Closing Thoughts for the Week

The mega-cap rally looks like it’s at least taking a pause here as cyclicals, utilities and small-caps have been leading the way since Memorial Day. Treasury yields continue to hold relatively steady here, but that could change at next week’s Fed meeting. Overall, I think the AI euphoria is starting to die down, but tech stocks have gotten really pricey once again.

It’s become more clear that this path towards recession is a slow burn and a majority of the new data we’re getting suggests the timeline is getting pushed back. What I’m doing is adjusting expectations whenever I get new information and repeating the process of identifying conditions. What I’m seeing now is the potential for a risk-off move later in June following this two-week “stupid” period.

We’re undoubtedly in the AI euphoria stage of the market. Everybody’s bullish and seemingly not at all concerned that cyclicals are lagging, small-caps are lagging and bitcoin is still way down. Even lumber prices are back in contango and heading higher again. I can’t envision a scenario where the government will default on its debt, which means this will be largely forgotten before too long. The fascinating thing about this is that investors never appeared very worried that there was a real risk of default.