Welcome to this week’s Market Pulse, your 5-minute update on key market news and events, with takeaways and insights from the Sidekick Investment Team.

Today, we’re looking at the Fed’s independence, US-UK trade negotiations, and Nvidia’s valuation. 

But first, our number of the week…

-71%

That’s how much Tesla’s profits sank from the same time last year. This drop partly reflects consumer backlash to CEO Elon Musk’s political efforts in both the US and Europe. 

Sidekick Takeaway: In response to the decline, Elon Musk said he would be spending more time at Tesla and less focused on US government cost-cutting. While that may be seen as a positive, it’s unclear how impactful this shift will be given the company’s ongoing investment in long-term R&D initiatives — including projects like its humanoid robot.

Now to our main stories…

Only have a minute to read? Here’s the TL;DR:

• Trump insisted that he has ‘no intention’ to fire Fed chair Jerome Powell in a sharp reversal from previous comments. The Fed’s independence is paramount to controlling US inflation, and Trump’s actions threatened a severe market backlash. 
• Chancellor Reeves travelled to the US this week hoping to to meet with Treasury Secretary Bessent on a potential trade deal. A leaked list of US trade demands, however, has dampened expectations of productive negotiations. 
• Nvidia’s valuation continues to cool as investor AI enthusiasm fades, with the company’s forward PE ratio nearly in line with the broader market. Between economic uncertainty and chip trade restrictions, market hype on AI has noticeably cooled. 

It’s important to note that the content of this Market Pulse is based on current public information which we consider to be reliable and accurate. It represents Sidekick’s view only and does not represent investment advice - investors should not take decisions to trade based on this information.

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Fire Extinguisher: Trump Walks Back Terminating Powell

In a swift reversal this week, Trump insisted that he has ‘no intention’ of firing Fed chair Jerome Powell.

The comment comes as a welcome surprise. Over the past week, Trump has launched increasingly sharp attacks on the head of America’s central bank. 

Previously, Trump stated that Powell’s termination ‘cannot come fast enough.’ The US president is frustrated at the Fed’s cautious approach to rate cuts.

It remains to be seen how long Trump’s retreat will last. As some of the president’s top advisers reportedly warned him, however, interfering with the Fed’s independence could invite catastrophic economic consequences. 

Firing Powell risks severe economic disruption

The Federal Reserve operates with a significant degree of independence (as do the central banks of most developed countries).

This independence allows the Fed to pursue potentially unpopular policies to control inflation – like keeping interest rates elevated.

To understand how damaging political control of interest rates can be, Turkey provides an instructive example:

• Ten years ago, inflation in Turkey averaged around 8% per year – high, but not catastrophic.
• Turkish president Erdoğan believes that high interest rates stoke inflation, the opposite of economic orthodoxy. He pressed Turkey’s central bank to keep rates low.
• In turn, inflation spiked, rising to over 70% last year.

When it comes to the US, the consequences of a Turkey-style crisis could be more far-reaching. 

Since the dollar is the world’s reserve currency, both international investors and consumers would be profoundly impacted by such severe inflation. 

This makes it even more vital that Trump respects the Fed’s independence and doesn’t attempt to pressure the central bank’s rate policy. 

Sidekick Takeaway: Trump’s posturing is likely an attempt to pre-emptively blame Powell for any negative economic consequences stemming from tariffs. Following through with an attempt to actually fire Powell, however, could invite far more disastrous consequences. 

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Special Relationship: Reeves Pushes for Free Trade in US Trip

This week, Chancellor Rachel Reeves travelled to the US to attend a series of IMF meetings.

Reeves’ most important meeting, however, will be with her US counterpart Scott Bessent.

The two are widely expected to discuss terms of a possible US-UK trade deal. On Thursday, Reeves noted that she was ‘confident’ a deal could be done, but that negotiations wouldn’t be rushed.

In reality, however, the two countries appear far apart on key aspects of a potential deal.

US trade demands could be untenable for UK

Reporting from the Wall Street Journal helped shine a light on some of America’s preliminary negotiating terms. Demands include:

• Reducing UK automotive tariffs from 10% to 2.5%.
• Revising certain administrative rules on the origin country of goods.
• Relaxing UK food safety rules on agricultural imports from the US.

The first two of these could likely be achieved if the US commits to dropping its own recent vehicle tariffs on the UK.

The last one, however, crosses a red line that Reeves has made clear is not on the table.

Moreover, it’s not clear whether the US is willing to drop its 10% baseline tariff on the UK, which would be a key motivator for British concessions.

Further comments from Reeves also indicated that other areas of US interest are off-limits for negotiations, such as road safety rules and digital safety legislation.

Sidekick Takeaway: The US and UK have several areas to pursue productive discussions, including taxation of American tech firms. Overall, however, common ground seems to be slipping away, and we would be surprised to see a lasting deal negotiated on this trip alone. 

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Cooling Off: Nvidia Valuation Dips as AI Hype Fades

As the market’s key supplier of advanced computer chips, Nvidia has long been seen as a bellwether for the AI industry.

Over the past few years, investor enthusiasm for AI has resulted in impressive valuation levels for Nvidia’s stock.

One way to measure investor growth expectations is to look at how much it would cost to buy a dollar of future earnings – the ‘forward PE ratio.’

In June 2024, on the back of AI excitement, Nvidia’s forward PE ratio grew to over 46x. At the time, the S&P 500’s PE was less than half this level.

But lately, this enthusiasm has begun to fade. As Nvidia’s valuation shows, tariff uncertainty and growth fears have disrupted AI hype.

Nvidia’s PE nearly in line with market

Since the start of the year, Nvidia’s stock price has declined over 20%.

Along the way, the firm’s PE ratio has fallen to just 23.8x. That’s only a few points above the S&P 500 and almost exactly in line with the tech-heavy Nasdaq index.

This shift reflects cooling investor sentiment around AI, alongside several macro and sector-specific headwinds:

• The US government has used chip sale restrictions as a key weapon in its trade war with China.
• Tech firms are increasingly considering pulling back large AI capital expenditures amid economic uncertainty.
• Competing AI chips (such as Huawei’s 910C) and cheaper-to-train models (such as DeepSeek’s R1) could result in significant disruption to leading firms.  

Notably, Nvidia’s trailing PE remains ~10 points above the S&P 500 average, highlighting a valuation gap relative to recent earnings.

Sidekick Takeaway: AI has long been seen as a ‘high beta’ bet on the overall economy, given the technology’s capacity to magnify the productivity of existing processes. Recent market conditions have weighed on sentiment across the sector. Future developments will likely depend on macroeconomic trends and how firms adapt to evolving technological and competitive dynamics.

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Notices

Please remember, investing should be viewed as longer term. Your capital is at risk — the value of investments can go up and down, and you may get back less than you put in.

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