The State of Play: Receipts, Rates and Reacceleration
The market is priced for a soft landing while the data is saying something else
Happy Tuesday, everyone.
So a funny thing happened on my way to hit the send button. Palantir and Caterpillar decided to blow out numbers and i figured that rather than spend another morning trying to decipher Friday’s two-step over Iran, let’s look at what’s actually happening beneath the headlines and what we need to keep our eyes on as the week develops.
ISM Manufacturing printed 55.6 Monday against an estimate of 54.0, its strongest reading since May 2022. New Orders rose to 56.7, Employment crossed back into expansion at 52.8, and Prices cooled slightly from 73.0 to 71.1.
Now mind you, cooling to 71.1 is a little like our Vegas heat cooling to 105 degrees. Sure, it cooled, but it’s still pretty darn hot.
The Atlanta Fed’s GDPNow estimate for the third quarter jumped from 5.0% to 6.2% following the report. We shouldn’t marry an early GDPNow estimate because those numbers can move around quickly, but the direction is fairly obvious. Growth is accelerating, manufacturing is expanding, and anything in the portfolio that depends on falling rates deserves another look.
Which brings us to Kevin Warsh.
The Fed held rates at 3.50% to 3.75% last Wednesday, but three members preferred a quarter-point hike. J.P. Morgan responded by moving its next expected hike from the second half of 2027 all the way forward to December 2026.
In plain English, J.P. Morgan is telling us that higher for longer may no longer be the worst-case scenario.
The bond market got the message, with the 30-year Treasury briefly touching 5.22% after the meeting. Equities and credit, meanwhile, are still behaving as though strong growth, tight spreads, expensive valuations, and a restrictive Fed can all continue living happily under the same roof.
This morning’s JOLTS report didn’t settle the argument, and it didn’t cooperate with the tidy version of it either. Job openings slipped to 7.36 million from a downwardly revised 7.54 million, which reads like cooling right up until you get to the quits line, where 3.23 million people voluntarily walked out the door against 3.07 million the month before.
That’s some cooling, but it’s not a crack. Openings are the demand side and they’re softening at the edges, but quits are the confidence side, and workers don’t hand in notice when they think the next job will be hard to find. Employers are getting choosier. Nobody’s scared. For the Fed, that keeps the December hike risk alive without doing enough to make it the base case.
The Oil Question
WTI fell below $80 Monday after Trump called off planned strikes on Iran. Tehran says no direct talks are happening, so we have a de-escalation headline, a war in its sixth month, and nothing resembling a settlement. Rinse and repeat.
Cheaper oil is disinflationary and buys the Fed some time, but it doesn’t erase Manufacturing Prices at 71.1, Services Prices at 67.7, or the three Fed members who already wanted to hike. The hawkish case was never based entirely on crude, which means an oil pullback weakens the argument around the edges without making it disappear.
The same applies to the portfolio. Lower crude reduces the immediate geopolitical premium, but it doesn’t change the multi-year stories behind defense procurement, U.S. LNG exports, or domestic natural-gas infrastructure.
Tuesday Morning Brought Receipts
Palantir
Palantir reported revenue of approximately $1.94 billion, up 93% from last year, with adjusted earnings of 41 cents per share. U.S. commercial revenue grew 149%, and the company raised its full-year revenue outlook to roughly $8.15 billion.
Everybody shows up for the AI-to-defense pipeline, but the quarter’s real story was commercial adoption. This is the AI infrastructure theme finally showing up as booked contracts on somebody’s income statement rather than another hyperscaler promising to spend a few billion more next year.
The caution hasn’t changed because a blowout quarter doesn’t suddenly make the valuation cheap. What it does is give the valuation something more tangible to stand on.
Caterpillar
Caterpillar followed with adjusted earnings of $8.17 per share against expectations near $6.20, while revenue increased 24% to a record $20.54 billion and backlog climbed to $72.1 billion. Construction revenue rose 35%, Resource Industries grew 20%, and Power and Energy increased 17%, with data-center construction and power-generation demand helping drive the results.
That matters well beyond CAT because Palantir confirmed the software and contract side of the AI build-out, while Caterpillar confirmed the physical side. Power systems, construction equipment, engines, turbines, and the infrastructure needed to keep the whole thing running are following the same money.
Monday’s ISM report told us industrial reacceleration was happening. Caterpillar showed us where it’s landing.
Williams
WMB’s adjusted earnings of $0.50 came in slightly below the $0.52 consensus we were watching, but the underlying business looked better than the headline. Adjusted EBITDA increased 6%, available funds from operations rose 10%, dividend coverage remained a healthy 2.26 times, and Williams raised the midpoint of its 2026 EBITDA outlook to $8.4 billion.
The bigger strategic development was the $5.5 billion acquisition of Momentum Midstream, which adds more than 4,000 miles of gathering and transmission infrastructure in the Haynesville and strengthens Williams’ connection to Gulf Coast LNG, power generation, and industrial demand.
The Week Ahead
Friday’s payroll report still owns the closing argument, but JOLTS just made the case a little more interesting.
JOLTS Job Openings, Tuesday. Openings eased to 7.36 million from a revised 7.54 million, but quits jumped to 3.23 million. Labor demand isn’t accelerating alongside manufacturing, though workers clearly haven’t gotten the memo about being worried, which leaves the hike case right where it was.
ADP Employment, Wednesday. The prior reading was 98,000. Something below 75,000 would support duration and the Fed-on-hold argument, while a reading above 150,000 would put additional fuel behind the tightening risk.
ISM Services, Wednesday. The prior headline was 54.0, with Prices at 67.7. If services remain firm alongside Manufacturing at 55.6, the Fed will have very little room to relax. The Prices component remains the number that matters most.
Non-Farm Payrolls, Friday. Consensus is around 83,000 to 85,000 following the prior 57,000. A number below 50,000 would likely soften the dollar, support duration, and accelerate the yen trade. Anything above 150,000, especially with firm wages, would strengthen the argument for another hike.
Fed Speakers Throughout the Week. Any additional support for a hike should be treated as signal rather than noise. The real question is whether the hawkish dissent stays contained at three members or begins spreading across the committee.
Anything somewhere in the middle probably keeps everyone arguing, which is where economists are most comfortable anyway.
Earnings Still Ahead
AMD, Tuesday. We’re watching data-center demand, inference growth, China exposure, and whether AI spending is broadening beyond the largest hyperscalers. Palantir made the case from the software side and Caterpillar made it from the physical side. AMD now gets to make it from the silicon side.
LLY, Wednesday. GLP-1 demand, manufacturing capacity, reimbursement, and pipeline progress remain the focus. The story is still strong, but expectations aren’t exactly hiding under the furniture.
CEG and LNG, Thursday. Constellation gives us a direct look at data-center power demand and forward contracting, while Cheniere tells us whether global LNG fundamentals remain intact despite the Iran noise.
MP Materials, Thursday. Rare-earth pricing, production progress, and new offtake agreements will matter most. The strategic-materials thesis now needs contracts and cash flow, not another government press release.
Global Macro
The yen remains the most important development outside the United States, particularly after coordinated U.S. and Japanese intervention pulled USD/JPY down from nearly 164 toward the mid-150s. The move was meaningful, but it hasn’t broken the carry trade, which means FXY is working as designed while the larger BOJ normalization thesis remains unresolved.
Friday’s payroll report is the next major test. A weak number would likely soften the dollar and accelerate yen repatriation, while a strong report could pressure FXY in the short term. Either way, one payroll report doesn’t change the longer-term divergence between a normalizing Japan and a United States that increasingly looks like it may be running too hot.
Germany and European fiscal reflation also continue to build quietly. Our signals are improving, but the trade still looks early rather than crowded.
Credit spreads remain tight and volatility remains contained, which tells us the market isn’t broken. It also tells us there isn’t much fear priced in if the data continue arriving stronger than expected.
So Where Does That Leave Us?
Our framework upgraded AI Infrastructure, Defense, Financial Infrastructure, LNG and Midstream, and Power Infrastructure within the same week, and Palantir, Caterpillar, and Williams have now given us confirmation from three very different corners of the economy.
Software demand is turning into contracts, AI infrastructure spending is turning into orders for physical equipment, and growing power demand is turning into pipelines, projects, and long-term agreements. These aren’t separate stories anymore. They’re becoming different pieces of the same capital-spending cycle.
The rate-hike tail still needs to be stress-tested, particularly across anything dependent on falling rates, stable long-term yields, or easier financial conditions. JOLTS told us this morning that labor demand is softening while worker confidence isn't, which is the least conclusive answer the report could have given us, and that leaves Friday's payroll report as the real verdict.
Until then, the market is still dancing, while I’m just keeping an eye on who’s walking toward the music.