finance
Jeremy Schwartz, Global Chief Investment Officer …
Jeremy Schwartz notes that the Mag Seven stocks experienced their largest single-day drop in four years on Wednesday, following reports from Tesla and Google. Professor Jeremy Siegel correlates this with the concept of 'capital pigs' from their book, where high capital spenders underperform.
Jeremy Schwartz observes that "hyper-scalers" or Mag Seven companies have funding for their expansion efforts underwater, leading to increased CDS spreads. He finds it remarkable that a trillion-dollar company is facing such risk premiums.
Jeremy Schwartz reports a significant increase in oil prices, with WTI moving from the upper 60s to around 90. This rise in oil prices is also leading to an increase in gasoline prices.
Despite rising oil prices, Jeremy Schwartz notes that real economy indicators remain generally fine. He highlights that unemployment claims reached a 60-year low of 180,700 for the week.
Jeremy Schwartz discusses the rise in ten-year TIPS yields back to levels seen during the Fed's fight against inflation, noting that real yields are now over 2.5%. He contrasts this with historical data, suggesting current valuations are not near an inversion.
Samir Rains observes that Iran's rejection of a US-proposed ceasefire signals US efforts for a ceasefire, indicating movement on the diplomatic front. He suggests monitoring headlines on Sunday afternoon for developments.
Samir Rains notes that rising oil prices have "destroyed" crack spreads, leading to a narrowing of the spread between crude oil and gasoline prices. He anticipates this trend to continue, which may bring gasoline prices closer to a norm, though not necessarily for the better.
Jeremy Schwartz anticipates the upcoming Federal Reserve meeting, expecting no changes in interest rates but highlighting the importance of the Fed's dialogue on inflation. He notes that Chairman Wash's views on whether the current inflation is temporary will be crucial.
Consumer Price Index (CPI) and Producer Price Index (PPI) data came in lower than expected, according to Professor Jeremy Siegel. This development suggests that the Federal Reserve is unlikely to increase interest rates at its next meeting.
Renewed hostilities in the Middle East have pushed oil prices back up to $80 per barrel, according to Professor Jeremy Siegel. This rise, coupled with record crack spreads, is contributing to higher wholesale gasoline prices, which could reverse recent CPI declines.
Professor Jeremy Siegel noted a positive trend in housing costs, with owner-equivalent rents and outright rents finally moderating. This is seen as a crucial factor in keeping core inflation down.
Goldman Sachs has revised its second-quarter GDP expectations upward to approximately 2.5%, while the St. Louis Fed has lowered its forecast to 1.7%. Professor Jeremy Siegel suggests that a decrease in oil and gasoline prices could further boost third-quarter GDP.
Professor Jeremy Siegel observes a significant rotation out of tech stocks, particularly AI chip stories, which he describes as 'frothy.' He also raises questions about the cost of compute, noting that free AI tools are highly capable and that China offers an open structure.