TheBRRR’s Thoughts

GM. Big tech came out with strong earnings reports to steal the show this week. The indexes reacted positively, despite digesting discouraging inflation data.

After dropping 5.5% last week, the Nasdaq rebounded strongly with a 3.8% bounce this week.

The odds of the Fed cutting interest rates at the June meeting fell from 19% to 11% over the last 7 days, while the odds of at least 1 rate cut coming by the November meeting decreased from 75% to 70%.

While strong stocks and sticky inflation are giving the Fed little reason to cut rates or stimulate the economy, their are several catalysts looming that could force their hand.

1. commercial real estate liquidations, pressuring banks
2. unsustainable dollar strength vs other fiat currencies
3. political pressure should Biden fall in the polls
4. any sign of weakness in job market

Crypto had a sideways week as the relative strength of the dollar vs other currencies and the hawkish inflation data has damaged the bitcoin narrative on a short-term basis.

Bitcoin still sits in a strong area just below its all time high, and should springboard in the coming weeks and months. It could fall as low as $50k (from $64k today) before we change sentiment on the asset class for the rest of the year.

We recently added to our Solana position on the dip at $131 and expect it to outperform bitcoin this year.

Market Roundup - Yen Collapsing While Big Tech Soars

WHAT HAPPENED:

1. US and Global Market Trends:

   • Stock Futures Jump: S&P 500 and Nasdaq futures climbed, led by strong earnings from tech giants like Microsoft and Alphabet.

   • Yen Plunges: The Japanese yen hit a 34-year low after the Bank of Japan (BOJ) decided not to intervene, maintaining its interest rates amid currency decline.

2. Earnings Impact:

   • Alphabet: Surged in premarket trading, adding significant value to its market cap after beating earnings expectations, largely driven by AI and cloud services.

   • Microsoft: Also rose after outperforming earnings estimates, highlighting strong demand for AI.

   • Other Notable Moves: Mixed results across sectors, with significant drops for Intel and positive movements in cloud software stocks and some Chinese big tech firms.

3. Economic Indicators:

   • Commodities: Oil and precious metals prices were up, while copper reached a significant milestone of $10,000 a ton for the first time in two years.

   • Bond and Forex Markets: USD strengthened while bond yields dipped slightly.

WHY IT MATTERS:

• Market Sentiment: The strong performance of major tech firms is a key driver of market sentiment, reflecting broader optimism about the potential of AI and tech growth despite broader economic concerns.

• Currency Dynamics: The BOJ's stance impacts global forex markets, particularly affecting trade dynamics in Asia. The weakened yen poses risks and opportunities in international trade and economic stability in the region.

• Economic Forecasts: Upcoming US personal consumption data could influence Federal Reserve's decisions on interest rates, impacting borrowing costs, consumer spending, and investment.

• Global Impact: Developments in tech earnings and the BOJ's decisions have repercussions beyond the US, influencing global market trends, investment flows, and economic policies.
  
  Elecktrek, Motley Fool

GDP Weakens While Inflation Is Proving Sticky

WHAT HAPPENED:

• Below Expectations: The U.S. GDP grew at an annualized rate of 1.6% in Q1 2024, missing forecasts that ranged around 2.2% to 2.5%. This marked the slowest growth since spring 2022.

• Consumer Spending Slowdown: The growth deceleration was attributed to a decline in consumer spending, exports, and government outlays, despite continued strength in housing construction and business investment.

• Inflation Concerns: Inflation remains above the Fed’s target, complicating the economic landscape. The CPI was reported at 3.5% in March, significantly higher than the Fed's 2% goal.

KEY DEVELOPMENTS:

• Inventory and Export Weakness: The GDP slowdown was largely due to weaker business stockpiling and sluggish export growth, which are typically volatile economic indicators.

• Sturdy Underlying Momentum: Despite these challenges, the core measure of final sales to private domestic purchasers grew by 6.1%, indicating underlying economic resilience.

• Job Market Strength: Employment continues to be robust with significant monthly job additions and wage growth outpacing inflation, supporting consumer spending.

WHY IT MATTERS:

• Federal Reserve's Dilemma: The mixed signals of slowing growth but persistent inflation may put the Federal Reserve in a difficult position regarding future interest rate decisions. While the market anticipated rate cuts in 2024, recent inflation trends and solid core economic activities might lead the Fed to reconsider.

• Economic Outlook: Analysts are watching for signs of whether this slowdown is a temporary blip or the start of a broader economic deceleration. The strength of consumer and business spending will be crucial in determining the direction.

• Potential Rate Adjustments: The Fed's future moves will hinge on incoming data. With inflation still high but growth tapering, the balance between fostering economic growth and controlling inflation remains delicate.

LOOKING FORWARD:

• Upcoming Data Releases: Further economic indicators and revisions to the GDP data will provide more clarity on the health of the U.S. economy and the likely direction of Federal Reserve policy.

• Market Sentiment: Investors will closely monitor the Fed's interpretations and projections in response to evolving economic conditions, particularly how they balance rate decisions amidst mixed growth and inflation signals.

Yahoo Finance

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The BRRR is meant for informational purposes only. It is not investment advice. Please consult with your investment, tax, or legal advisor before making any investment decisions.ll