US macro numbers yesterday:
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Yesterday, New York Fed President John Williams said he expects inflation to ease in the second half of this year and decline further next year. That is also the consensus view on Wall Street. The chart tells a different story. For the past 64 months, Bloomberg's survey of around 70 economists has consistently projected core PCE inflation would return to roughly 2% within the next six quarters. It never happened. Before the pandemic, forecasts generally expected inflation to rise back toward target. Since COVID, the opposite has been true: economists have repeatedly predicted inflation would fall to 2%, yet core PCE has remained persistently above target and has even trended higher over the past 18 months. The key question is whether this time is genuinely different. If the same forecast has missed reality for more than five years, investors should ask what has fundamentally changed that would finally make it accurate. Source: Jim Bianco
The rally already ranks among Tech’s sharpest 4d rebounds around major market shocks of the past decades; from the GFC and Covid to the 2022 hiking cycle and Liberation Day. Source: HolgerZ, Goldman, Bloomberg
JP Morgan's Mark Schilsky argues that investors are becoming increasingly convinced that hyperscalers' massive AI investments are generating returns well above their cost of capital. After reading the latest quarterly earnings transcripts from Amazon, Microsoft, Alphabet, and Meta, that view is becoming difficult to dismiss. Management teams sounded more confident than ever that today's unprecedented AI spending will translate into sustainable, long-term earnings growth. If Schilsky is correct, the valuation multiples of the Magnificent Seven may have already reached their lows. As confidence builds that AI capex is creating durable value rather than simply driving higher costs, investors could once again be willing to pay premium valuations, potentially well before free cash flow bottoms and begins to accelerate. Source: TME