makes its rate decision next Wednesday, the Bank of Japan is widely expected to raise its own interest rate—which, as anyone who’s been following the recent bond market drama can attest, could have a very real effect on the US stock market and economy alike.

TLDR: Brace yourself for a lot of near-term upheaval while Kevin Warsh & Co. try to figure out what to do next.—MR

Investing

Morning Brew Inc

If you’ve made it this far in life without knowing what “tokenization” or “perps” means, then we’re jealous. Unfortunately, now might be the time to tune in.

The world of investing, prediction markets, and crypto are all converging into an unholy trinity as everything turns into one giant casino. Perpetual futures, aka “perps,” are a major part of that transformation.

Perps are essentially futures contracts that never expire, but don’t actually give investors ownership of the underlying asset they track. Kalshi first got approval to list perps tied to digital assets back in May, and since then, $44 billion in volume of perp contracts have been traded on the site, according to CNBC. Today, Kalshi won approval from the CFTC to roll out perps tied to gold and silver, arguing that the resurgence of inflation is making precious metals a more relevant investment than ever.

But it isn’t just prediction markets ushering in a new era of finance. Traditional stock exchanges, which have realized that risk-hungry retail traders are a growing customer base, are trying to jump on the crypto bandwagon as well.

Just today, the venture capital wing of the Nasdaq invested $100 million in the parent company of crypto exchange Kraken to launch tokenized equities. Tokenization is also a kind of investment product built around an asset—but doesn’t actually give investors ownership of the stock. The two companies said investors will be able to start trading tokenized stocks in 2027.

“The next era of market evolution will be defined by how efficiently and seamlessly capital and assets move across the financial system with durable liquidity,” explained Nasdaq President Tal Cohen.

Imitation is the sincerest form of…making money?

There’s one major catch when it comes to perps and tokenized stocks: The companies that these financial products are based on may not approve.

Last week, AMC Entertainment CEO Adam Aron released the following passive aggressive statement in response to Robinhood’s move to tokenize AMC stock: “I find this practice to be contemptible, outrageous, disgusting, detestable, inexcusable, vile. How can it possibly be legal? We have no connection to this at all, and do not condone it in any way.”

Robinhood CEO Vlad Tenev shot back, arguing that companies don’t actually have the right to decide what financial products are built around their stock. “Issuers should have control and do have control over the rights and obligations of the stock that they issue, but that doesn’t mean they control everything about it,” he said.

Old school investors will likely bristle at these newfangled imitations of stocks. But to perp proponents, if it walks like a stock and talks like a stock, well, you know the rest.—LB

      

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News

• Junior investment bankers are quaking: OpenAI just released ChatGPT for Financial Services.
• A record rally for copper prices was stopped in its tracks by reports that the White House may not apply tariffs to the hot commodity after all.
• President Trump is promising to pay all American adults a $5,000 dividend if Republicans keep control of the House and Senate during midterm elections.
• For reference, this is the fourth time Trump has promised to provide Americans with cash—but he’s never fulfilled the previous pledges.
• The Texas Stock Exchange just got its very first listing.
• Fears of further escalation in the Middle East rose after Iran-backed Houthi militants captured a port in the Red Sea, giving them a base from which to launch raids in the region.
• US home sales fell 2% in August, reaching their lowest level in over a year.
• Probably not a coincidence: The average 30-year mortgage rate just hit 7% for the first time since May 2025.

Calendar

Economic reports: All eyes turn to the August CPI report. It’s the final inflation reading ahead of the Fed’s September FOMC meeting, and the last piece of the puzzle before the central bank makes its next decision about interest rates. The September University of Michigan survey on consumer sentiment should catch some attention as well.

Earnings announcements: Kroger is the only company reporting its numbers.

recs

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