Equites were mixed in the face of strong earnings from the mega sized financials and the potential of a longer “tariff truce” with China.
Treasuries had a decent bid as both Japan and French debt rallied on potential optimism over budget concessions in the respected countries. Gold hovered around record levels on fiscal concerns in the western democracies who have promised more than they can deliver. Reforms must occur before a crisis occurs, a crisis that is all but certain if reforms are not taken, the question is at to when….six months? Six years?
Considerable attention is now being focused on the “circular AI financing.” A recent Bloomberg commentary stated, “if we totaled up all OpenAI’s spending commitments, it is more than $1 trillion over the coming years and that underscores just how critical AI enthusiasm, and increasingly OpenAI, is to the current rally.”
Putting it differently, a case can be made if the markets begin to even slightly lose faith in AI, a drop in AI stocks and perhaps the indices given their disproportionate weightings of these companies in the indices could be substantial.
There are now more monies in passive trend following ETFs than managed mutual funds. By definition ETFs are a passive index where investment dollars are allocated based upon capitalization of the company not by security research. The largest capitalized companies receive a greater proportion of investable funds, creating perhaps fictitious momentum and confidence.
Changing topics, will the government shutdown begin to weigh on the markets and sentiment? To date it has been a “Washington Beltway” topic not overly impacting sentiment.
The Administration has taken steps to ensure the military is too be paid. Will Saturday’s No Kings rally be of significance?
As widely discussed, the shutdown is about extended COVID era temporary subsides to be extended past their previously agreed upon termination date. This is a classic example as once an entitlement is given, it is difficult to be taken back even if the entitlement was designed and intended only to be temporary.
What will happen today?
Last night the foreign markets were up. London was down 0.14%, Paris up 0.71% and Frankfurt up 0.07%. China was up 0.10%, Japan up 1.27% and Hang Seng down 0.09%.
Dow and NASDAQ futures are up 0.25% and 0.5%, respectively on AI and earnings optimism. The 10-year is up 1/32 ot yield 4.03%.
