This Mix Sounds Decent

MARKETS

The Big Picture Is Never Perfect

It’s why we value resilience.

“Mixed” is the word we use when different asset prices move in different directions on the same day. It’s also one we use when economic data are ambiguous.
It’s fair to say Tuesday’s mixed markets broadly reflect mixed feelings about an economy probably still in more flux than is usual.
This price action tells a compelling and generally consistent story, though, one Mish Schneider continues to articulate in her Weekly Market Outlook.
The Nasdaq Composite crossed the psychologically significant 17,000 threshold and rallied into the close, up 0.59 percent. The S&P 500 enjoyed a similar last-15-minutes bounce to close up 0.02 percent.
The Dow Jones Industrial Average did not flip green late and shed 0.55 percent. The small-cap-focused Russell 2000 was down 0.17 percent, the S&P/TSX Composite 0.48 percent.
Tech exposure is the difference in equity markets, with Nvidia $NVDA rallying another 7.13 percent on the continuing proliferation of AI.
Crude oil and gold made notable moves, rising 3.14 percent and 1.06 percent, respectively, on flaring tension in the Middle East and safe-haven seeking.
That NVDA is rallying alongside commodities makes a lot of sense right now, as Mish explains in this week’s Outlook.
On the issue of sentiment, the Conference Board’s measure of consumer confidence was up in May for the first time in four months, printing at 102 versus 97.5 in April and beating every economist estimate collected by Bloomberg.

The Conference Board’s measure of US consumer confidence was up in May for the first time in four months.

The index of present conditions was up for the first time since January, and the expectations gauge saw its biggest positive move since July.
But the number of consumers who expect a recession within the next 12 months was up, too, for the second straight month. And consumers’ average expected inflation rate was up to its highest level so far in 2024.
No kidding: There’s an inflation element in the broader commodities-NVDA tale too, as Mish also explains in her current commentary.
Those inflation expectations are at least one reason why Neel Kashkari said Tuesday he doesn’t think “anybody has totally taken rate increases off the table.”
By “anybody” Kashkari is of course referring strictly to his colleagues at the Federal Reserve. The CME FedWatch Tool is pretty clear on this.
The president of the Federal Reserve Bank of Minneapolis rotated off the eight-member voting panel of the 12-member Federal Open Market Committee this year and won’t return until 2026.
Kashkari later told CNBC that he wants to see “many more months of data” before he’ll be comfortably certain that inflation is trending toward the Fed’s 2 percent target.
He characterized the present policy as “restrictive,” noting that the Fed can afford to be patient given the strength of the US labor market and the broader economy.
The odds of the Fed raising rates “are quite low,” Kashkari said.
As mixed as that message seems, his statements are consistent with a position that the Fed’s next policy move will be based on a preponderance of incoming data.
And that’s what he and his colleagues have been saying for months.
Perhaps April Personal Consumption Expenditure Price Index data will provide a little more clarity.
We’ll see that on Friday at 8:30 a.m. ET.

DEEP DIVE

The Ultimate Goal Is “AGI”

That’s “artificial generative intelligence.”

OpenAI announced in a blog post on its website that it’s working on its next artificial intelligence model, a successor to GPT-4 for its free-to-use ChatGPT tool.
The large language model-and-natural language processing-based system uses data gathered from the internet to understand and answer queries and power chatbots, virtual assistants, search engines, and image generators.
With this update OpenAI, the privately held research consortium backed by Microsoft $MSFT, hopes to get closer to its ultimate goal of developing “artificial generative intelligence.”
AGI is the ideal: a machine that performs like a human brain.

OpenAI announced in a May 28, 2024, blog post on its website that it’s working on its next-generation AI model.

OpenAI also announced that it has formed a Safety and Security Committee to assess risks posed by the new model and AGI.
“While we are proud to build and release models that are industry-leading on both capabilities and safety, we welcome a robust debate at this important moment,” the company said in a blog post.
The committee will be led by CEO Sam Altman and will include members of the OpenAI board of directors.

WEEKLY MARKET OUTLOOK

Hold On To Your Stuff

This commodity cycle could be super.

This commodity cycle could be super.“I think that people are grossly underestimating the potential of a super cycle in commodities,” Mish Schneider says at the top of her Weekly Market Outlook.
And, as Mish explains, this potential is not captured by measuring sticks like the Consumer Price Index or the Producer Price Index or the Personal Consumption Expenditures Price Index.
Three factors underlie the present condition, according to Mish.
The first thing to think about is that whether the Fed raises or lowers the fed funds rate “really becomes irrelevant at this point because it's not doing anything to control the type of inflation we're talking about.”
The second is that we’re seeing the European Central Bank get ready to cut its benchmark interest rate when it meets next week.
The third factor is the big one.
Wars in the Middle East and Central Europe and an increasingly complex geopolitical situation are putting upward pressure on all kinds of materials – and these are also inputs for this AI revolution.

Prices for all types of commodities are rising on a sustained basis.

“We have demand like we've never seen on raw materials that really have been in short production for a long time,” Mish explains, “because nobody anticipated that this would happen so fast.”
NVDA, of course, is rolling – “going nuts,” as Mish puts it. But the transportation sector is not – “breaking down – the momentum is terrible,” in Mish’s words.
That’s a dichotomy to watch, a potential indicator of emerging cracks in the current economy.
As Mish notes, right now just about everything is running together: “We're seeing mostly the indices going up, most of the sectors except for transportation going up.”
That includes utilities, “which is part of the delivery system on these raw materials for AI and EV.” In addition to oil and gold, silver and wheat are going up too.
“At some point – and this is what you need to watch for – there may be a break,” Mish warns, “where commodities keep running because this is what people need and the rest of the market actually starts to correct a little bit.”
This is not about “doom and gloom.” This is about being prepared.
It’s also about the fact that – as Mish concludes – there are always opportunities to make money if you know what to buy.