It has been more than five months since the S & P 500 had back-to-back decline of at least 1%. Complacency is at bubble like proportions as the euphoria over AI is inducing a virtuous feedback loop that is turning skeptics into equity buyers at significantly higher levels. Equity performance has become even more concentrated than previously experienced or imagined.
As written several weeks ago, according to Bloomberg, GOOG, AMZN, MSFT and META have announced $7 trillion in capital spending for 2026-2030. This amount is staggering, constituting a giant economic stimulus comparable to nothing that a central government can do.
Will spending reach these levels to support the $4.4trillion (8.5% of the S & P capitalization) of NVDA? NVDA is worth more than total capitalization of the London and Paris stock markets combined.
Are all the things these companies want to buy really available? Perhaps a bigger question, will this spending increase revenues and generate profits? Writing it differently how will these companies generate the trillions in dollars in revenues needed to show a reasonable return of investment of this $7 trillion speeding boom by the end of the decade. It is unprecedented.
Tomorrow is the release of the monthly PCE data. What will this pivotal inflationary index suggest? Earlier in the week FRB Chair Powell stated a cooling labor market was the reason to lower the overnight rate but also commented that the Central Bank will remain vigilant on inflation as tariffs continue to work through the economy.
Will tomorrow’s PCE data add to stagflation fears—or minimize them? The data could be important for how the markets trade for the immediate future given the complete lack of consensus of both economic activity and inflation. Of the nineteen members of the FOMC, nine of them believe the overnight rate should remain unchanged, lowered only once or increase by year’s end. Ten believe there could be two or more additional reductions.
There has not been this much dissention at the Federal Reserve in many years.
What will happen today?
Last night the foreign markets were down. London was down 0.43%, Paris down0.76% and Frankfurt down 1.09%. China was down 0.01%, Japan up 0.27% and Hang Seng down 0.13%.
Futures are bifurcated as Dow futures are flat and NASDAQ down 0.5% on valuation and monetary policy concerns. The 10-year is off 6/32 to yield 4.17%.
