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A Structural Shift
1. Commodity Index Breaking-Out!
Just as Powell and the Fed are reluctant to budge from their dovish stance, the CRB Commodity Index is within 1% of its highest close since August 2022… The easing of financial conditions has coincided with a rebound in manufacturing and global growth. This will be supportive of inflation in the coming months.
2. Inflationary Pressures Are Building
Supply shortages were a large theme of the 2021-22 inflationary pressures and will continue to repeat throughout the coming decade. Metals like copper are structurally under-supplied as not enough Capex has been spent on new mines. Meanwhile, China has been accumulating copper at an aggressive pace during the first 3 months of 2024.
There continues to be a surge in the number of re-shoring discussions in US corporate commentary.
Fed softening and cutting rates + China buying commodities like copper + re-shoring talk from US Corporations = Inflation.
3. Stock Indexes Are Built For a Different World
While inflationary pressures build, global growth rebounds, more global conflicts pop-up, and re-shoring continues - the Mag 7 are once again more than 30% of the S&P 500's market capitalization. This shows just how concentrated gains have been in this market.
Here is a bit of insight you will never hear listening to mainstream financial media….
A stock market index reflects the winners of the most recent era. If a structural shift were to take place, towards say higher inflation and nominal GDP, the stocks you want to own DON’T comprise a large portion of the index and in many cases, are not in the index at all!
4. A Classic Bubble
Marc Benioff (Salesforce CEO) posted this saying “How will we know we have hit the top of the AI hype cycle?”
It is important to remember, just because the internet was going to change the world, didn’t mean it wasn’t a bubble in March 2000. Despite the exponential growth of the internet from 2000 to 2008, emerging market equities and commodities blew out tech stocks in terms of return. It is about what is priced-in.
A.I. is a bubble, plain and simple, it doesn’t matter about the impact it will have in the next 10 years, NVDA is now the 3rd largest company in the stock market.