TikTok plans to track how long its e-commerce staffers are in the office, employees say.

TikTok plans to track how long its e-commerce staffers are in the office, employees say. Mario Tama/Getty Images

TikTok plans to track how long its e-commerce staffers are in the office, employees say. Mario Tama/Getty Images

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Halfway through 2025, the return-to-office push continues to expand.

The effort started to pick up steam last year, when corporate giants like Amazon and AT&T said they would bring their employees back into the office five days a week this year. Sweetgreen, too, said in December that it’s upping support staff’s in-person requirement for 2025.

Other major employers, including JPMorgan and Goldman Sachs, have also abandoned the hybrid attendance policy they adopted during the pandemic and instead implemented full return-to-office mandates.

Related video Former Amazon employee shares how return-to-office policy impacted caregivers

Several executives and leaders have said they believe productivity increases when workers are in the office together, while others hope to increase in-person collaboration. Even some CEOs who previously praised the flexibility of remote work have backpedaled, telling workers to comply with RTO mandates. Some are tracking attendance and firing employees who don’t comply.

Here’s a list, in alphabetical order, of major companies requiring employees to return to offices. Business Insider will update this list regularly.

3M

3M CEO Bill Brown informed his company’s corporate workforce that they should return to the office four days a week in an email reported by Axios.

The outlet reported that some workers would begin the new schedule on September 1, but others would wait until renovation projects were complete later in 2026.

Amazon

CEO Andy Jassy wrote in a September 16 memo that Amazon would end remote work starting in 2025.

“We’ve decided that we’re going to return to being in the office the way we were before the onset of COVID,” Jassy said. “When we look back over the last five years, we continue to believe that the advantages of being together in the office are significant.”

The CEO cited easier employee collaboration and connection and said in-person work would strengthen the company’s culture. This echoes his February 2023 memo, which mandated employees spend at least three days a week in the office.

Not everyone agrees. Some Amazon employees took to an internal Slack channel to criticize the new RTO policy, BI’s Ashley Stewart first reported, with one staffer writing that it was “significantly more strict and out of its mind” than pre-COVID operations.

“This is not ‘going back’ to how it was before,” they wrote. “It’s just going backwards.”

The critical reaction is reminiscent of employees’ response to 2023’s surprise return-to-office rule. Thousands of Amazon workers joined a Slack channel to share their thoughts, with some even organizing to file a petition against the change.

In December, BI reported that Amazon delayed full RTO for some employees over office-capacity issues.

Apple

In August 2022, Apple’s senior leaders told workers they had to return to the office at least three days a week after previously requiring two days a week. CEO Tim Cook said the decision was meant to restore “in-person collaboration.” Some employees fought back and issued a petition shortly after the announcement, arguing that staffers can do “exceptional work” from home.

Despite the pushback, Apple’s hybrid work program launched the following month and is still in place.

AT&T

AT&T began requiring all office employees to work on-site five days a week starting in January, Business Insider first reported.

The change follows about a year of AT&T accommodating a hybrid schedule in its widely publicized office push.

“The majority of our employees and leaders never stopped working on location for the full work week — including during the pandemic,” a spokesperson for the telecom giant told BI.

AT&T told BI it’s updating its facilities amid the policy change.

“As we continue to evolve our model, we are enhancing our facilities and workspaces, adapting our benefits programs, and incorporating best practices to ensure our employees are best equipped to serve our customers,” the spokesperson added.

BlackRock

In 2023, BlackRock mandated employees return to the office four days a week. The investment firm, headquartered in New York City, intended to bring employees into its then newly leased office space, which spans 1 million square feet across 15 floors, according to Hudson Yards.

In a May 2023 memo sent by the company’s COO, Rob Goldstein, and the head of human resources, Caroline Heller, the execs wrote: “Career development happens in teaching moments between team members, and it is accelerated during market-moving moments, when we step up and get into the mix. All of this requires us to be together in the office.”

Additionally, the memo notified staffers that the firm would give them the opportunity to work remotely for two weeks during a relevant time period in their country, to offer “seasonal flexibility.”

BMO Bank

Bank of Montreal announced that employees need to spend four days a week in the office starting September 15, “where existing real estate capacity exists,” according to a statement to Business Insider.

The investment banking company joins a growing list of banks demanding people return to in-person work. BMO broke the news to employees in a statement on June 26, 2025.

“Our workplaces have a powerful role to help us serve our clients and communities, while shaping our culture and organizational productivity,” BMO spokesperson John Fenton told BI.

Chipotle

The fast-food chain announced in June 2023 that corporate workers should work in the office four days a week, Bloomberg reported. Chipotle had previously required workers to show up three days a week, according to the report.

Citigroup

Citigroup asked its 600 US workers, who were previously eligible to work remotely, to return to the office full-time, Bloomberg reported. In a memo released by the investment firm in May, the majority of staff are reportedly still able to work a hybrid schedule, with up to two days a week outside the office.

HSBC and Barclays followed suit, mandating workers to come into the office five days a week, according to the report.

Vaccinated Citigroup employees across the US were asked to return to the office for at least two days a week in March 2022, an internal memo obtained by Reuters said.

Dell

Dell told its sales staff to return to the office five days a week starting on September 30, 2024. Previously, the company let US employees pick between working remotely or following a hybrid schedule with about three days a week in the office.

September’s sales-team mandate came with just a few days’ notice, Business Insider reported, sending employees with kids into a hurry to find childcare.

On January 31, 2025, Dell called its global workforce back to the office full time via an email, which BI exclusively obtained. In the email, CEO Michael Dell said that remote work would come to an end in just over a month.

“Starting March 3, all hybrid and remote team members who live near a Dell office will work in the office five days a week,” Dell wrote. Employees who live further from an office would be allowed to keep working remotely, according to the email.

Disney

In a January 2023 memo obtained by Business Insider, CEO Bob Iger told workers that starting that March, any Disney staff member working “in a hybrid fashion” would need to return to Disney’s offices four days a week.

In response, over 2,300 employees signed a petition asking Iger to reconsider the mandate.

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“This policy will slow, or even reverse, our post-COVID recovery and growth by creating critical resource shortages and causing irreplaceable institutional knowledge loss,” signees wrote, according to The Washington Post.

Ford

The Detroit-based automaker told salaried employees in June that they would be expected in the office four days a week, Reuters reported.

A spokesperson told the wire service that most of the affected workers have already been coming in three or more days a week and that the move will help the company become “less cyclical and more dynamic.”

Goldman Sachs

In March 2022, CEO David Solomon told Fortune that the company was asking employees to return to the office five days a week. Seven months later, he told CNBC that about 65% of staffers were working in the office.

However, some staff have failed to follow the policy a year into its implementation, causing senior managers to become frustrated and Goldman Sachs to further crack down on employees to return to the office full-time, Bloomberg reported.

Google

In March 2022, Google employees in the San Francisco Bay Area and “several other US locations” were told to return to the office for at least three days a week starting the following month.

The next year, however, the company tightened RTO expectations, telling staff in an email viewed by BI that office attendance would factor into their performance reviews.

Fiona Cicconi, Google’s chief people officer, wrote in the memo that requests to work remotely full time will now be considered “by exception only.”

Some employees expressed feeling “frustrated” with the new policy. One staffer previously told BI, “We don’t like being micromanaged like school kids.”

IBM

At the start of 2024, IBM told managers to either come into offices or leave the company.

IBM asked all US managers to report to an office or client location at least three days a week, according to a memo viewed by Bloomberg.

A source told the outlet that staff would have to live within 50 miles of an IBM office or client location. The memo said employees had until August to complete their relocation arrangements, and those who were unable to comply with the new policy must “separate from IBM.”

CEO Arvind Krishna previously told the news outlet that employees’ careers could suffer if they work from home. He said that although he wasn’t forcing his own staffers back to the office, he thought remote workers may struggle to get promotions.

JPMorgan

JPMorgan Chase was a first mover in the full return to office push.

The bank began requiring managing directors to work in person five days a week in April 2023 — and, at the time, reminded all other employees to come in at least three days a week.

Now, the company plans to double down. Bloomberg reported in January 2025 that JPMorgan may soon require all of its workers to return to the office five days a week and eliminate the option of remote work entirely.

Meanwhile, BI previously reported that employees have been using a private group chat to vent about the expected RTO mandate and share clues as to when it could happen.

CEO Jamie Dimon has long been vocal about the importance of onsite work in the face of pushback from employees.

“I completely understand why someone doesn’t want to commute an hour and a half every day, totally got it,” he told The Economist in July 2023. “Doesn’t mean they have to have a job here either.”

The company has also been collecting data on staff activity, including tracking attendance.

KFC

KFC is moving its headquarters out of Kentucky. Its parent company, Yum Brands, announced in a February press release that it would establish two new brand headquarters in the US — one in Irvine, California, and another in Plano, Texas.

As part of the move, the company is recalling about 90 remote US employees to the office, and said that they’d be placed at the “campus where their work happens.”

The company said its remote employees would be relocated over the next 18 months, adding that the motive behind the changes is to “foster greater collaboration among brands and employees.”

Meta

Meta updated its remote work policies in September 2023, requiring employees to head into the office three days a week.

It had also stopped offering remote work in new job listings. People familiar with the company previously told BI that hiring managers could no longer post new jobs that list the work location as “remote” or outside an existing office.

In June 2023, the company doubled down on its RTO efforts, telling workers that their attendance would be tracked daily and that failure to comply could lead to termination.

However, some employees returning to the office said they were met with a lack of space and privacy, with one worker calling the mandate “a mess.”

Redfin

In April 2023, real estate company Redfin announced an updated return-to-office policy via a memo from CEO Glenn Kelman.

The memo said that starting July 2023, Redfin would require “headquarters employees” who live within 20 miles of the company’s Seattle, San Francisco, and Frisco offices to work from the office for a full day on Tuesdays and Wednesdays.

The company said those who live beyond the 20-mile radius were required to visit the office in person once a quarter for a day or more of meetings.

To hold employees accountable, the memo included a “no-exceptions” section, reading that “to determine your distance from an office, we’ll use Google Maps, with the distance from your home address measured in miles driven over roads by car.”

Salesforce

Salesforce told employees in an internal memo seen by The San Francisco Standard in July that, as of October 1, 2024, the majority of workers had to be in an office four to five days a week.

According to the memo, the new policy is mandated for select staff in sales, workplace services, data center engineering, and on-site support technicians.

Early in 2023, Salesforce CEO Marc Benioff revised the company’s annual strategic plan, including return-to-office mandates, according to a draft shared in an internal Slack message viewed by BI.

The updated draft return-to-office policy required non-remote employees to work three days a week in the office and employees in “non-remote” and “customer-facing” roles to work four days a week. Engineers must work from the office 10 days per quarter, down from 20 in the initial draft, which was updated based on employee feedback.

Snap

Snap implemented a new mandate in September 2023, requiring employees to work in an office at least four days a week. The change represented a shift from the company’s former “remote first” policy, which allowed employees to work from home or elsewhere.

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Employees previously told BI that some managers told them the company can track workers’ WiFi connections to see who is complying.

Starbucks

Starbucks’ return-to-office saga began in January 2023, when then-CEO Howard Schultz said corporate employees within commuting distance would be required to return to the office at least three days a week.

Schultz said some staff had failed to “meet their minimum promise of one day a week” and also said that Starbucks baristas didn’t have the “privilege” of working from home. The executive had previously said he “pleaded” with workers to come back to the office.

Starbucks employees responded by signing an open letter protesting the company’s return-to-office mandate.

Then, in October of last year, the company threatened to fire staff if they did not comply with the RTO policy, Bloomberg first reported, citing an internal memo.

In July, CEO Brian Niccol said he wants corporate employees in the office four days a week — up from three — starting with the new fiscal year in October.

Being in person allows employees to “share ideas more effectively, creatively solve hard problems, and move much faster,” Niccol said in an email.

“As we work to turn the business around, all these things matter more than ever,” he added.

Sweetgreen

Salad chain Sweetgreen is shifting to a four-day workweek from January 2.

The mandate will apply to its few hundred support staff who do not work at the chain’s restaurants, Bloomberg reported on December 18.

In an interview with Bloomberg, Sweetgreen’s cofounder and chief executive Jonathan Neman said that the company will move to a “hard four” days in the office policy, a shift from its current “more flexible” three to four-day policy.

He said the decision was in the works earlier in the year then solidified after Amazon put out its own five-day workweek RTO announcement in September.

“That was the big turning point where everyone’s like: ‘Oh, they’re doing it, now we can do it,'” Neman said to Bloomberg.

Representatives of Sweetgreen did not respond to a request for comment from Business Insider, sent outside regular business hours.

Target

Target chief commercial officer Rick Gomez has asked corporate employees in his divisions to work in the Minneapolis office three days a week starting September 2.

“More time together, in the office, will help us grow our business faster, solve problems quickly, and build stronger relationships across our Commercial team and with our partners,” Gomez said in an email that the company shared with BI.

In addition to the broader pressures facing Target’s retail operations, small businesses in Minneapolis have asked the company to boost its on-site presence in order to shore up the city’s economic vitality.

Tesla

In June 2022, Tesla employees were notified of a mandatory return-to-office policy.

The email from Elon Musk told employees “If you don’t show up, we will assume you have resigned,” and said that everyone at Tesla must work from the office at least 40 hours a week.

Musk, who has called remote work “morally wrong,” nodded to his frequent presence at Tesla factories as the reason for the business’ success. “If I had not done that, Tesla would long ago have gone bankrupt,” he wrote.

TikTok

Two employees told BI that TikTok plans to require its US e-commerce employees to return to the office for eight hours a day, five days a week.

It’s also asking its e-commerce organization, which runs TikTok Shop , to be at work between 4 and 7 p.m. PT, according to the employees.

An internal message was sent out to employees across the US, but the wording appeared to be referring to workers in its Seattle office.

The ByteDance-owned company is based in China, and US employees have previously said they’ve been required to attend late meetings due to the time difference.

Toyota

Toyota told North American employees in January that they would be required to work in the office from Monday through Thursday beginning in September 2025.

Toyota employs more than 64,000 people in North America across 14 factories, as well as in design, engineering, and corporate offices.

Ubisoft

In September, Ubisoft, the France-based maker of the popular “Assassin’s Creed” and “Far Cry” video game series, ordered its staff worldwide to return to the office three days a week.

French workers at the video game maker went on strike on October 15 over the RTO mandate.

Uber

In a memo obtained by Business Insider, CEO Dara Khosrowshahi told employees that beginning in April 2022, Uber staffers in 35 of the company’s locations were required to return to the office at least half the time. He added that on other days, staffers were allowed to work remotely and that some could be entirely remote if they got clearance from their managers.

Khosrowshahi said in 2024 that remote work took away some of Uber’s “most frequent customers,” adding that “there is an audience who kind of stopped using us as frequently as they used to.”

UnitedHealth Group

Minnesota-based hybrid workers for UnitedHealth Group are expected in the office four days a week, the Minnesota Star Tribune reported in June.

The company employs some 19,000 workers in Minnesota, The Star Tribune reported. The group is the parent company of insurer UnitedHealthcare and the Optum pharmacy benefit business.

Walmart

Along with slashing hundreds of jobs, Walmart also asked previously remote employees in the US to move to offices in May 2024.

Staffers located in smaller offices in Dallas, Atlanta, and Toronto were being directed to the company’s central hubs, including its headquarters in Arkansas or New Jersey, The Wall Street Journal reported.

The retail giant would still permit hybrid schedules as long as workers come in-person most of the time, according to the outlet.

The Washington Post

William Lewis, CEO and publisher of The Washington Post, told staffers in early November that they would be required to return to the office five days a week, according to a memo obtained by BI.

“I want that great office energy for us every day,” Lewis wrote, referring to the energy in the office during election week. “I am reliably informed that is how it used to be here before Covid, and it’s important we get this back.”

All employees were expected to return to the office by June 2, 2025, while managers were expected to return by February 3, 2025.

After starting remote work in 2020, the Post previously required employees to return to the office three days a week in early 2022.

The announcement at the Post came shortly after Amazon’s return-to-office mandate. The Post is owned by Jeff Bezos, Amazon founder and executive chairman.

X

After buying X, formerly Twitter, in 2022, Musk told employees that not showing up to an office when they’re able to was the same as a resignation.

Musk also told staffers in an email that remote work was no longer allowed and that employees were expected to be in the office for at least 40 hours a week unless given explicit approval to work elsewhere.

In 2023, the National Labor Relations Board filed a formal complaint saying that X had illegally fired an employee who complained about Musk’s RTO policy.

The complaint said that Yao Yue, a principal software engineer, criticized the mandate, tweeting, “don’t resign, let him fire you.” She also posted, “don’t be fired. Seriously” in a company Slack channel.

Yue was then fired five days later and told it was due to violating an unspecified company policy.

Zoom

Zoom, the darling of remote work, said in 2022 that less than 2% of staffers work in person full time. However, in 2023, the video-calling company asked employees to return to the office.

Workers living within 50 miles of one of its offices were mandated to work there at least two days a week.

“We believe that a structured hybrid approach — meaning employees that live near an office need to be onsite two days a week to interact with their teams — is most effective for Zoom,” a spokesperson previously said in a statement. “As a company, we are in a better position to use our own technologies, continue to innovate, and support our global customers.”

Why there’s so much excitement around a cryptocurrency called stablecoin

toggle caption Justin Tallis/AFP via Getty Images

If you haven’t heard of stablecoins yet — chances are you will soon.

There is perhaps no hotter segment in the cryptocurrency world at the moment than stablecoins. Companies like Amazon or Walmart are considering adopting them, while big banks such as JPMorgan Chase and Citigroup are exploring launching their own stablecoins, according to The Wall Street Journal.

What’s more, Congress is on the verge of adopting legislation this week that would provide a formal framework for the sector, effectively making stablecoins part of U.S. regulations.

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There’s a reason behind the excitement. As a concept, stablecoins are pretty groundbreaking in the world of money.

A key vision behind stablecoins is that people and companies should be able to transfer money as digital currency anywhere in the world instantaneously, regardless of borders, without onerous banks or money transfer companies, that take time and charge fees, getting in the way.

But as detractors point out, there are real risks to stablecoins. Unlike the money we know, stablecoins are still new and regulations are still evolving. The relatively recent set of rules and its ease of use have also attracted shady actors like drug dealers and ransomware hackers.

So what are stablecoins? Here are three things to know.

The appeal: A safer cryptocurrency

Unlike other types of cryptocurrencies, stablecoins have a secret weapon that are meant to make them far safer.

That’s because as the name implies, each stablecoin is meant to be stable. This is how it works: If you buy a stablecoin that’s worth $1, the issuer that provided you with that stablecoin has to keep $1 in reserve, so that when you want to cash it you can get paid back promptly. (Dollars are primarily used to back stablecoins, but euros or some other asset of value like gold can also be used).

NPR’s Planet Money — and others — have perhaps the neatest analogy.

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Stablecoins are like the chips you get in a casino. Say you pay the cashier $100 and you get $100 in chips to gamble. Once you are done, you return whatever chips you have gained — or have left — and get the corresponding amount from the casino.

The issuer should be able to pay you back, just like you trust the casino will have the money when you go to cash in your chips.

It’s probably the reason why stablecoins today are mainly used to buy and trade other cryptocurrencies such as bitcoin, because of the ease with which they can be converted to cash.

toggle caption Romain Costseca / Hans Lucas/AFP via Getty Images

The biggest company in this arena is Tether, which has a stablecoin called USDT and is based in El Salvador. The second is Circle, which issues a stablecoin called USDC.

Even President Trump is involved in stablecoins. World Liberty Financial, in which his family has financial interests, has issued one called USD1, meaning the president stands to benefit financially from the increased adoption of stablecoins (though as of now USD1 has a miniscule market share).

At the moment, the stablecoin market is worth just over $250 billion, but it’s growing fast. Citigroup projects that the total amount of outstanding stablecoin could hit $1.6 to $3.7 trillion by 2030.

Congress is also on the verge of adopting legislation that would provide a formal framework for the sector, effectively making stablecoins part of U.S. regulations.

The GENIUS Act was passed by the Senate last month, and the House is expected to consider the legislation this week. (The acronym stands for “Guiding and Establishing National Innovation for U.S. Stablecoin”.)

Among other aspects, the Act mandates that stablecoin issuers must hold proper one-to-one reserves and seeks to ensure that issuers are obeying anti-money laundering rules — though critics deride the measures as too weak.

Many see them as groundbreaking

The real excitement around stablecoins is that they provide a real-life advantage: They can make transferring money easier in a world where digital wallets and mobile payments are becoming more and more common.

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In some developing countries, where dollars aren’t easily accessible, companies with an international trading business are already starting to use stablecoin to expedite money transfers from their partners, transactions that usually take days or weeks through the traditional banking system.

With stablecoin, payments across companies can be transferred instantaneously at a fraction of the costs even if they are in different countries.

Such payments were estimated at a mere $6 billion in February, a very small sliver of the market — but those in the industry see its potential.

Yellow Card, a stablecoin payments company with offices in 16 African countries, says it facilitates these types of transactions. CEO Chris Maurice says stablecoins provide a “bridge” for companies to interact with the global economy.

“It doesn’t matter what industry you’re in, it doesn’t matter if you’re in financial services or you’re in the business of selling shoes on the side of the road. Everybody has the same set of issues when it comes to payments, especially international payments,” says Maurice.

toggle caption Luis Tato/AFP via Getty Images

And it’s not just companies — there are potential advantages for regular folks too.

Big retailers such as Amazon are hoping to benefit from stablecoins because they would no longer have to pay billions of dollars in fees for credit card transactions.

Buying something on Amazon or Walmart may seem instantaneous. But retailers have to pay fees and completing an entire transaction with different credit card companies or banks can take days.

“What people don’t know is the payments that we all make every day, day to day, and the payments that institutions make back and forth to each other sometimes takes as much as a week to fully settle out and costs a fair amount of money for a fairly simple transaction,” says Faryar Shirzad, Chief Policy Officer at crypto exchange Coinbase.

Stablecoins however can make that process faster.

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“I think we’re on the verge of a payment revolution in the United States,” he adds.

But others see a big problem

There’s a question that still lingers: Are stablecoins actually safe?

When you get a stablecoin, you are effectively trusting that the company selling it to you is actually holding the equivalent dollars in reserves.

Stablecoin companies bristle at the question, and they are adamant that they safeguard their customers’ money by parking them in ultra-safe investments such as U.S. Treasury bills.

But the concerns linger. New York’s attorney general investigated Tether and crypto exchange Bifinex, accusing the two companies of not maintaining proper one-to-one reserves. The companies denied that, but the case was settled in 2021 with a $18.5 million fine, with the two crypto firms agreeing to be more transparent about their reserves.

toggle caption Patric T. Fallon/AFP via Getty Images

John Reed Stark, a former top financial regulator who served as chief of the SEC Office of Internet Enforcement, is a prominent critic of cryptocurrencies. He says it is a big leap of faith to believe that stablecoin companies are properly holding reserves backing the stablecoin.

“In most instances, we have no visibility to any stablecoins, no public audits, no examinations, no inspections — who knows what is really going on?,” Reed Stark says.

He adds that even though it might seem more onerous, the current payment system has checks and balances in place via credit card companies or banks, which offer “a critical beneficial role for all consumers.”

There’s the other big concern about stablecoins: They are suspected of being used by all kinds of illicit actors like drug dealers and scammers who need a way to transfer money and access the cash without being detected by regulators or the police.

“Even though you can see every payment on the Internet, you don’t necessarily know who it’s from and who it’s to,” says Darrell Duffie at Stanford University, who teaches finance and management. And he adds, there are ways for people to “mask” their transactions to make them harder to detect.

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Critics worry that stablecoins could even pose a threat to the financial system.

One of the biggest fears is that they will suffer the equivalent of a run on the bank, like Silicon Valley Bank which collapsed in 2023. A similar scenario could play out if customers rush en masse to cash in their stablecoins — and the issuers find themselves unable to pay back customers.

An event like that could have knock-on effects across the financial sector, just like the 2008 global financial crisis showed how trouble in one area of the financial system can quickly spread.

Stablecoin issuers are holding many of their customer reserves at traditional lenders, weaving in the banking system into the stablecoin sector. And stablecoin issuers also keep a huge chunk of their money in U.S. Treasury bills, which is a common practice across the sector.

So a run on the bank could force stablecoin companies to quickly draw in their reserves at traditional lenders and lead them to sell off their U.S. debt in a hurry, thus sparking intense volatility.

There’s debate about how dire the threat would be, but that tension is still at the heart of the debate over stablecoins.

They have real-life potential — but they are a relatively new financial product, one that critics fear will open up all kinds of risks that may not be so apparent right now, leading to unintended consequences.

A lot of companies that are not in the banking business are suddenly applying for new US banking charters, from automakers General Motors (GM) and Stellantis (STLA) to cryptocurrency firms Circle (CRCL) and Ripple (RIPL.PVT).

Banks, not surprisingly, aren’t happy about any of this.

Their fear is that many of these new entrants are seeking novel, lighter-touch charters that would, in practice, let them offer banking services while bypassing some of the regulatory obligations that traditionally come with that business.

“Banks don’t oppose competition,” Paige Pidano Paridon, co-head of regulatory affairs with the lobbying group Bank Policy Institute, said in an emailed statement.

“They oppose a regulatory double standard that imposes more lenient regulations on a small group of market participants engaged in the same activities as a bank.”

The battle over who gets to be a bank is once again heating up in Washington, D.C., as the Trump administration reexamines a slew of regulations governing the financial services industry.

The process is expected to result in looser rules for banks, but it could also mean a lower bar for newer entrants that want access to the regulated banking ecosystem.

The GM logo is seen on the facade of the General Motors headquarters in Detroit. (Reuters/Rebecca Cook/File Photo) · Reuters / Reuters

This past week, the Federal Deposit Insurance Corporation made it clear that it wants to make adjustments for these newer entrants as it released a request for information on its process for approving “industrial loan companies.”

The FDIC also rescinded a Biden administration proposal that would have heightened scrutiny of companies seeking such state-level charters.

Automakers General Motors, Stellantis, and Nissan have all recently applied for ILCs, which would grant them the same FDIC deposit insurance coverage that traditional banks offer while allowing them to make loans and collect deposits. Their parent companies wouldn’t have Federal Reserve supervision as traditional banks do.

Learn more about high-yield savings accounts, money market accounts, and CD accounts.

Banks and nonbanks have clashed before. Walmart (WMT) and Home Depot (HD) subsidiaries filed for deposit insurance coverage roughly two decades ago, which generated fierce pushback from mainstream lenders.

In a March letter to the FDIC, banking lobbyists at the ICBA argued that “ownership of ILCs by automakers has a history of failure.” The letter described the 2008 collapse and eventual federal bailout of financier GMAC, which is now known as Ally (ALLY).

“ICBA has opposed the approval of all ILCs with commercial parent companies because they are risky, lack appropriate levels of prudential regulation and supervision at the holding company level, and harm consumers by creating companies with undue concentrations,” ICBA wrote.

Following reports that adult-only games were being targeted by Valve due to issues with payment processors, the company behind Steam has issued a statement on the matter.

Just a couple of days ago, it was reported that Steam is cracking down on games that violate the “rules and standards” of payment processors. Valve has since expanded on the situation in a new press release to multiple sources, including GamingOnLinux and Rock Paper Shotgun. “We were recently notified that certain games on Steam may violate the rules and standards set forth by our payment processors and their related card networks and banks,” it writes.

“As a result, we are retiring those games from being sold on the Steam Store, because loss of payment methods would prevent customers from being able to purchase other titles and game content on Steam,” explains Valve. “We are directly notifying developers of these games, and issuing app credits should they have another game they’d like to distribute on Steam in the future.” Many games have already been affected by the pressure from payment processors.

Judging by the information available on SteamDB, over 100 games have been marked as “retired” from Valve’s storefront in just two days – many of which are titles with adult-only content. Some were taken down from the platform literally minutes ago, too, so it’s evident the situation is ongoing, and the removal of releases that “violate” banks’ standards is a process rather than a one-off move. Unsurprisingly, PC gamers aren’t sure how to feel about it all.

A recent Reddit thread on the matter proves as much, with many expressing confusion. One admits, “I don’t even understand what issues payment processors have with porn games.” Others point out that many of the retired games thus far feature controversial sexual themes and terms, like “incest.” As of now, though, there’s no telling how many developers will be affected by the Steam removals – but if the last couple of days are anything to go by, it’ll probably be a lot.

Here are some of the most exciting new games this year and beyond to keep an eye on.

On this week’s episode of The Morning Filter, Dave Sekera and Susan Dziubinski catch up on tariff and economic news and preview bank earnings. They also discuss what to watch for when Johnson & Johnson JNJ reports this week, whether Constellation Brands STZ remains a stock to buy after earnings, and whether former stock pick Fluor FLR is still attractive after its recent price gains.

Plus, they review Dave’s Q3 2025 Stock Market Outlook and reveal which of Morningstar analysts’ top picks for the quarter he likes best.

Episode highlights:

Tariffs and Jobs and Inflation, Oh My! Bank Earnings Preview 3Q 2025 Stock Market Outlook Great Stocks Getting Overlooked Today

Got a question for Dave? Send it to themorningfilter@morningstar.com .

See all of Morningstar’s analyst picks for 3Q 2025: 33 Undervalued Stocks to Buy in Q3 2025 Here’s the updated list of Morningstar’s top analyst picks to buy during 2025’s third quarter.

Learn more about Morningstar’s approach to stock investing: Morningstar’s Guide to Investing in Stocks How our approach to investing can inform your stock-picking process.

Transcript

Susan Dziubinski: Hello and welcome to The Morning Filter. I’m Susan Dziubinski with Morningstar. Every Monday before market open, Morningstar’s chief US market strategist Dave Sekera and I talk about what investors should have on their radar for the week, some new Morningstar research, and a few stock ideas.

Now, before we get started this week, we wanted to let viewers know that in a few weeks, we’ll have a special guest on The Morning Filter, and that’s Morningstar’s director of personal finance, Christine Benz. Christine is author of How to Retire, 20 Lessons for a Happy, Successful and Wealthy Retirement. Christine is also co-host of The Long View podcast, and she’s a weekly columnist for Morningstar.com. The reason we’re telling you this is that we plan to include some viewer and listener questions in our conversation with Christine. So start sending us those questions at themorningfilter@Morningstar.com. Of course, you can continue to send Dave your questions at that same email address, too.

All right, Dave, well, it’s been a couple of weeks since you and I sat down for a new episode of The Morning Filter, so we have some catching up to do. Let’s start with tariffs. President Trump’s initial reciprocal tariff extension that was set to expire on July 9 has gotten pushed out to August 1. So in general, the stock market kind of seems to be shrugging off tariff concerns. Is that right?

David Sekera: Hey, good morning, Susan. Yeah, the market’s really just become especially complacent over the past couple of weeks. To be honest, I’m really kind of surprised that stocks are back to new highs once again. This morning, I double-checked our systems here, and as of last Friday’s close, the market is now trading at about a 2% premium to our fair value. That tells me the market is just not really giving investors any potential margin of safety to account for any of the risks that are out there today. I think now is a good time for investors really to ask themselves the question, is now a better time to be putting new money into the market or is now a better time to be taking some profits? In my opinion, I prefer some harvesting of profits today.

But either way, I think it’s definitely time to go back to your portfolio allocations, take a look at where they are, and if any of them have started to drift away from your targeted levels, definitely a good time to rebalance, which is naturally going to have you take some profits out of some areas and put it back into those areas that have lagged behind.

Dziubinski: Now we also had nonfarm payroll numbers come out in early July, and the numbers were better than expected. What did you make of the numbers, and what does that mean for investors?

Sekera: You know, to be honest, at this point, I’ve really kind of forgotten what they were and what the commentary was about all of those numbers at this point. Yeah, they came in, they were slightly better than expected, but I don’t think it was really a market-moving event. I think it’s just more evidence that the economy is slowing, but not necessarily falling off of a cliff. I know the Morningstar US economics team is still expecting that slowing rate of economic growth over the course of this year, but we’re really not looking for a recession or anything like that.

We’ve talked about this a number of times over the past couple months. Personally, I just really haven’t been watching the economic numbers all that closely. I think with everything going on, all the economic dislocations out there, there’s just too much noise to try and read too much into any one economic indicator. I’m just watching the trends more than anything else, and I’d also note, too, that you have to remember economic metrics are often restated; oftentimes it can be by a pretty significant amount thereafter.

For example, 2024 nonfarm payrolls were restated early this year. I think they were revised down by like 800,000 jobs. I mean, that averages to like 70,000 per month, which, of course, last year, if those monthly numbers were coming in 70,000 lower per month, that would have been a much different story last year, put a much different spin on what those monthly payroll numbers would have been as compared to what was actually printed. And with so many economic dislocations going on out there over the past couple months, I really wouldn’t be surprised to see a lot of the economic metrics that are coming out today revised, in many cases maybe revised pretty substantially, over the next couple months.

Dziubinski: Then we have the June Fed meeting minutes came out last week, and it looks like Fed officials agree that there should be some reduction in rates this year, but there seems to be no consensus on by how much or when. So, any takeaways from the minutes that investors should be aware of, Dave?

Sekera: Again, to be honest, I have no idea. I didn’t read the minutes. Personally, unless you’re a Fed watcher or if you’re trading interest rate futures or something like that, I don’t think trying to read through those minutes is necessarily a useful way of spending an investor’s time. A lot of other things to spend your time on as opposed to trying to read through those.

I looked through all the news stories afterwards. I didn’t see any headlines that really sounded all that meaningful. Skimmed a couple of stories, and it just sounds like what we’ve already known going on. The Fed still sees indications that tariff-induced inflation really hasn’t come through yet. They still expect inflation will show up at some point. However, they don’t know if/when inflation comes through from the tariffs, whether that will be just a one-time inflationary impulse or whether or not it could lead to longer-term inflationary pressures.

Either way, they’re going to be data-dependent, they’ll adjust monetary policy as needed, yada yada yada, so at the end of the day, Morningstar’s US economics team is still looking for two rate cuts starting this year, more rate cuts next year; they’re looking for the first rate cut now at the September meeting. We’ll see.

Dziubinski: Now, speaking of inflation, we have June inflation numbers coming out this week. What are you expecting?

Sekera: So it just gets back to the same question, whether or not inflationary numbers are really being impacted by the tariffs or not yet. It looks like people are expecting some of that to start to come through. If I look at the consensus numbers, CPI headline on a year-over-year basis, people are looking for 2.6%. That’d be an increase from 2.4% last month. Core CPI on a year-over-year basis, looking for 2.9%. That’s an increase from 2.8%.

Then for PPI, on a month-over-month basis, looking for two-tenths of a percent. That’d be an increase from one-tenth of a percent last month. So if it is showing an increase in inflationary pressures, that could push back the Fed from being able to cut rates anytime soon. However, if the numbers come in better than expected, maybe that does give the Fed some room to start cutting if the economy, and the job market is slowing, so we’ll see where the numbers are coming out. But again, I’m not putting too much emphasis on the numbers here in the short term.

Dziubinski: Right, we also have earnings season kicking off this week with the big banks, including J.P. Morgan JPM, Bank of America BAC, and some others. Is there anything in particular you’re going to be listening for, Dave, either from specific banks or more broadly?

Sekera: More broadly, I just want to listen to what their economic outlooks are, what their commentary is on the economy. For example, I think like last quarter, if I remember correctly, I think Jamie Dimon, CEO of J.P. Morgan, was a little pessimistic last quarter. I want to listen to whether or not he’s changing his tune or if he’s still pessimistic or not.

Overall, I mean, banks really should have the best view as far as what exactly is going on with the economy, when you think about their loan portfolios, they watch the credit quality of the underlying people that they loan money to very closely. They have a view as far as, what’s going on with the entire economy, whether it’s large corporate, middle market, retail. So right now, it seems like large corporations still appear to be doing just fine.

So I want to listen if there’s any deterioration more in like the middle markets or small business or with retail. Let’s see what’s going on with loan loss reserves, whether or not they’re increasing loan loss reserves. If so, that means that they’re expecting more defaults and bankruptcies. If those are unchanged, that would mean really no change in their economic outlook. If they were to decrease those loan loss reserves, that would indicate that the economy would be running better than expected in the second half of 2025. I’d be very surprised if they release loan loss reserves at this point.

Then lastly, more from a fundamental point of view, what their outlook is for net interest margins. Overall, when we look at the valuations of the big megabanks, we think the market is pricing in too much long-term growth in net interest income overall.

Dziubinski: All right, we also have one of your favorite core stocks, Johnson & Johnson JNJ, reporting earnings this week. How’s the stock look from a valuation perspective ahead of earnings? And what are you going to want to hear about from J&J?

Sekera: I mean, it is still, I think, a 4-star rated stock, but it’s only at a 5% discount, so not necessarily a huge margin of safety from our long-term valuation. But it is a wide-moat company, low uncertainty, 3.3% dividend yield. As you mentioned, I still think it’s a core holding type of stock. We’ll just be listening for whether or not there’s any updates in its research and development pipeline. I want to hear if any changes in some of the government regulation may or may not negatively impact their business. I know President Trump has talked more about trying to re- or onshore more drug manufacturing. He’s talked about most favored nation drug pricing. So we’ll see if they have any commentary as far as all of that goes.

Then lastly, just listening for any indications of changing in their pharmaceutical business, of course, most of their drugs are for immunology and for cancer. That’s about two-thirds of their revenue. But then also any commentary in the medical device business, that’s a third of their revenue, so really just ongoing fundamentals and whether or not there’s any changes that could be a catalyst.

Dziubinski: Now we have a couple of tech companies that we’ve talked about before on The Morning Filter reporting in this week, and those are ASML ASML and Taiwan Semiconductor TSM. So what are you going to be listening for with these two?

Sekera: I’m going to be looking at these two as potentially being indicators or early indicators for artificial intelligence buildout, what we might be seeing for capex spending going on with the big hyperscalers. Of course, ASML, they’re the company that makes the equipment that actually manufactures the very high-end semiconductors for companies like Nvidia NVDA. We’ll find out where they came in, whether their numbers were at consensus or better than expected. If so, that’s probably pretty good for artificial intelligence stocks at this point. Any kind of miss, of course, would be concerning that maybe the chip manufacturers are looking for a slowing rate of growth in AI chipsets at this point.

And TSM, they’re the ones that actually manufacture the GPUs and the other components for Nvidia for their AI GPUs. Now, I think we’re expecting just more of the same. Nvidia has been supply constrained. They’re selling everything and anything that they can make. I suspect that’s probably still the case at this point in time. Any deviation from that would actually be probably pretty negative for the market.

Dziubinski: Now, does either ASML or Taiwan Semi look attractive from a valuation perspective heading into earnings?

Sekera: Both of them still look attractive at this point. Of course, not nearly as attractive as they were a month and a half ago when the market was falling. But they’re both 4-star rated stocks. ASML at a 16% discount, Taiwan Semi at a 12% discount. Looks like both of these stocks are up about 16% year to date.

Dziubinski: Let’s move over to talk about some new company research from Morningstar, and we’ll start with Constellation Brands STZ. Now, the stock edged up a bit after earnings. What did management have to say?

Sekera: A little bit of a relief rally, I think, in the stock price that things weren’t any worse than where they came out. Revenue was down 4% overall. That’s really in the spirits division that they’re having the toughest time. That was down 21%. The beer division, which is really the preponderance of their business, that was only down 2%. With the lower top line, we did get a little bit of operating margin contraction. I know management is working to try and overcome some of the short-term declines in consumption we’ve seen for alcohol overall. They’ve introduced a couple of new products, so we’re hoping that those might help increase the amount of shelf space that they’re getting at the stores.

Otherwise, I would say that we are still seeing that short-term top-line contraction. We’re expecting a decrease in the top line overall by about 1% this year, but over the next couple years when i look at our model, we would expect that to normalize getting back to more of that midsingle-digit growth that they’ve had over the past, and i think we work our way up over the 10-year time frame that our analyst has those forecasts, so again not looking for anything necessarily like a big hockey stick upwards but looking for things really to bottom out this year and start improving thereafter.

Dziubinski: Now, Constellation Brands stock is up about 8% from its lows in June, but it’s still down more than 30% over the past year. Do you still like the stock today?

Sekera: Yeah, we do. Warren Buffett also is involved in the stock today. I think that’s a good indication for the valuation here, but I think management also thinks that their own stock is pretty undervalued here. It looks like they bumped up their share repurchase program pretty significantly. I think we’re expecting the company to buy back a total of over a billion dollars worth of stock over time. And because it is trading at a discount to our fair value, the more stock that they buy back, the economic value of that discount should accrete to existing shareholders over time. So, trading at a 30% discount to fair value puts it into 5-star territory by our ratings.

Dziubinski: Let’s talk about another former pick of yours, and that’s Fluor FLR. You recommended this stock on the May 19 episode of our podcast, and since then, stock’s up 38%. So, you’re looking pretty savvy on this one, Dave. Now, what drove those returns, and do you still like the stock today?

Sekera: Sometimes better to be lucky than smart! No, so in all seriousness, that is by far the best performance of the five stocks that we highlighted on that episode. That was the episode that we talked about stocks that we thought would benefit from the Trump trade deals that he had already been negotiating. From that episode, it looks like the market overall, if you look at the S&P 500, is up 4%.

Taking a look at some of the other stocks that we recommended, Boeing BA is up 11%, Wesco WCC up 15%, ASML is up 7% since then. The real laggard here has been Lockheed LMT. That stock is unchanged, maybe slightly down from when we talked about it on that show.

Fluor is a company that specializes in engineering and construction, specifically large-scale, very complex construction projects. The theme here is that we thought that they would benefit from increased spending as we see more onshoring of manufacturing as those facilities are being built out. They require a lot more energy, they require a lot of the related infrastructure around that. We thought Fluor would be able to benefit from all of that over the next couple years because of course it takes a long time to be able to build out all of those projects.

But really what’s taken off here in the short term was the value of the equity stake they have in a company called NuScale Power SMR. NuScale develops small modular reactors, and the market’s really become very fixated on the nuclear business at this point in time. In fact, as that valuation of that part of their business continued to keep moving up, we’ve raised our fair value as well. We’ve raised it to $60 a share from $52. It’s trading right at like $52 and a quarter right now, which was the old fair value. With the new fair value at $60, it’s still at a 13% discount. It’s a 3-star rated stock. So, at this point, now might be a good time to lock in some of those profits.

I’d note we also did increase our uncertainty rating to very high from high because of that. NuScale does benefit from all the excitement surrounding nuclear energy right now, but there is a lot of execution risk in that business. So again, with as much as it’s run at this point, I do think now is probably a good time to at least take some of those profits off the table.

Dziubinski: All right. Well, Dave, you recently published your third-quarter stock market outlook, and viewers and listeners will find a link to that in the show notes. So let’s unpack some of that outlook. Now, when it comes to market valuations in 2025, you say they behave like a pendulum. Talk about that.

Sekera: So at the beginning of the year, the market was trading at a pretty rare premium to our fair value, especially a lot of those artificial intelligence stocks. Once DeepSeek hit the headlines in mid-January, that started a bear market in artificial intelligence stocks. In our view, at the beginning of the year, a lot of those stocks were rated 1- and 2-stars, they’re just overvalued and overextended, so they started moving down.

Then we had the “Liberation Day” tariffs announced that hit the market really hard, so the pendulum was swinging too far to the downside, so by April 4, stocks were trading at a 17% discount to fair value after starting the year at a premium. That 17% discount is pretty rare. You don’t see the market trading that much of a deep discount very often. In fact, we officially changed our market recommendation to overweight on the April 7 episode of The Morning Filter, as well as a special market outlook that I published on that same date.

Then you had the pause that was announced thereafter. Markets bounced. It kind of feels like we’ve been up and to the right ever since. Now it feels like we’re getting back to kind of that rare premium once again. We’ve swung from being at a premium all the way down to a big discount. Now back to a premium again. Market feeling just very complacent. Seems like they really don’t care about the trade and the tariff negotiations.

In my view, it’s still very unclear as far as when these are going to be concluded, what exactly the outcomes are going to be. We’ve got earnings season starting this week, and we’ll be listening for what guidance will be from the companies, just how much they’re seeing slowing economic growth, and what that might mean for earnings. With valuations being pretty high here, no margin of safety, I wouldn’t be surprised if things come out slowing that the market could take a hit.

Dziubinski: Now, you said in your outlook that the rising stock market tide in the second quarter lifted most boats. But from a sector perspective, there were two boats that didn’t rise: the healthcare sector and the energy sector. So, start with healthcare, Dave. Why did the sector lag, and do you think there’s an opportunity there today?

Sekera: With healthcare, it’s a combination of a couple of things. First, you know, the market’s just very concerned right now as far as what the potential impact and changes in government regulation may or may not do to a lot of the companies within this business. For example, the pressure to onshore pharmaceutical manufacturing, also the pressure out there in order to lower pricing. A lot of people are concerned exactly what that’s going to do to the big, large pharma companies.

But also a big detractor to the sector has been changes that are making in the Centers for Medicare and Medicaid Services, plans there to increase regulation on Medicare Advantage, and really trying to bring down a lot of the spending, a lot of the overpayments that they see going on there. And of course, that could hit a lot of the private insurers like UnitedHealth. That stock, UNH, is down I think over 40% in the second quarter alone. We’ve also lowered our fair value because of those changes by 20%. Overall, the healthcare sector is now at a 9% discount to fair value.

I’d note here, too, this is one where it is actually skewed by Eli Lilly LLY, large mega-cap stock, which is overvalued in our mind. If you were to take that out of the price/fair value valuation here actually makes healthcare even more undervalued than that 9% discount by a couple of percent.

Personally, the area that I’m most interested in in the healthcare sector right now is still a lot of the medtech companies, a lot of the device makers. Those are the ones that we think are undervalued, but we’ve highlighted several of those on different episodes of The Morning Filter in the past. Those are the ones that I think that even with some of the changes with regulation going on today, I’d still be the most comfortable investing in.

Dziubinski: Then what about energy, Dave? Why the performance lag during the second quarter? Is it an attractive sector to invest in now?

Sekera: To some degree, I think it’s just as simple as the sector sold off with oil prices over the course of the quarter. Oil prices have fallen to $65 a barrel from $71.50 when you’re looking at West Texas Intermediate. Now, one of the reasons I like this sector and why I think that at a discount, it’s very attractive to be in today: We have kind of a bearish long-term view on the price of oil. So our midcycle forecast for WTI is $55 a barrel, so still well below where it’s trading today. We’re also looking for demand to start declining later this decade and decline sequentially thereafter.

Now, in our model, we use the market-implied two-year forward strip price, where it’s actually trading in the futures market. Then, we step down our prices in our model thereafter to our midcycle economic forecast. Even when you incorporate these bearish numbers into our valuations, a lot of these oil companies are still trading significantly undervalued from our long-term intrinsic valuation, as well as a lot of these services companies that they have to hire in order to be able to drill and service their wells.

I see a lot of value, and I still think it provides a good long-term natural hedge in your portfolio just in case inflation were to come back or for the expansion of any other kind of geopolitical risk.

Dziubinski: Break today’s market valuation down by style, Dave—you know, growth versus value and large versus small.

Sekera: So, at the end of the second quarter, value stocks were at a 12% discount, looked pretty attractive to me. Core stocks at a 4% premium, not necessarily that high up there but getting a little stretched at that point. But again, it’s now going to be growth stocks, which have moved way too high. They’re now trading at an 18% premium. Not necessarily the highest premium that they’ve ever been at, but the last time they were here was at the beginning of this year, before we saw the selloff start in AI stocks.

Other than that, the last time they were at an even higher premium was at the beginning of 2022. If you remember back then, I think we were probably one of the only people out there at the beginning of that year who actually recommended to be underweight US stocks. We all know what happened after that.

Taking a look at it by valuation here at large-cap stocks, 2% premium, mid-cap stocks, fair value. Small-cap stocks, still a very large discount, 17% discount to fair value. When you look at those small-cap stocks, not only are they undervalued compared to or on just an absolute basis in and of themselves, but compared to the broad market on a relative value basis, look very attractive here.

I would highlight going to the outlook, taking a look at the couple of the graphs that I have in there. For both value stocks as well as small-cap stocks, I graph what the valuation is relative to the broad markets. So neither of them are at the most historically undervalued levels compared to the broad market, but still on a relative value basis, both are very attractive according to our numbers.

Dziubinski: So then, given market valuations and how things break down by style, how would you suggest investors position their equity portfolios today?

Sekera: Well, again, it just gets back to it’s a good time to check the allocations, look at your percentage weights. When you have your overall portfolio allocation, a certain percentage in equity, and then within equity you break that into large/mid/small, value/core/growth, depending on what kind of investor you are, to get back towards those targeted type of allocation levels. Also, I just note that I would also position my portfolio to be overweight value and underweight growth because of the spread differential in the valuations there.

Then by capitalization, I would look to be overweight small caps and underweight large caps. Now, again, I will caution, and we’ve talked about this a couple of times with small-cap stocks, this is an investment, not necessarily a trade. I don’t necessarily think small caps are going to rally significantly here in the short term compared to the broad market.

Historically, small-cap stocks do better when long-term interest rates are coming down, the Fed is easing monetary policy. The rate of economic growth is either at the bottom or starting to reaccelerate. We’re not in that environment right now. That’s probably not going to be until later this year. But I just do think now’s a good time to be overweight those stocks because when small-cap stocks start to move, usually they move pretty quickly. It doesn’t take that much of a reallocation out of large cap by the market in the small cap to start seeing those stocks rally.

Dziubinski: So then broadly speaking, what do you think is the biggest risk or the biggest risks in the US stock market now?

Sekera: In my mind, I still think it’s all the negotiations as far as trade deals and tariffs. I know the market is very complacent at this point in time, but with stocks at highs, unemployment low, economy still kind of holding up better than expected. Inflation has been relatively tame. Interest rates are within a trading range we’ve seen for a while now. In my mind, I think that might embolden President Trump to take a much more aggressive stance on negotiations, maybe reinstating tariffs once again. If so, I think that would maybe not necessarily hit the market as much as it did earlier this year, but I do think that’s one of the bigger risks here in the short term.

More medium term is what’s going on with the economy. We think it is slowing on a sequential basis, but just how fast is it slowing? Now, again, this is a good time. You need to ignore exactly what’s going on with the headline print in economic numbers. In the first quarter, the GDP print came in negative, but that was really because of all of the purchases that people were making ahead of tariffs. The underlying economy was still positive in the first quarter, and we expect now the second-quarter GDP print to be pretty high, and I think that’s going to be higher than what the real economy is actually doing. Looks like the Atlanta Fed GDP print is 2.6% right now.

When we look at the fundamentals of the economy and start thinking about consumption and investment, it’s probably a lower run rate there. As the economy slows, what’s that going to do to earnings and earnings growth in the third and the fourth quarter? We could see some surprises to the downside that the market isn’t necessarily pricing in.

Long-term interest rates, I’m still keeping an eye on long-term interest rates, especially the longer ends of the curve, and not just the US, but internationally as well. A couple of weeks ago, like Japan, their 40-year JGBs started to plummet. That started pushing yields up pretty high. That spooked the market. We saw some selloff because of that. Looks like the Bank of Japan did intervene and started buying those bonds in order to bring yields back down. If they were to lose control of that, I think that could spook a lot of international investors.

Again, a lot of risks still out there, maybe like artificial intelligence, any kind of hiccup as far as what’s going on there, I think that would hit sentiment pretty hard as well, and of course geopolitically that’s always a wild card.

Dziubinski: All right, well, we’re going to get to your picks in just a minute. This week, there are a subset of the list that Morningstar’s analysts put together each quarter of their top ideas. We actually have a question about just how Morningstar’s analysts come up with those top ideas each quarter. The question is from our listener, Josh, who you and I actually met at the Morningstar Investment Conference just a couple of weeks ago, so hello there, Josh! So give Josh and the rest of our audience some insights into how that analyst picks list comes together each quarter.

Sekera: First and foremost, it’s always valuation. Even the best company in the world with the best growth dynamics, best trajectory, can be a poor return if you overpay for that stock. Second, I always prefer investing in companies that do have an economic moat, looking for companies that have long-term durable competitive advantages. In my mind, you know, the economic moat is probably the second most important factor. Take then a look at the uncertainty rating. I always prefer a company that has a lower uncertainty rating than a high uncertainty rating. Again, you want to make sure that you’re buying a company with enough margin of safety under its long-term intrinsic valuation such that you have that margin of safety to absorb that higher amount of risk.

Take a look at the technicals. Again, we’re not traders. We’re not trying to overdo it. But again, what’s the chart look like? I prefer not to try and catch a falling knife. Even if a company is undervalued compared to our long-term intrinsic valuation, more often than not, we’re trying to wait until when there’s a big change in the investor base. Maybe a lot of institutional investors that have large positions, while they’re trying to exit, I don’t want to get in front of that. So trying to look for when that stock looks like it’s going through a bottoming-out process.

I always like stocks that have a good story to it, a good investment thesis. Why do we think it’s undervalued? If that stock is moving up, why do we still think it has further to run to the upside? Or if that stock is selling off, why do we think it’s going to recover? What’s the story on maybe getting back towards long-term historical operating margins? Or what’s the catalyst that’s going to cause that stock to start moving up once again?

Then not only where do we have a differentiated view, but also where our analysts have conviction in their outlook. For example, taking a look at a company like HealthPeak DOC, that’s one that we’ve talked about for quite a long time at this point as far as why we think it’s undervalued. That’s one where I’ve talked to the analyst a number of times, and he just has a lot of confidence in why he thinks that company is undervalued.

For example, he’s noted to me several times he sees sales of similar types of properties that HealthPeak owns. Trading in the secondary market at prices higher than what the market implied price is based on where that REIT is trading today. Yet a lot of those pieces of real estate that he sees selling out there, he thinks aren’t nearly as good or high-quality as what’s in the portfolio at HealthPeak. Again, that’s one based on the confidence of the analyst and really understanding the fundamentals. Even though it’s been undervalued for a long time and the market really hasn’t caught up, I like those stories in which the analyst has that confidence behind their call.

Dziubinski: All right. And audience members can find a link to that complete list of our analysts’ high-conviction picks for the third quarter in the show notes. But Dave, today you’re going to talk about five of those stocks in that list that you’re especially fond of today. And the first is US Bancorp USB. Run through the numbers on this one.

Sekera: It’s a 4-star rated stock. Looks like it closed last Friday at an 11% discount to our fair value. Nice healthy dividend yield at 4.2%. It’s rated with a wide economic moat, and I think it’s the only regional bank we rate with a wide economic moat.

Dziubinski: Now, US Bank isn’t necessarily a screaming buy by any means. So why is it one of your picks this week?

Sekera: It’s really more like a swap idea than anything else in order to buy that once you sell some of these overvalued mega-cap bank stocks. It has been a prior pick on The Morning Filter in the past. It’s really always been our pick among the regional banks, our go-to pick there. Overall, I think the investment thesis we just don’t think the market is correctly valuing the long-term earnings power as opposed to most of the US regional banks. US Bank is more like a larger or maybe even more like one of the megabanks, even though it’s not quite as large. They have pretty strong revenue coming from their corporate trust business, pretty strong deposit franchise, one of the better operating efficiencies compared to some of the other regional banks, pretty good return on tangible equity, over the past decade.

To some degree, I think this stock is just kind of orphaned in the marketplace. What I mean by that is, it’s not large enough to be one of the big megabanks, not one of the big four, but it’s also a lot larger than some of the smaller regional banks. To some degree, I think people are looking for one or the other. Either people are just comfortable in the big megabanks, the J.P. Morgans, the Wells Fargos of the world, and they don’t want to be involved in the regionals, or you have people that are more specialized in looking at the regional banks and not looking at US Bank because it’s bigger than really what they’re looking for.

Dziubinski: Your second pick this week is from the healthcare sector. It’s Baxter International BAX. Give us the highlights.

Sekera: It’s a 5-star rated stock, trades at a 48% discount to our long-term intrinsic valuation, 2.4% dividend yield. It does have a high uncertainty rating, but we do rate it with a narrow economic moat based on its switching costs and intangible assets.

Dziubinski: Now, Baxter, as you said, is 48% undervalued. That’s really undervalued. So what’s Morningstar see here that the market doesn’t see?

Sekera: This is one that we’ve talked about in the past. It has been a prior pick on at least one show, if not a couple of shows. For the people that don’t know the company, they make a pretty wide range of medical instruments and supplies. They make products for acute and chronic kidney failure, injectable therapies, IV pumps, a lot of other hospital-focused offerings. To be honest, I kind of feel sorry for this company when I look at what’s been going wrong with it over the past couple of years.

In 2022 and 2023, when we had those high-single-digit and probably even low-double-digit inflationary numbers, that hit their margins pretty hard; they have a lot of multiyear contracts in place, which I don’t think had the appropriate inflationary escalators in those contracts, so that inflation hit them pretty hard.

Then in 2024, if you remember, we had the outage from UNH’s healthcare reimbursement system. What happened there is a lot of healthcare providers, because they weren’t getting reimbursed by the insurance providers, pulled back on purchases of a lot of their capex, really the high capital-intensive equipment that is sold by Baxter’s Hillrom subsidiary. Now we’ve got the market being concerned about the tariffs and the impact of the tariffs on the company, as well as changes in government regulation.

So at this point, after the past couple of years of what this company’s been through, no one’s really willing to give this company any of the benefit of the doubt at this point. This is totally just a forward-looking story. As those longer-term contracts come up for renewal, we think they’re going to be able to better negotiate some of the pass-throughs to take care of the inflation that they’ve had, as well as any potential inflation coming up.

I opened up the model over the weekend, top-line growth, 5.5% on average for the next five years. Relatively strong growth, but again, nothing that I think the company won’t be able to meet. We’re looking for margins, operating margins to expand more towards historically normalized levels, and we’re really not even looking for that to get back to that area until 2028. Between top-line growth and some margin expansion, we are looking for average earnings growth of about 11% from 2026 and thereafter. Stock is only trading at 11 times our 2025 earnings estimate. So again, I think this is one where the market is providing an opportunity because it just has a checkered history over the past couple of years at this point.

Dziubinski: Now, your next pick is from a sector that’s been on a tear, and that’s the utilities sector. And your pick is Eversource Energy ES. Run through the numbers.

Sekera: It’s a 4-star rated stock, trades at a 10% discount, pretty good yield of 4.6%. Again, this is just one of these ones where it’s just not very undervalued, but taking a look at the rest of the utilities sector, it’s one of the few undervalued utilities out there. This is not necessarily a very exciting story, even within the utilities sector.

Now, a lot of people in utilities, and part of the reason we think utilities stocks are probably overvalued, is because people are pricing in a huge amount of growth in artificial intelligence demand. AI requires multiple times more electricity than traditional computing, so it’s looked at as being a second derivative play on artificial intelligence, but this is one that we don’t think gets nearly as much growth out of that demand for AI electricity as we see in other areas within the marketplace. I think that’s the reason this one’s been left behind.

Dziubinski: Now, I don’t think Eversource has been a pick of yours before. Could be wrong, but I just don’t remember it. Why is it a pick today?

Sekera: Well, to some degree, when we look at where all the data center growth is coming and we look at the needs for transmission, distribution, electricity demand, Eversource isn’t going to have nearly the same kind of growth that we see in a lot of the other utilities.

Having said that, our utility analyst has looked through their capital spending plan over the next five to 10 years. We’ve incorporated that into our model. We’re looking at an average 6% earnings growth rate, at least for the next couple of years. When we put that into our valuation model, that gets us to the point that we think that this stock is at that 10% undervalued level. But again, it doesn’t have anywhere near the same kind of story or excitement that the market is looking for in the other parts of the utilities sector.

Dziubinski: All right. Well, your next pick this week is Campbell’s—mm-mm, good! Give us the key metrics on this one, Dave.

Sekera: First of all, I’ve got to admit Campbell’s CPB was not necessarily going to be my pick for this week. We were going through and looking for our stocks, it was actually kind of the runner up. Originally, my pick was going to be WK Kellogg KLG. It’s a small-cap stock. We’ve recommended it several times on the show, going all the way back to the fall of 2023 when you had the breakup of the old Kellogg company into WK Kellogg and Kelanova.

However, last week they did announce it is getting bought out by a strategic buyer for $23 a share. That was a 33% premium from where it was trading prior to the news hitting the tape. Looks like it closed in the upper $22 range. I think it was like $22.89 last Friday. Now, we actually thought the company was worth $28 a share. With the buyout being announced, we’ve moved our fair value to that buyout price.

When I look at where that price is in the marketplace, and there’s such a thin spread between where it’s trading in the market versus that buyout price, and the buyout’s not going to take effect for a while, it has to go through a lot of the regulatory approvals by the government. So that tells me a lot of the risk. Arbitrage hedge funds are probably pricing in a somewhat stronger probability that you could see a competing price pushing that price up further. But having said that, we did move our price target to that buyout price.

Dziubinski: All right, so tell us why Campbell’s.

Sekera: Campbell’s, 5-star rated stock. Again, another one trading close to half of our fair value. So 50% discount, 5% dividend yield, medium uncertainty with a wide economic moat. It’s a wide economic moat based on its intangible assets and its cost advantages. We don’t necessarily foresee any inordinate impact from the tariffs here. It is in the value stock category. If we see that rotation into value, I think it would benefit from that as well.

Dziubinski: All right. Well, let’s skip ahead to your final pick, and I hope income investors are paying attention this week because this one has quite a yield. It’s LyondellBasell Industries LYB. Run through the numbers here, especially that yield.

Sekera: It’s hard to pass up that kind of dividend yield. In fact, I think they just increased their dividend a couple of cents per share. That’s one of those things that you wouldn’t expect a company would be increasing their dividend if they thought that there was any chance that they would need to cut that anytime soon, even if we were to have a little bit more of an economic downturn. It’s a 4-star rated stock at a 35% discount, provides an 8.5% dividend yield.

Now, it is a high uncertainty rating, but again, being in the basic materials sector for a chemical company, I don’t think that that’s something that I wouldn’t necessarily suspect anyways. We do rate the company with a narrow economic moat, which you typically wouldn’t expect for a commodity chemical producer. That’s going to be based on its cost advantages, mostly driven by a couple of segments that represent over half the overall business. This is one that if you are interested, I’d highly recommend going to the writeup, reading through the moat writeup, and getting into the weeds on this one, and I think Seth does a pretty good job outlining what those cost advantages are.

Dziubinski: Seth Goldstein is the Morningstar analyst on the stock. So why is this one so deeply undervalued? And it sounds like we think the dividend looks pretty safe. Is that fair to say?

Sekera: When I talked to Seth about this company last week, I did dig into what’s going on with the dividend payment, and he thinks that the company can maintain this dividend unless the US were to slip into a recession. Even then, I think it would have to be a recession that lasts for a while and would be relatively deep. He noted that the balance sheet looks pretty good, so they could use the balance sheet if needed to be able to support that dividend for a while. I think a recession would have to last for a while and be pretty deep before we’d be looking for any kind of dividend cut here.

When I take a look at the structure of the company and think about its economic moat with its cost advantage, we think a company should be able to generate positive free cash flow even during the expected economic downturn that we’re looking for right now. Stock is down 14% year to date. Looking at the chart does look like maybe it’s bottomed out over the past couple of months.

In my mind, it looks like it is already pricing in this expected economic slowdown. It’s trading at like the lowest price level we’ve seen since the emergence of the pandemic. I think this is an interesting one, but really only for investors that are going to have maybe a little bit higher risk tolerance in their portfolio where they can stretch, take on a little additional risk for that higher yield, because at the end of the day, the company still is a chemical—well, commodity chemical—producer.

Dziubinski: Alright, well, thank you for your time this morning, Dave. Those who’d like more information about any of the stocks Dave talked about today can visit Morningstar.com for more details. We hope you’ll join us next Monday for The Morning Filter at 9 am Eastern, 8 am Central. In the meantime, please like this episode and subscribe. Have a great week.