The chart below shows consensus expectations for earnings for the Magnificent Seven and the S&P 493 since Liberation Day.
Earnings expectations for the Magnificent Seven have increased significantly. But expectations for earnings for the S&P 493 are basically unchanged.
The bottom line is that the consensus does not expect AI to improve profitability for corporate America outside the tech sector.
Much to the frustration of the quant community, when the Fed started raising interest rates in 2022, the strong correlation between gold and real rates broke down, see chart below.
It tells the market that when inflation and rates are high, investors begin to take other factors into consideration when they price future outcomes, and this has been particularly pronounced for the price of gold. In other words, quant models work best when inflation is stable at 2%, but this has not been the case since early 2021.
The bottom line is that new risks emerge when inflation is persistently above the Fed’s 2% target, which is where we continue to be today.
The problems in software will not become a macro problem because the underlying US economy is about to take off.
There are three strong tailwinds to growth over the coming quarters:
1. Many financings for data centers have already been committed for 2026.
2. There is strong political support for bringing back production facilities for semiconductors, pharmaceuticals and defense.
3. Fiscal policy is expansionary and will, according to the CBO, lift GDP growth this year by 0.9 percentage points.
The bottom line is that it is very difficult to be bearish on the US economic outlook, and later this year the conversation in markets will change from talking about Fed cuts to instead talking about the Fed having to hike.
If the Fed is unwilling to hike in response to an overheating economy, it would increase the risk of higher long rates, a steeper curve and a lower dollar.
US GDP growth is accelerating because of the One Big Beautiful Bill, the AI boom and the ongoing industrial renaissance. As a result, inflation pressures are building, driven by higher wages, higher commodity prices and a weaker dollar, see charts below.
Korean export growth has been driven by strong demand for semiconductors and autos, see chart below.
Tourism into Australia has been increasing. The number of visitors is now above pre‑pandemic levels for New Zealand, the UK and Japan, but not for China, the US and Singapore, see charts below.
The share of Chinese exports going to the US has declined to 10%, down from 20% in 2018, see chart below.
Bank balance sheet data show that yen lending to offshore financial centers and non-bank borrowers remains elevated, suggesting a large stock of yen-funded positions, see the first two charts.
By contrast, speculative futures positioning has swung sharply, highlighting that carry trades can unwind quickly even as the broader yen-funded footprint remains in place, see the third chart.
GDP in Venezuela is roughly 70% lower than in 2012, see chart below.
