The market continues its AI-driven ascent, with the S&P 500 reaching a 23x forward earnings cycle high, fueled by strong performance from Nvidia, AMD, and Oracle, and supported by expectations of further Fed rate cuts. Despite this tech-led momentum and a surge in speculative activity across call options and meme stocks, consumer cyclical sectors are quietly underperforming, suggesting a potential divergence in economic health between affluent and lower-income households. Concurrently, gold has experienced a "stupendously overbought" rally, becoming a significant momentum trade and perceived universal diversifier amid broader market dynamics.
(These are the market notes on today’s action by Mike Santoli, CNBC’s Senior Markets Commentator. ) Another clockwork bid to erase the minor index dip from yesterday , with the usual flag carriers of the AI-buildout boom doing the work while stocks closer to the here-and-now consumer remain sluggish. Put Tuesday’s wobble in semiconductor stocks and upwelling of chatter about untenable overlapping vendor/client relationships among Nvidia , AMD , OpenAI, Oracle , CoreWeave and others as, for now, a one-day pause to release just a touch of pressure from this dominant trade. There are just too many daily announcements of capital commitments and multiyear spending programs for the overbuilding anxieties to take hold for long, it seems. Soothing, if familiar, words from Nvidia chief Jensen Huang about how “early” he says we are in the AI story has Nvidia up 2%, good for a quarter of the net 0.6% S & P 500 gain. The upside follow-through in AMD shares from Monday’s link-up with OpenAI has been stunning and is taking on the look of an uphill stampede, the stock gaining more than 40% this week. Oracle regained its entire decline from Tuesday’s report about its purportedly unprofitable start in hosting AI work. Approaching the third anniversary of the bull market’s start and the initial release of ChatGPT, the S & P 500 has compounded at a 24% annualized rate and is back at a cycle high of 23-times forward earnings. The mistake in the past six months has been to show too much valuation sensitivity or ask whether the AI excitement might have overshot. Which means fewer investors are repeating those “errors,” with the notion of a year-end melt-up of sorts edging toward being the consensus call. With the just-released Fed meeting minutes amplifying the prospect of another rate cut or two this year, the crowd remains snugly slotted into the view that a second soft-landing rate-trimming process in a year’s time is underway. Notably, the consumer cyclical names are quietly struggling, though they have not fully broken down. Housing, travel, restaurant and retail have been under pressure and the equal-weight discretionary index is now lagging for the year. Perhaps this ties back to the softening labor indicators, which interestingly have not yet been confirmed by widespread weakening of aggregate consumer spending. This has been the bullish thesis – that slack job growth is allowing for Fed rate cuts in an economy not yet exhibiting signs of a consumption slump. Investors are explaining this away by citing a wide split between affluent and lower-income households and the supportive impact of the tech capex craze. Plausible, but not proven. For all the heat around the debate over the relative bubbliness of the megacap AI theme —powered by the world’s most robust companies and other professional sources of capital — the speculative aggression on the fringes of the market have more clearly been pushing some limits. The notional value of call-option buying is surging toward record levels from 2021. The Roundhill Meme Stock ETF (MEME) – launched in late 2021, closed in late 2023 – was relaunched today with 18 high-velocity/low-quality stocks. Five are quantum-computing plays, a few are portable nuclear power names and the largest holding is class-of-2021 home-flipper Opendoor . Oh, and Joby Aviation , the EV helicopter company that’s up 200% in a year but down 10% today on a share offering. The buying frenzy in gold and the discourse around the metal are getting extreme, as well. Stupendously overbought by several measures with its acceleration above $4,000 an ounce , gold has gone from niche doomsday asset to the “universal diversifier” in a world that distrusts government debt, to a runaway momentum story . The move, feeding off many legitimate motivations, is looking a bit self-fulfilling. On a two-year scale, gold and the “Magnificent Seven” are neck-and-neck. Both reflect claims on scarce assets deemed immune to macroeconomic currents and global debt dynamics. Or something like that. The S&P 500 continues its upward trajectory, compounding at a 24% annualized rate over three years and reaching a cycle high of 23 times forward earnings, largely propelled by the AI-buildout boom. Key drivers include Nvidia's 2% gain and AMD's stunning over 40% rally this week following its OpenAI link-up, with Oracle also recovering recent losses. This momentum fosters a growing consensus around a potential year-end market melt-up, despite brief concerns over vendor relationships being quickly dismissed. Supportive monetary policy expectations, amplified by recent Fed minutes hinting at further rate cuts, underpin the soft-landing narrative. However, a significant divergence is evident as consumer cyclical sectors, including housing and retail, are quietly struggling and the equal-weight discretionary index lags. This suggests a potential split in economic health between affluent and lower-income households, unconfirmed by widespread aggregate consumption decline. Investor speculation is intensifying, marked by call-option buying nearing record 2021 levels and the relaunch of the MEME ETF with "high-velocity/low-quality stocks" like Opendoor and Joby Aviation, which saw a 10% decline today on a share offering despite a 200% yearly gain. Concurrently, gold has become a "stupendously overbought" runaway momentum story, accelerating above $4,000 an ounce and reflecting heightened distrust in traditional assets.
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