Weekly Roundup

While our narrative below acknowledges the Fed's latest messaging -- not only no rate cut in the offing, but, per fed funds futures odds, one hike fully priced later this year -- we see probabilities leaning against a rate hike between now and year end... Although, as implied below, we will continue to test our thesis and remain openminded to the possibility as we go.

At the same time, we actually believe that the perceived posture is on-balance warranted, based on our view of longer-term inflation reality... So it's not economic weakness that we necessarily see staying the Fed's hand, it's, frankly, our view of what the ultimate gameplan will be under its new leadership going forward.

Morning Note

We've flagged the longer-term AI capex concern multiple times, particular in video commentaries, over the past year or so...  Question today being, is the recent rout in tech stocks a signal that the market is finally sniffing out the risk that turning these hundreds of billions in AI infrastructure investment into sufficient revenue to justify it all may not occur in a market-friendly time horizon? 

Well, that's the case, at least per the headlines.

Next question being, is it the market simply putting investors on notice that the risk exists, only to come roaring back on the likes of Micron's earnings this week, or maybe something more concrete in terms of government entry (investment) into the AI space (as the president hinted after a recent Friday where said capex worry inspired the worst stock market selloff in a year)?

Answer: Time will tell... The last paragraph in the synopsis below speaks to how we're' managing the current setup.

Look for our weekly macro dive over the weekend -- I'll likely walk through some charts with you via video as well... The technicals are interesting right here.

In the meantime, here's your morning rundown*.

Messy

Suffice to say that markets have been trading in messy fashion of late... Correlations that you could count on since the beginning of the year were seemingly breaking down amid some notable rotation away from the ytd winners, into the losers (and the lagging winners).

Today, however, looks more like the previously established "norm." Gold, for one example, rising alongside rising equities, falling yields, and declining/stabilizing energy prices.

Per the synopsis below, this morning's inflation data came in hot, although at to slightly below expectations... Markets, for the moment, are trading that as a relief, alongside stellar earnings reported by Micron Technology last evening... The latter being an event that was approaching with great trepidation... Thus, additional relief there.

The real near-term tell will be whether or not today's rally gets faded over the coming days.

Our (always subject to change) current base case view remains constructive in the near-term -- say, July into October... We're less-sanguine beyond, based on current visibility.

In the meantime, here's today's morning rundown*: 

Thinking About Today's Uncomfortable Action

US technology, industrial and commodity stocks, along with pretty much the entire global equity complex, are seeing a notable selloff this morning. And while there are some pockets of strength (beneficiaries of some obvious rotation) -- financials, healthcare and consumer staples in particular -- the areas getting hit are essentially overwhelming the positives.

While indeed it is our view that we are now meandering through the late stage of the cycle, with its attendant volatility, our base case has remained overall constructive for the time being (specifically until we get into the latter part of this year and into next).

Those two words -- "attendant volatility" -- are the operative phrase at this juncture.

Here's how we're thinking about today's action*:

Morning Note

FYI clients, today happens to be "ex-dividend" day for a number of ETFs in our core allocation... Thus, for those of you who track this stuff daily, what you'll see today will be somewhat muted, as the affected ETFs will trade without the distributed quarterly dividend (i.e., lower), which will be credited back to your accounts this Wednesday.

In the meantime, here's a quick look* at the immediate-term setup:

Inflation Beyond Hormuz And, In the Meantime, Headline Whiplash

A break in our weekend festivities allowed me to finish up this week's macro commentary and get it to you on time after all... So here you go:

Regular readers will note my persistent (redundant, if you will) inflation commentary -- per your weekly rundown below... This is by design, for, at this juncture, I see the mainstream narrative (which is of course finding recent support as the oil price abates) around go-forward inflation to be rooted in a framework that simply doesn't express the populist-inspired-policy world we've morphed into, nor the related/attendant fiscal constraints, particularly in the US... So much so that it bears repeating, virtually ad nauseam!

As stated*:

The Wobble and The Focus

Despite market-friendly Middle East developments, investors yesterday were solely focused on the Federal Reserve board meeting, which they interpreted in a not-market-friendly way.

For me, the increasingly hawkish (inflation-fighting) sentiment among the members was no big surprise, but Warsh not effectively walking that back during the press conference was.

Now, saying that he'll be an aggressive inflation-fighting-via-higher-rates voice on the Fed is not my base case, given the dynamics I spelled out in yesterday's note... Specifically: