Good morning,

Wall Street's first September week is starting to look like a bad group project...

... bonds refusing to cooperate, trade rules getting rewritten mid-semester, and even Buffett's favorite couple breaking up.

The 30-year Treasury is brushing 5% again despite looming rate cuts, thanks to record fiscal spending and sky-high “term premium” (the extra investors demand to hold long bonds).

Meanwhile, Moody’s is muttering stagflation, shoppers keep trading down, BNPL firms like Klarna are chasing IPO billions, and the ISM just logged its 32nd contraction in 34 months.

On the corporate side, Google just dodged the worst-case scenario in its antitrust case (no Chrome breakup, just data-sharing)...

... and Kraft Heinz is calling it quits after a decade-long marriage, leaving Buffett grumpy about a deal he once blessed.

Plenty of smoke, but not much fire yet.

Let’s dig in.

Quote of the day 

Five things to know before opening bell

🚨 Google dodges Chrome breakup

Big win for Big Tech. A federal judge ruled that Google must share some search data with competitors but won’t have to spin off Chrome in the DOJ’s landmark antitrust case. The ruling sent the stock 8% higher after hours.

🛒 Shoppers keep trading down

Retailers say even higher-income households are bargain-hunting as economic jitters mount. Dollar General topped expectations last week but warned of “increasing pressure” on spending, while Dick’s Sporting Goods insists its customers “aren’t trading down.” More data coming up soon, with Dollar Tree reporting today.

💳 Klarna chases $1.27B IPO

BNPL is booming. Hot on the heels of Affirm’s strong quarter, Klarna unveiled plans to raise $1.27 billion on the NYSE under the ticker KLAR. Shares are expected to price at $35–$37, even as the Swedish fintech reported a $53M loss last quarter. Trump’s tariffs delayed the IPO earlier this year, but Klarna’s pushing ahead.

📉 Moody’s stagflation warning

Mark Zandi isn’t mincing words. The Moody’s chief economist says tariffs will likely push prices higher while growth slows, “weakening real purchasing power” and leaving consumer spending “kind of punk.” He thinks a recession can still be avoided, but not without “a very, very uncomfortable” stretch ahead.

🏭 Manufacturing stuck in reverse

The ISM PMI contracted for the 32nd time in 34 months. August’s reading crept up to 48.7 from 48.0, but still signals a downturn. Nearly 70% of the sector’s GDP was in contraction, down slightly from July’s 79%. Only 4% is “strongly contracting,” a big improvement from one-third the month before.

🅱️ Trump’s backup tariff plan

Most of President Trump’s tariffs — the “reciprocal” duties he imposed under a disputed interpretation of emergency powers — just took a hit in court. 

But the White House is showing no signs of backing down...

🏛️ What Trump is saying

Trump wasted little time venting after an appeals court struck down his reliance on a 1977 law to justify the bulk of his duties. 

“ALL TARIFFS ARE STILL IN EFFECT,” he blasted in all caps on social media, while predicting the Supreme Court will ultimately side with him.

Meanwhile, Treasury Secretary Scott Bessent noted that three of the current justices were nominated by Trump and said he expects a majority to uphold the measures. 

For now, the administration’s stance is simple: nothing changes until the highest court weighs in.

📉 How analysts are reacting

September's first trading week kicked off with all three major indexes sliding more than half a percent and the S&P 500 logging its worst day in over a month. 

Analysts warn the legal fight is unlikely to end soon.

Some argue Trump could still find workarounds. “The process might change, but the outcome on tariffs will largely stay the same,” said Raymond James policy analyst Ed Mills.

Others note the administration could dust off the century-old Smoot-Hawley Tariff Act if courts strike down the current approach.

But if the appeals ruling isn’t overturned, the fallout could extend further. 

“The big question will be whether the courts deem that all tariffs collected under emergency powers must be refunded, which at this point could be a nearly $200 billion decision,” Glenmede strategists wrote.

📌 The bottom line

With so much still in flux, Wall Street can only guess at the eventual outcome. 

RBC’s head of U.S. equity strategy, Lori Calvasina, expects “corporate uncertainty around tariffs will remain elevated, though lower than late spring levels.”

Plante Moran CIO Jim Baird's advice? Just wait it out. 

“Whether it’s the level of the tariffs or the timing or now questions about their validity, we’ve just got to let it play out. What it will mean in the near term remains to be seen. Lots of questions, not a lot of answers,” he said.

🤔 What's all the fuss about bonds?

The bond market’s been tossing investors around all year, but this week’s long-term Treasury spike really made headlines even for 2025.

⏱ What happened yesterday

• 2-year yields popped 3 bps to 3.66%

• 10-year yields climbed 5 bps to 4.28%

• 30-year yields soared to 4.98%, their highest in over a month

The move hit stocks hard, with all major indexes sliding in tandem with Treasuries.

🌎 The Bigger Picture

Kathy Jones, Charles Schwab’s chief fixed-income strategist, says it’s not the data points that matter most. It’s the context.

That’s because most of this year’s rise in yields isn’t Fed-driven. It’s all term premium... the extra yield investors demand to hold long-term Treasuries.

“The bond market is telling you… it is worried about the path that we are on.”

That means investors are demanding more compensation for the risk of holding long bonds, thanks to inflation jitters, fiscal uncertainty, and policy swings.

The 10-year term premium has surged to its highest level in over a decade, clocking in around 0.47% as of August. And Jones thinks it's not stopping there.

She thinks yields will stay high until there’s more clarity on America’s fiscal path and economic health, possibly via the upcoming jobs report.

🍔 Kraft Heinz breakup leaves Buffett fuming

It’s officially Splitsville for a company born from a blockbuster merger a decade ago that created a grocery-sector giant.

⚡ A tumultuous union

When Kraft and Heinz joined forces in 2015, it disrupted packaged foods, putting household names from Oscar Mayer to Capri Sun under one roof. 

But the marriage never delivered. Analysts blame shifting consumer tastes and aggressive cost-cutting, which left sales sagging.

The company tried to pivot like selling brands like Planters while doubling down on Lunchables and Capri Sun. But by May, executives admitted a breakup might be the only way out.

🥫 What happens next

Kraft Heinz will split into two companies:

• North American Grocery Co., focused on staples like Kraft Singles and Oscar Mayer
• Global Taste Elevation Co., focused on sauces and spreads like Heinz ketchup and Philadelphia cream cheese

The deal is expected to close in about a year. Executive Chair Miguel Patricio said the existing structure was “too complex” and argued that the two companies would “unlock the potential of each brand.”

💸 Buffett is not buying it

Wall Street didn’t love the news. Kraft Heinz stock dropped nearly 7% on the day. But the bigger blow came from its largest shareholder, Warren Buffett.

Buffett, who helped orchestrate the original merger and still holds a 27.5% stake through Berkshire Hathaway, told reporters he’s disappointed with the breakup. 

His designated successor, Greg Abel, shares that view.

Buffett has stuck with the company despite a 70% stock slide over the past decade and has even admitted he overpaid. 

But now, he hinted, this breakup could be a deal-breaker, saying he wouldn’t rule out walking away if it’s in Berkshire’s best interest.