In January this year, we warned our paid subscribers about irrational exuberance in precious metals as the technicals became extremely overheated and sentiment euphoric.

We are witnessing a similar phenomenon in the global chip/memory stocks.

The Philadelphia Semiconductor Index (SOX) is up by more than 85% since 30th March in a mind-boggling rally.

Furthermore, the three Asian stocks: TSMC, SK Hynix, and Samsung have led the EM indices higher, and the three chip stocks now form more than a quarter of the flagship EM ETF: EEM.

If we exclude the three giants (TSMC, Samsung & SK Hynix), the rest of the EM universe relative to MSCI US is now at levels we saw during the liberation day crash.

As a result, a diversified portfolio would have underperformed the benchmark YTD. Furthermore, even in the US, ex-Software and Semis, the last month has seen underperformance across sectors.

We are close to YTD highs with PF up 4.9%.

Indian and Chinese equities have been a major drag on the portfolio, while high cash levels have also hurt performance relative to the benchmark.

Due to last month's underperformance (266 bps), the PF has underperformed by 249 bps YTD.

We have consistently posted a superior Sharpe Ratio (>1.5) and Sorino Ratio (>2.5), but last month’s drag has led to a substantial decline.

We expect considerable improvement in the coming months as broader markets outperform and liquidity moves from AI/Semis/Memory/Chips to other parts of the market.

Let us take a deep dive into the macro universe and analyse the cross-asset price action.

Macro!

The Fed’s preferred inflation measure is the PCE.

PCE came in slightly below estimates, with the headline PCE at 0.4% MoM vs the expected 0.5% and the core PCE at 0.2% MoM v/s the expected 0.3%.

We can decompose the PCE into the Cyclical Core and the Acyclical Core PCE (depending on the item’s sensitivity to the business cycle).

Both the cyclical and acyclical PCE are in an uptrend, driven by higher commodity prices stemming from supply disruptions in the Middle East.

When we analyse the internals, there was significant upward pressure from financial services and non-durable goods.

In fact, the goods PCE came in at 4.39% YoY, which should raise some eyebrows at the Fed.

The other shocker, which portrays the sordid state of affairs for consumers, was the real personal income less transfer payments, which fell by 0.4%, the fourth decline in the last five months.

Note that these are real personal income and thus adjusted for inflation.

We believe asset owners (equities/housing/crypto/PMs) are spending thanks to the positive wealth effect; however, the bottom end of consumers (who don’t own any assets) is suffering [a K-shaped economy].

As a result, we are also witnessing one of the lowest savings rates on record as consumers dip into their savings to keep spending.

Last week, we discussed the plunge in consumer sentiment. The EZ consumer confidence, which cratered post-war, has recovered slightly this month.

However, it’s still in deep negative territory, and we expect it to gradually move up as higher inflation and likely higher rates will be significant headwinds.

In the land of the rising sun, industrial production rose by 0.8% MoM in April, defying market forecasts for a 0.9% decline.

While electronics equipment and electrical machinery saw strong growth, chemical production and auto production fell.

China’s industrial profits surged 24.7% YoY in April, led by computer and electronics equipment manufacturing.

Last week, we wrote that the rising PPI will eventually lead to higher profits, which will also be a tailwind for higher equity prices.

Profits for automobile manufacturers fell 16.8% YoY in Q1, indicating that the competitive intensity is hurting the industry.

Equities!

Since the market bottomed out on 30th March, it has been a one-way ride up led by momentum and growth stocks.

MTUM and IJR relative to SPY have seen huge outperformance, while value and small caps have been crushed, which is also one of the reasons our PF has underperformed.

Nonetheless, the outperformance of these factors is largely attributed to only a handful of chip stocks (especially this month).

In fact, except for XLK, all the other sectors have underperformed the SPY by a “huge” margin.

Equity Allocation:

Read more

Well, folks, we have always believed that AI is a game-changer; however, we have always been wary of the trillions of dollars in capex spending by the hyperscalers, as such gargantuan amounts of spending are only “justified” if they can generate high returns (historically, these companies have generated 20%+ ROCE) on their investments.

This week, we saw what we've been warning about for months. The AI “revolution” was expected to cut costs and boost productivity, but companies using AI for automation are experiencing increased expenses.

Microsoft cancelled its internal Claude Code licenses this week after token-based billing made the cost untenable, even for a company with effectively infinite cloud resources. Uber's CTO sent an internal memo warning that the company burned through its entire 2026 AI budget in just four months. American AI software prices have jumped 20% to 37%, and GitHub (owned by Microsoft) is switching from flat-rate plans to usage-based billing across its products.

Token-based billing will make it challenging for enterprises to adopt AI at scale if AI Labs continue to raise prices.

The so-called “doomsday” scenario suggested by some prominent Substack writers cannot occur if you believe in unit economics.

Additionally, the claim that “Software is Dead” was propagated by short-sellers, and we are on the verge of seeing a strong resurgence of software as hardware gets a reality check due to the multiple constraints of a large-scale AI rollout.

Nonetheless, AI is the future, and thus, one needs to incorporate AI into their workflow. We use MacroMicro for our macro analysis, and they have also launched the MM AI Bubble, where you can chat with their AI.

Furthermore, they will be launching the first-ever “Macro Terminal” in July.

The full MM AI experience will be available only with the MM Max Annual plan. This link gives you a 14-day trial of the discounted Max Annual plan (you can change the language to English). You can also lock in the current annual pricing before the official AI launch price adjustment takes effect.

Click on the link to lock in a significant discount!

We recouped some of the underperformance this week; however, our exposure to China has weighed on the portfolio.

Nonetheless, we are pretty confident that we will once again outperform the benchmark as we head into June.

Let us take a deep dive into the macro universe and decipher the cross-asset price action!

US/Equities/Bonds/Oil/Dollar/Gold!

While it was a quiet week for US macro data, we will closely monitor consumer health in this week’s update.

By far, the biggest talking point of the week was the Michigan Consumer Sentiment Index.

We rarely talk about this because we don’t incorporate this soft data release into our process; instead, we use other data points to gauge consumer health.

Consumer Sentiment Index plunged to a record low of 44.8, current conditions to 45.8, and expectations to 44.1. The whole survey was revised lower.

The Survey can be divided into different parties, and since we have a Republican President, the Sentiment (Democrats) is abysmally low at 32.8, while the Republican Sentiment is at 84.6 (but trending lower).

Nevertheless, undoubtedly, consumer health is fragile, and lower-income households are struggling the most.

This week's Walmart earnings also indicated that stress is now building among middle-income consumers. Notably, Walmart has been targeting households with an annual income of> $100k.

One of the reasons for stress has been the high APR on the credit card debt.

When we look at the Delinquency rates, the credit card delinquency rates are nearing GFC highs.

Note that auto loan delinquency rates are already at ATHs.

Before we end the macro section, we came across an alarming chart.

Sulfuric Acid is one of the most widely used raw materials in the chemical industry and in almost every other industry, especially in the fertiliser industry.

Post-war, China halted the export of Sulfuric Acid, and its price has nearly doubled.

Thus, inflation is not going away easily.

We also received the Fed minutes this week, and, as everyone is aware, the Fed is divided due to the twin shocks (tariffs and geopolitical).

Once we start hearing from Warsh, we will know the Fed's direction (hawkish or dovish).

Equities!

It has been 32 trading days since SPX

Read more

The US-China summit was historic, as the Chinese President raised a concern that nobody had expected him to raise publicly, even in their wildest dreams.

“It was the rise of Athens and the fear that this instilled in Sparta that made war inevitable,” Thucydides wrote in his book, The History of the Peloponnesian War.

Xi mentioned in his speech:

“The Taiwan question is the most important issue in China-US relations. If mishandled, the two nations could collide or even come into conflict, pushing the entire China-US relationship into a highly perilous situation.”

While raising the Taiwan issue and the Thucydides Trap simultaneously, China has made it clear about its red line, and the US has no alternative (to avoid conflict) but to reduce the reliance on TSMC and other supply chains that China controls (rare-earth).

As the summit ended, the global bond markets once again imploded, led by the Japanese Government Bond (JGB) market.

The yield on the 30Y JGB has now crossed a mind-boggling 4% while it has reached nearly 6% in the UK and 5.1% for the UST 30Y.

The bond vigilantes are running wild, and there is no escape for policymakers but to control inflation via fiscal and monetary tools.

When we analyse performance across equity baskets (Data till 13th May) since the scorching rally began on 31st March, the biggest gainers are the most shorted: meme stocks, non-profitable tech, semis, and other speculative parts of the market.

The majority of market constituents have failed to outperform the index despite reporting better-than-expected earnings, as the rally has been super-narrow.

The PF underperformance, which began in the first week of May, continues due to the factors mentioned last week (shallow rally).

However, we expect to recoup the losses in the coming weeks and months.

Let’s take a deep dive into the macro universe and comprehend the cross-asset moves.

US/Equities/Bonds/Oil/Dollar/Gold!

Two of the most-watched data points this week were the inflation measures: CPI and PPI, given that the full effect of higher oil prices was visible in April.

However, we believe we may achieve a full pass-through only by the end of Q3.

The headline CPI came in at 3.8% YoY v/s expected 3.7%, while the Core CPI (ex-food and energy) came in at 2.8% v/s expected 2.7%.

As one can observe, energy contribution has been the highest since the 2022 Russia-Ukraine war.

Furthermore, while core goods have been trending higher due to tariff-led inflation, we are now seeing pressure emerging even in Core Services.

Core Services was led higher by transportation services, while tariff inflation drove Apparel prices higher.

Shelter was significantly higher due to a one-time adjustment (double-counting) made for October, when the number was not reported because of the government shutdown.

The shocker of the week was the PPI, which came in at 6%, significantly higher than the 4.8% estimate.

When we dig deeper, commodities led by fuels/power were the biggest contributor to the all-commodities basket of PPI.

Note that higher equity markets were partly responsible for the higher PPI (higher portfolio management component).

We believe CPI and PPI are headed significantly higher, as the correlation with CPI and WTI futures suggests.

If the oil prices stay above $90-95 for another 3-4 months, as market participants expect, we might see the headline CPI heading towards 5%.

The Retail Sales came in line with estimates. The headline retail sales came in at 0.5% MoM v/s expected 0.5%, while the control group came in at 0.5% v/s expected 0.3%.

Unsurprisingly, gasoline stations topped the chart with a 21% YoY gain, while the trend of degrowth in furniture (housing-related) and motor vehicles continues.

Note that while the nominal retail sales continue to be strong, inflation-adjusted numbers (real retail sales) have been subdued.

The NFIB Small Business Optimism Index fell as sentiment soured amid the war in the Middle East.

The top three single most important problems for small businesses remain Quality of Labour (thanks to a halt on illegal immigration), taxes (thanks to tariffs) and inflation (thanks to war).

It has been really tough for small businesses to navigate over the past 1.5 years due to multiple shocks, as mentioned above (immigration, tariffs, and war).

Furthermore, the expected capex outlays planned for the next three months are the lowest since the GFC (2008), indicating that the demand outlook is uncertain as they reel from multiple shocks.

Macro Outlook!

Read more

In a mind-blowing stat, yesterday was the fourth time in “HISTORY” when the S&P 500 hit a record high while 5% of its members fell to 52-week lows.

The last three episodes transpired in:

• July 1929

• January 1973

• December 1999

Even in the coveted Mag7 (TSLA replaced by AVGO), there has been a significant disparity, with only three stocks outperforming the tech index (QQQ) since the vertical rally began on 30th March.

We were lucky to own one of the stocks as part of our exposure to the US tech ecosystem.

Thus, if you have had low exposure/underweight stance to the semis/hardware as an active investor/fund manager, you would have undoubtedly underperformed the benchmark.

Unsurprisingly, half of the S&P 500's returns since the rally began are attributable to only 5 stocks.

While today it may look like “nothing stops this mega semiconductor rally,” we believe that parabolas always end the same way (we will discuss this in detail later).

We are underperforming the benchmark by 100 bps despite allocating significant cash and being overweight US equities, given the nature of the rally we have witnessed since 31st March (and especially last week).

As discussed, even outside the US, we have seen the rally spearheaded by only a handful of chip stocks in Taiwan, Korea and Japan. Everything else has underperformed, and if you have been running a well-diversified portfolio, there is a high probability that you would have underperformed the benchmark.

Nevertheless, we remain confident of outperformance in the medium term as we believe that fundamentals (macro) will catch up sooner rather than later.

Let’s take a deep dive into the macro universe and comprehend the cross-asset moves!

US/Equities/Bonds/Oil/Dollar/Gold/Copper/BTC!

This week, the ISM Services report was released, with the headline figure at 53.6, compared with the expected 53.7.

The sub-components showed no significant surprises; however, New Orders declined markedly compared to March.

The ISM Services Prices Paid is one of the components which we track closely, as it has a tight correlation with the CPI.

Although there was no increase in the ISM Services Prices Paid (70.70) compared to last month, it remains at a multi-year high.

As a result, we expect the CPI to gradually rise above 4%.

One of the credit measures which macro analysts closely monitor is the Senior Loan Officer Opinion Survey (SLOOS) on bank lending practices.

Past recessions have led banks to significantly tighten lending standards as they became wary of lending amid declining credit scores and rising defaults.

We saw a slight increase in % of banks tightening standards for consumer loans in Q2.

Furthermore, the % of banks reporting stronger demand for consumer loans also declined to -12.7%, indicating that credit demand (ex-CC & auto) from consumers remains weak, likely due to lower-income consumers facing hardship amid the rise in the cost of living.

In past recessions, we have seen the net % of banks reporting stronger Commercial & Industrial (C&I) loan demand plummet.

We saw a similar episode in 2023, post-SVB crisis, when banks significantly reduced lending to the private sector, and thus private credit scaled up.

We have seen a rebound since then; however, we are still away from the post covid highs.

However, we anticipate a significant increase in credit demand in the coming months, driven by higher nominal growth and higher working capital requirements among businesses.

Now, let’s move on to the most important data release of the week:

Read more

Countries with exposure to these names (South Korea, Taiwan, Japan and the US) have outperformed since the March lows.

The bond market bulls were annihilated as benchmark yields soared, with markets pricing in higher inflation over the next few quarters and hawkish central banks.

Let’s examine 14 charts to analyse the cross-asset price action and global macro!

1. Led by a nearly 100% rise in crude oil prices YTD, DBC is the top performer this year.

   Thanks to commodities’ outperformance, LATAM markets continued their winning streak, with the benchmark ETF ILF up 19% YTD (though it has underperformed over the last two weeks).

   Gold lost its sheen after a stellar rally in January and is up less than 7%, as sentiment has turned bearish and technicals have followed suit.

   The US eroded some of its underperformance relative to both its DM and EM peers. While the Emerging Market ETF EEM is up 17% YTD, the MSCI European ETF IEV is up 4.45% compared to a 6% gain for SPY and 10% gain for the QQQ.

   China and long-term bonds have been the stark underperformers.

   

2. While indices have conquered new peaks, the Net-Bullish sentiment is far from euphoric.

   In fact, the neutral sentiment could lead to further gains in equity markets, which have been on a one-way ride without a breather.

   

3. As hyperscalers go all in to meet the humongous AI demand, tech capex as a % of S&P500 has scaled to new highs, now exceeding 50% of total S&P500 capex.

   Unsurprisingly, only a handful of stocks are responsible for this enormous capex.

   

4. Considering the $800 billion of AI capex, it’s a no-brainer that a large proportion of the incremental growth in Q1 GDP came from AI investments, which have now overtaken even New Single-Family Homes investments!

   We have now surpassed the dot-com levels, and Computer Equipment Investment as a % of Total GDP has exceeded 1.2%.

   

5. This has also led to money flowing into the old economy, with power, infrastructure, and energy accounting for a large share of AI investments.

   As a result, we are witnessing the strong performance of Cyclicals relative to defensives.

   

6. The rise in oil prices due to geopolitical conflict in the Middle East is driving prices significantly higher, as the US CPI came in at 3.3% YoY, the highest since 2024.

   If ISM Services PMI is to be believed (it has a tight correlation with CPI), we are heading toward 4% in the next few months.

   

7. We are witnessing a historic trade in the financial markets as market participants go all in on a Long Semis/Short Software trade.
   
   The relative strength of the Semis, as measured by SMH/IGV, has reached mind-boggling levels.
   
   Nobody can predict the top, but one thing is certain: parabolas "always" end the same "painful" way.

   Did we see the peak last month, and is the Hardware-to-Software rotation imminent?

   

8. Since the war began, there has been a massive rotation from Gold to BTC.

   In fact, we have seen a 30%+ delta, and it has been a rewarding trade for those who sold Gold at the top in late January and bought BTC as it hit key technical support levels in February.

   

9. Sentiment across European corporations has cratered, while inflation expectations have even surpassed levels seen after the 2022 Russia-Ukraine war.

   While the ZEW Economic sentiment has plunged to -17.2, the lowest since 2022, the inflation expectations have zoomed to 79.2, the highest since June 2021.

   Stagflation or a temporary shock?

   

10. Last week, BOE stated three likely scenarios.

    The first scenario entails a temporary spike in inflation with no second-order effects; the second scenario entails modest second-order effects; and the third scenario entails stronger second-round effects due to a prolonged energy shock.

    The response to the three scenarios is in the chart.

    

11. Retail sales were also tepid, growing 1.7% in March vs an expected ​2.3% rise.

    Auto and housing-related sales (furniture and building materials) were a drag. Note that the trend in these sectors has been down (housing recession).

    On the flip side, “communication equipment” has seen a meteoric rise and has been on a significant uptrend. Good for AAPL?

    

12. In the land of the rising sun, PPI came in higher than expected at 2.6% YoY.

    We will see further upward pressure as rising energy prices drive higher input costs for firms.

    As a result, we have also seen a wider PPI/CPI spread, which, in the medium term, bodes well for corporate profitability.

    

13. The closure of the Strait of Hormuz (SOH) has resulted in a loss of more than 14 mbpd in oil flow.

    Considering the alternative routes (UAE’s Fujairah) and the Saudi Yanbu pipeline, along with SPR releases, floating storage, and refinery cuts, we have seen a deficit of 5.1 mbpd over the last two months.

    The oil inventories have now depleted, and if we don’t get a resolution in the next few weeks, oil markets will enter a state of panic.

    

14. BONUS CHART: AI was supposed to kill software, but it turns out, at least with regards to software engineers, there appears to be a major revival.

    The hiring trends are extremely encouraging, and we might see the opposite of what market participants have been advocating over the past few months.

    

Disclaimer

This publication and its author are not licensed investment professionals. The author & any other individuals associated with this newsletter are NOT registered as Securities broker-dealers or financial investment advisors with the U.S. Securities and Exchange Commission, Commodity Futures Trading Commission, or any other securities/regulatory authority. Nothing produced under Marquee Finance by Sagar should be construed as investment advice. Do your research and consult with your certified financial planner or other dedicated professional before making any investment decisions. Investments carry risk and may lose value; Marquee Finance By Sagar LLC, Marqueefinancebysagar.substack.com or Sagar Singh Setia is not responsible for loss of value; all investment decisions you make are yours alone

While we were “cautious” (cautious≠bearish) until last week, we became more confident midweek that the markets are entering a “Buy The Rumour, Sell The News” event.

However, the rise in US equity markets was driven by a handful of AI Capex beneficiaries, while “real” economy stocks have lagged globally (since the war began).

Nevertheless, the US seems to be the least affected by the war, and, in fact, its net energy-exporter status will likely benefit the competitiveness of the US industrial base as it aims to reindustrialise.

This week, we saw major central banks reiterate their commitment to suppress inflationary pressures despite sluggish growth projections. The global hawkish tilt, as the war drags on, shouldn’t come as a surprise to seasoned macro watchers.

Due to our cautious stance, our high cash holding (26%) was a drag on our performance as the PF is up 4.2% YTD compared to the benchmark return of 4.42%.

Note that we significantly reduced cash mid-week and were lucky enough to do so promptly.

Let us take a deep dive into the macro universe and comprehend the cross-asset reactions!

US/Equities/Bonds/Oil/Dollar/Gold/Agri/BTC!

Fed’s preferred inflation measure: the PCE came in bang in line with the estimate.

The headline PCE came in at 0.4% MoM vs 0.4% MoM. Furthermore, Core PCE also came in at 0.4% MoM v/s 0.4% MoM.

The trend is undoubtedly up, as we can observe from the chart. Furthermore, the cyclical PCE is indicating signs of bottoming out.

We can also conclude that CPI is a lagging indicator, and we can predict with certainty that higher oil prices (sustained) lead to higher CPI, albeit with a lag of 2-3 Quarters.

Long-term subscribers will appreciate that we are not big fans of GDP (a backward-looking indicator prone to revisions).

While inventory changes supported growth, net exports were a drag.

One of the significant takeaways was the explosive growth in the Computer Equipment Investment (AI Capex).

We have now surpassed the dot-com levels, and Computer Equipment Investment as a % of Total GDP has exceeded 1.2%.

In fact, a large proportion of the incremental growth in Q1 came from AI investments, which have now overtaken even New Single-Family Homes investments!

ISM Manufacturing came in slightly below estimates, with the headline index at 52.7 vs 53.2 expected.

Our preferred gauge, New Orders less Inventories, also softened; however, we believe the slight blip is due to the supply chain disruptions arising from the Middle East conflict.

The biggest surprise was the ISM Manufacturing Price Paid, which came in at a whopping 84.6 and is now reaching the levels last seen in 2021.

Note that although correlation with the CPI is weak (ISM Services Prices Paid has a higher correlation), the trend (CPI) can be extrapolated.

One of our favourite metrics for tracking wages in the labour market is the ECI (Employment Cost Index), which came in higher than expected at 3.35% YoY.

However, higher ECI was driven more by “Benefits” than by wages.

Thus, real wages (adjusted for inflation) are on the verge of turning negative as inflation outpaces them. This will be a significant hit for the consumers.

There was a slight change in the Fed statement, prompting market participants to call the meeting a “hawkish” hold.

“Inflation has moved up and is elevated, in part reflecting the recent increase in global energy prices.”

Furthermore, three Governors dissented from the inclusion of “Easing bias” in the statement. While Miran, as usual, dissented in favour of a 25 bps cut.

The uncertainty arising from the situation in the Middle East is making the Fed cautious, and we don’t expect any change in the language or the decision (on hold) unless absolute clarity emerges from the State of Hormuz.

“You know, we have so much to learn and there’s so much uncertainty about the path ahead, there doesn’t need to be any rush to make that decision now because, you know, what happens in the next 30, 60 days, even by the next meeting, could really change the picture around that -- around that language.”

“And so maybe a little bit of restriction or the high end of neutral is just the right place to be. So, we can wait here and see -- and see how things work out before we act.”

If you have been wondering why the US has outperformed RoW since the war began, JayPo apparently mentioned it explicitly during the presser.

“We’re also -- you know, as I mentioned, we’re an oil exporter so we’re not feeling the same kind of pain, and we’re not likely to feel the same kind of pain that economies in Western Europe and, certainly, in Asia are feeling.”

On the labour market, the dynamics of which we have been indicating for the past few months are “Low Hire, Low Fire”, an unusual market given the wild swings we have witnessed since the pandemic.

Interestingly, JayPo calls this a “balanced” labour market, but we believe it’s a fragile market prone to sudden shocks.

So that’s a -- that’s -- you know, in a sense, the labor market is in balance, but it’s an unusual and uncomfortable kind of a balance where people who don’t have jobs will have a hard time breaking in unless somebody quits their job.

Macro Outlook!

Read more

He refers to it as the concept "which makes us think that we understand more than we actually do".

Many market participants have offered their expert opinions on how the Strait of Hormuz (SOH) situation will end. (There is also an intriguing chapter in the book about the forecasting error rate of so-called “experts”)

We believe that nobody has a clue what will happen (a classic Platonic mindset is at play), and thus we are in the midst of a black swan event as reality slowly seeps in.

The consequences of the conflict will be far-reaching.

Nevertheless, we have seen unprecedented activity in the equity markets as global liquidity has poured into a handful of semiconductor names, leading to outperformance in the US Tech, South Korean, and Japanese equity markets, while the ROW has underperformed massively.

The GS High Beta Momentum Long Index (GSCBHMOM) is recording its second-best 18-day run on record, surpassed only by June ‘00, which followed the initial -60% crash off the March ‘00 peak.

The only other times high-beta momentum achieved a 30%+ gain over 18 days to a 52-week high were Nov. ‘99 (+34%) and Feb. ‘00 (+33%). This is therefore the largest 18-day gain into a new record high.

Furthermore, the casino is back as speculative activity hit multi-year highs.

The total net call volume has surged to a fresh 2.5-year high.

Moving on, with the failure of the Islamabad talks and a fragile ceasefire, we might be on the cusp of Round 2.0 of escalation. Note that the tensions are running high as the US utilises all the available tools for the naval blockade, while Iran has blocked all the traffic in the SOH as frequent skirmishes become the norm.

It’s really challenging to predict how this ends, as nobody knows the extent to which both sides will really go to control the Strait.

Macro has taken a back seat as geopolitics takes centre stage, and we are on the cusp of chaos in the energy markets. We are already witnessing the cancellation of tens of thousands of flights worldwide as it becomes unprofitable for airlines to operate amid an explosion in jet fuel prices.

Note that we believe this might be the beginning of a prolonged energy crisis, especially if the situation in the Middle East deteriorates further.

We raised cash two weeks ago, and as a result, the significant alpha we generated has diminished, with the PF now up 4.11% versus 3.94% for the benchmark.

Let us take a deep dive into the macro universe and decipher the cross-asset puzzle.

US/Equities/Bonds/Oil/Dollar/Gold!

We begin with retail sales data, which is the best measure of consumption in the US (65% of US GDP is consumption).

It was an all-round beat, with headline retail sales growing 1.7% vs exp. 1.4%.

Retail Sales Ex-Auto grew by 1.9% v/s exp.1.5%, and the Control Group grew by 0.7% v/s exp. 0.2%.

While non-store retailers (online sales) have been on a tear, growing in double digits YoY, Furniture (housing slowdown) has been a drag (down -0.78% YoY).

Nevertheless, real retail sales (adjusted for inflation) have disappointed and are below their peak, indicating that nominal retail sales growth has been driven by value rather than volume.

Last week, we received the NFIB Small Business Survey, which we monitor to understand small businesses’ sentiment.

The headline index plunged to 95.8 v/s exp. 97.9, indicating waning sentiment due to war-related uncertainty.

When we dig deeper, the shocker came from the earnings trends, as it was the single biggest sub-component to drag the headline index lower.

The net % of small businesses reporting positive fell 11 points to -25%.

The NFIB job report was a mixed picture.

A seasonally adjusted net 12% of owners plan to create new jobs in the next three months, unchanged from February.

PS: Note that this is at one of the lowest levels since 2018 and the measure has failed to move up.

While labour quality has declined over the past few months, reports of labour costs as the single most important problem have gradually increased.

10% of business owners reported labour costs as their single most important problem, up 1% from February.

The last time labour quality, reported as the single most important problem, was below 15% was in December 2016.

Equities!

Read more

Will we get a durable peace and ceasefire in the ME, or will the conflict once again rage?

Although the highest-level talks are underway between Iran and the US (incredible that no one from Israel is attending the talks), the gap between the demands of both sides is monumental.

Furthermore, there is no consensus on the Strait of Hormuz (SOH), which has been a bone of contention.

Everybody should watch the video below to understand the situation on the ground!

As per the IRGC:

All ships intending to transit the Strait of Hormuz are hereby notified that in order to comply with the principles of maritime safety and to be protected from possible collisions with sea mines...they should take alternative routes for traffic in the Strait of Hormuz.

Note that the circle in the chart represents the mined area shared by both Oman and Iran.

The routes represented by arrows are in Iranian waters and are small waterways of “a few kms”, effectively giving Iran control of global energy flows.

If you believe that Iran will give up its only leverage, and if you believe the Gulf states and the US will allow the “IRGC” to control 20% of the global energy flows, then my friend, you are highly mistaken.

Undoubtedly, there is much more to come before this war ends, and we will discuss the path forward in detail in the Geopolitics section (extensive analysis).

We are up 3.2% YTD compared to 1.56% YTD returns by the benchmark.

The next few days are crucial, and we may significantly underperform/outperform the benchmark due to the directional bets in our portfolio.

Let us begin today’s newsletter, where we will discuss in detail the oil market, macro data and cross-asset moves.

US/Geopolitics!

Since the war began on 28th February, we have received the first CPI report, which “partly” reflected the rise in oil prices.

The headline CPI came in at 3.3%, meeting expectations, while the Core CPI came in at 2.6% v/s expected 2.7%.

While energy prices were up 12.59% YoY, used car prices are exerting disinflationary pressure, with the measure down 3.18% YoY.

PS: We expect used car prices to reverse course and trend higher in the coming months, as evidenced by wholesale auction prices.

We have been articulating for the past few weeks that higher energy prices percolate into the CPI with a 2-3-quarter lag (higher goods inflation), as the CPI is a lagging indicator.

As of now, Core Goods inflation is benign at 0.021% MoM, and Core Services came in at 0.137% MoM.

JayPo’s popularised inflation measure, the Supercore (Services Ex-Shelter), came in at 3.14% YoY, with most of the increase driven by Transportation Services and medical care services.

ISM Services came in at 54.0 v/s expected 54.9.

However, as usual, the devil lies in the details.

ISM Services Prices Paid came in scorching hot at 70.7, indicating that the CPI is going vertical in the next few months.

Furthermore, while Prices Paid came in at the highest level since 2022, the Employment PMI came in at 45.2, the lowest since 2023, indicating early stagflationary signals.

On the contrary, Services activity seems robust, with New Orders jumping to 60.6.

Nevertheless, the income data have been horrendous.

Excluding current transfers, the Real Personal Disposable Income (adjusted for inflation) is now flat since liberation day last year.

Note that this is before the oil shock hit the US economy.

Furthermore, the real PCE is significantly higher than real personal income, as Americans have been drawing down their savings (also partly due to higher asset prices, which fuel the positive wealth effect).

If the “real” incomes fail to grow, we expect an imminent slowdown in consumption in the coming months.

We reiterate that consumer health was totally different when the oil shock of 2022 hit the global economy, compared with today, when consumers are fragile amid a soft, low-hire, low-fire labour market.

Geopolitics!

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The Dated Brent (physical) traded at $142 yesterday, its highest levels since the 2008 oil price spike.

As a result, the spread between Dated Brent/Frontline Brent Futures reached an all-time high of $24.

There is absolute panic in the oil markets, with a mad scramble by refiners to purchase every available physical barrel.

For those who aren’t aware of the supply-and-demand scenario in the oil markets, pre-war, supply, including all sanctioned oil, was around 109 mbpd, while demand was 103/4 mbpd, indicating a surplus of 5 mbpd. However, with the production shut-ins of around 10 mbpd post-war, we are in a deficit, with demand far outstripping supply.

Thus, unless demand destruction transpires or the Strait of Hormuz (SOH) reopens, expect the physical market tightness to persist.

On the other hand, we got a shocker in the private credit space as redemptions reached a mind boggling 22% of one of Blue Owl’s funds, demonstrating that the “music might have stopped playing”.

As we navigate turbulent times in the financial markets, we continue to outperform our benchmark, with a YTD return of 1.32% versus -1.15%.

Today, we examine the probable timeline of the Middle East conflict and delve into the macro universe to understand the cross-asset implications.

US/Equities/Bonds/Oil/Dollar/Gold/Silver!

We received a whole host of macro data this week.

We begin with retail sales, one of the most crucial metrics for tracking household spending amid multi-year high gas prices.

Note that we got February retail sales data, and since the war began on 28th February, we won’t know the effect of higher gas prices yet.

It was an all-around beat:

• Headline Retail sales at 0.6% v/s Exp. 0.5%.

• Retail sales ex auto at 0.5% v/s Exp. 0.3%.

• Control Group at 0.5% v/s Exp. 0.3%.

Some of the categories (sporting goods, clothing), including online, saw a massive YoY surge in sales.

Note that these are also the categories in which prices were significantly higher due to tariffs (and thus nominal retail sales were higher for these categories).

Note that over the six months ending in February, control retail sales and food services are up just 2.1% on an annualised basis.

With inflation running at 3%, the real retail sales (adjusted for inflation) have been subdued.

ISM Manufacturing came in at 52.4 v/s expected 51.5.

However, the surprise was the blowout Prices Paid, which came in at 78.3, the highest since June 2022.

Note that although the employment PMI has risen from its lows, it remains below 50, indicating contraction.

Our favourite indicator, New Orders Less Inventories, moved slightly lower from the highs. However, there are no danger signs yet.

Now let’s turn our attention to the labour market:

• JOLTS-1: JOLTS job openings came in at 6.946MM v/s expected 6.750MM. However, the devil lies in the details. JayPo’s favourite labour market indicator, Vacancies/Unemployed, fell again below 1 to 0.91, indicating weakness in the labour market. Furthermore, the quits rate fell to a cycle low of 1.9%.

  

• JOLTS-2: While Quit Rates fell to the cycle lows, the Hires Rate plunged to 3.1%, the lowest in six years. Furthermore, the layoff rate jumped again to 1.1%, though it remains below the cycle highs. The low-hire, low-fire environment may turn into low-hire, high-fire in the coming months if the energy crisis is prolonged and the tech layoffs rise.

  

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Nobody could have modelled the “pandemic”, the 2022 Russian invasion of Ukriane, “the tariff saga” of 2025 and the most largest disruption in the energy markets in history due to the Iran-Israel/US war of 2026.

Let’s examine 15 charts to analyse the global macro and the 2026 energy shock!

1. Led by a nearly 60% rise in crude oil prices in a single month, DBC is the top YTD performer.

   Thanks to the commodities outperformance, LATAM markets continued their winning streak with the benchmark ETF: ILF up 17% YTD.

   Gold lost its sheen after a stellar rally in January and is now up 8.6%.

   The US continues to underperform both its DM and EM peers. While the Emerging Market ETF EEM is up 3.8% YTD, the MSCI European ETF IEV is down 1% compared to the 4.4% loss for SPY and the 6% loss for the QQQ.

   Surprisingly, long-term bonds provided some cushion and outperformed the US equities.

   

2. It’s not only the tech sector that has been a laggard; rising private credit concerns have also led to a massive sell-off in financials, with XLF the worst performer YTD.

   Energy (XLE) has broken all records and seen the biggest outperformance relative to the S&P 500 since the 1990s.

   

3. The Leveraged Long/Short ETF Volumes indicator helps predict bottoms. However, during the 2022 bear market, the indicator slumped and stayed low.

   This is the one metric you should absolutely track.

   

4. The tech investors will have to endure extreme pain over the next few months (maybe years) as Mr Market resets valuations. Once known for hoarding cash and buybacks, the big tech companies are now turning net cash negative as FCF plummets due to trillions of dollars of capex.

   As a result, the S&P Tech forward PE valuation premium over the S&P 500 has compressed to 2019 levels.

   

5. While oil prices are hovering around $100/b, product prices are off the roof and well above 2022 levels.

   The biggest rise is seen in jet fuel prices, which have surpassed $250 in Singapore. We will see bankruptcies among airlines if prices persist for more than a quarter, and travellers will likely prefer short-haul destinations for vacations due to soaring airfares (inflation?).

   

6. It’s not only the fuel prices, but the transportation costs have also skyrocketed.

   The Baltic Dirty and Clean Tanker indices are now approaching record highs. Also note that the insurance premiums have also seen insane increases, leading to elevated freight costs.

   

7. Interestingly, energy’s share of consumer spending has fallen over the past few decades and is now less than 5%.

   However, the lowest 20% (bottom quintile) of consumers are the most affected by higher energy prices.

   Unsurprisingly, Trump’s approval rating has plummeted to record lows.

   

   

8. Consider it a coincidence, every US recession from the 1970s up to the Global Financial Crisis coincided with a doubling of oil prices.

   The oil spike during the 2022 Russia–Ukraine conflict did not trigger a recession due to the fiscal impulse and pandemic savings; however, as you remember, economists also called for a recession in 2022.

   Will we be second time lucky?

   

9. Thanks to the rise in energy prices, bond vigilantes wreaked havoc in the bond markets as Mr Market prices in a “RATE HIKE”.

   The moves have been extremely aggressive, with markets pricing in more than an 80 bps hike by the ECB due to energy-induced inflation.

   

10. The war’s macroeconomic aftereffects were visible in Germany, with the latest ZEW Survey shocking the street. ZEW Economic Sentiment collapsed to the negative territory (-0.5) from 58.3 reported in February.

    When we look at the internals, the manufacturing sector was responsible for the negative readings.

    Furthermore, chemicals will be the worst hit in the coming months as supply chain disruptions lead to force majeure and production cuts.

    

11. One of the biggest differences between the energy shocks of 2022 and 2026 is consumer health. Consumers were flush with excess savings accumulated during COVID-19 when the 2022 energy shock hit Europe.

    However, the UK’s labour market is extremely weak today, and consumer health has deteriorated significantly.

    Although markets are currently focused on the inflation shock, they have yet to fully price the potential growth shock.

    

    ---

12. One of the data points we place a lot of weight on for China is Total Social Financing (TSF).

    China’s banks extended 900 billion yuan ($130 billion) in new yuan loans in February, down from 4.71 trillion yuan in January and missing estimates.

    PS: Total social financing growth typically shows seasonal increases at quarter-end.

    

13. Two of the largest manufacturing giants in Asia, which depend on the Middle East for 80% of their needs, are Japan and South Korea.

    Furthermore, Japan receives the majority of its oil imports via the Strait of Hormuz, but if it utilises its SPR (which it has announced), it can manage its oil needs for more than six months.

    

14. While Oil in $$$ (Brent) is still miles away from its 2008 ATH ($150), oil prices in local currency have surpassed their ATHs.

    Ironically, except for the Taiwan Dollar ("heavily managed float"), among major non-China Asian economies, Brent crude has never been this expensive.

    

15. BONUS CHART: US software has witnessed a bloodbath as concerns rise post the release of Anthropic’s new models. As a result, US software v/s tech is now the cheapest on record.

    Some of the companies are trading at valuations last witnessed in the GFC or Covid. Time for bargain hunting?

    

Disclaimer

This publication and its author are not licensed investment professionals. The author & any other individuals associated with this newsletter are NOT registered as Securities broker-dealers or financial investment advisors with the U.S. Securities and Exchange Commission, Commodity Futures Trading Commission, or any other securities/regulatory authority. Nothing produced under Marquee Finance by Sagar should be construed as investment advice. Do your research and consult with your certified financial planner or other dedicated professional before making any investment decisions. Investments carry risk and may lose value; Marquee Finance By Sagar LLC, Marqueefinancebysagar.substack.com or Sagar Singh Setia is not responsible for loss of value; all investment decisions you make are yours alone

The AI story is on the cusp of a meltdown as MSFT enters into a long-term bear market.

The Oracle 5Y CDS is now at its highest level since the GFC, as market participants panic and seek avenues to hedge their tech exposure.

The tech investors will have to endure extreme pain over the next few months (maybe years) as Mr Market resets valuations, as companies' FCF plummets and the Mag7, once known for hoarding cash and buybacks, are now turning net cash negative.

For the first time since the war began, we have also begun writing about the “post-war” analysis, in which we discuss the macro outcome based on probable scenarios.

Some of the outcomes are now certain, given the geopolitical situation and the further escalation over the last 24 hours from both sides (and post the entry of the Houthis).

Paid subscribers can directly jump to the geopolitical section for the analysis.

Since the beginning of the year, we have, for the first time, reported a negative YTD return, and the PF is down 7 bps, compared with a 356 bps drawdown for the benchmark.

It is also our largest drawdown from the highs since inception, as we were of the view that the war would be short.

However, as we became certain of weak technicals and a protracted war, we reduced duration and initiated short positions, which have helped us limit our drawdowns.

Let’s dig deeper into the world of macro, geopolitics and cross-asset relationships.

Macro!

The first signs of the Middle East conflict taking a toll on consumers were visible in Germany’s GfK Consumer Confidence.

Note that last week we saw the first signs of worsening business sentiment as Germany faces significant headwinds from higher energy prices.

The GfK consumer sentiment index dropped by 3.2 points to -28.0, the weakest reading since 2024.

Furthermore, Income expectations have fallen back into negative territory, while economic expectations have declined to their lowest level since Dec 2022.

If there is no respite in energy prices in the coming weeks, expect a “recessionary” reading across both soft and hard data.

In the UK, headline CPI came in line with expectations.

The February Consumer Prices Index, including owner-occupiers’ housing costs (CPIH), rose by 3.2%.

Service price inflation was hotter than expected, and core prices rose to 3.2%, up from 3.1%.

However, the good news was that the CPI all-services index rose by 4.3% YoY, down from 4.4% in January.

The rate is the lowest since March 2022, when it was 4.0%.

Clothing made the largest upward contribution, while Alcohol and tobacco put downward pressure on the CPI.

Note that these readings were before oil prices surged. BOE has already raised the CPI target.

Furthermore, there are unintended second-order effects of a spike in energy prices, and we expect CPI to surprise higher if the war is prolonged.

In the land of the rising sun, the headline CPI fell to 1.3% YoY, its lowest level since March 2022.

The disinflationary impulse stemmed from government fuel subsidies and the fall in rice prices (base effect).

The Core CPI, which includes oil products but excludes fresh food prices, rose by 1.6% YoY, missing economists’ median estimate for a 1.7% annual gain.

Core-Core inflation, which excludes food and energy, came in at 2.5%.

Since the Japanese government has vowed to keep fuel prices low (subsidies), we can expect the CPI to remain below 3% despite higher gas/oil prices.

However, a prolonged disruption could lead to higher prices across the board.

Equities!

In equities, we will stick with our allocation and thesis that

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In a stunning development this week, Iran attacked Qatar’s largest gas field in retaliation, and as a result, 17% of Qatar’s LNG capacity was wiped out for the next five years with an estimated $20 billion loss in annual revenues at current gas prices.

While Asia will be the worst hit, Europe is also facing rising pressure, having decided to phase out Russian gas and now facing a dilemma after Qatar announced force majeure on long-term LNG contracts for up to five years for supplies bound for Italy, Belgium, South Korea, and China.

While the 2022 energy shock following the Russia-Ukraine war was driven by “fear” of disruption, we are witnessing actual supply disruptions as the Strait of Hormuz (SOH) remains closed.

Furthermore, production shutdowns (now totalling 7 mbpd+ across the GCC) will ensure that, even when SOH opens, the situation will take months to normalise, ensuring higher-for-longer oil prices.

As physical tightness deepens, this week saw record prices in Oman and Dubai as Asian refiners scrambled for physical barrels.

While the Trump administration was successful in curbing the WTI Prices (can’t remain decoupled for long, though), Brent has consistently traded above $100, with futures trading as high as $119 during the week.

The disruption is now spreading across commodities as the Middle East accounts for a lion’s share in critical petroleum products, helium and fertilisers.

If SOH closure is prolonged, supply chains will be disrupted, triggering an inflationary wave similar to that during COVID. We will discuss in detail later.

Last week, we wrote the 4th edition of Explosive Setup, and these were the targets we mentioned:

• Gold: $4200/4300

• Silver: $62

• Oil: $120

• 10Y: 4.35/4.5%

• DXY: 102

• S&P500: 6200/6300

• DAX: 22k

• CAC40: 7500

• FTSE: 9700

Except for the DXY, we saw our targets nearly achieved across assets as the contagion, which began mid-week, spread after markets realised that the war is not getting over anytime soon, with boots on the ground now a high probability event (we discuss later in the geopolitics section).

In fact, there was no safe haven and thus no place to hide. Ironically, the only asset that has weathered the storm has been BTC.

We had multiple central bank meetings this week, and everyone was hawkish amid the recent rise in energy prices.

We reduced duration earlier in the week and, as a result, were able to limit the drawdown with the PF still outperforming the benchmark by about 250 bps.

Let’s begin today’s newsletter and comprehend the extremely elevated cross-asset moves!

US/Equities/Bonds/Oil/Dollar/Gold/Silver!

We got a really hot PPI print this week.

Headline PPI: +0.7% MoM vs. +0.3% est.
Core PPI (ex. food & energy): +0.5% MoM vs. +0.3% est.

We saw higher prices across the basket.

The costs of processed goods for intermediate demand rose 1.6%, the largest increase since August 2023.

Whereas farm products were up 0.43% MoM, with fresh & dry vegetables alone up nearly 49%.

Note that Energy was up 2.3% MoM, before the war broke out and gas prices surged by more than 33% MoM.

When we got the FOMC decision, markets were still pricing in a rate cut for 2026.

Furthermore, the Fed's dot plots also predicted one more rate cut this year.

However, by the end of the week, the rate cut was reversed into a rate hike as yields surged and markets feared prolonged disruption.

Digging deeper, once again, the surprise was further moved up in the longer run rate, aka the neutral rate, to 3.1% from 3%.

We have been demonstrating how the Fed has been quietly moving up the long-run rate since the last two years suggesting that we are never returning to the 2% inflation again (structural rise in inflation).

The Core PCE projections were raised by 20 bps to 2.7%, likely factoring in higher energy prices.

Last week, we mentioned that JayPo will be concerned by the inflation expectations. He commented:

“Near-term measures of inflation expectations have risen in recent weeks, likely reflecting the substantial rise in oil prices caused by supply disruptions in the Middle East.”

Unsurprisingly, JayPo has been watching Mr Market, which has been ruthless in raising the 1Y Inflation expectations to more than 5%.

Interestingly, he also mentioned that the rollout of AI is “inflationary”, leading to a higher neutral rate (came as a surprise to us, given the narrative that AI will lead to productivity gains that are deflationary).

“So, remember, in the short-term what’s happening is we’re building data centers everywhere.

And that’s actually putting pressure on all kinds of goods and services that go into building these things.

So that’s actually probably pushing inflation up at the margin. In addition, it probably raises the neutral rate.”

The rationale behind one rate cut in the projections was explained:

“We also think it’s important though to keep policy either mildly restrictive, or close to that. But not too restrictive because of the weakness in -- the downside risk in the labor market.”

In the last few months, JayPo has been discussing a new inflation measure, “Core PCE Ex-Tariffs,” as the Fed believes tariff-led goods inflation is “transitory”.

Note that last week we highlighted the segments (recreational goods, apparel, etc.) affected by tariffs, leading to a surge in prices.

This week, we further got insights from JayPo:

“Total core inflation, it’s about 3 %, and some big chunk of that, between a half and three-quarters is actually tariffs, so we’re looking for progress on that.”

While we believe most of the pass-through is complete, skyrocketing oil prices will further stoke inflation, albeit with a 2-3 quarter lag.

Last week, we also mentioned that we can’t comment on the macro outlook until we are sure about how long the war will last and how much supply disruption we will face across sectors.

We had JayPo mentioning the same this week.

“If we have a long period of much higher gas prices, that’s going to weigh on consumption, that will weigh on disposable personal income, and it’ll weigh on consumption. But we don’t know if that’s going to happen, it -- something quite different from that, we might have much lower than expected pass-through”.

It’s just, we don’t know what the effects of this will be, and really, no one does.

It’ll come down to how long the current situation lasts, and then what are the effects on prices and then how do consumers react and that kind of thing.

Note that gasoline and diesel prices have skyrocketed by more than 35%, which will squeeze households, especially lower-income households.

Nevertheless, if the disruption is short-lived, we might see a few months of lower consumption (also keep in mind that higher tax refunds might cushion some of the hit).

PLEASE READ CAREFULLY:

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We might be in the middle of a “man-made” black swan event as Iran throttles the Strait of Hormuz and has choked the supply chain of a whole host of commodities, fertilisers, chemicals and other raw materials.

It has been nearly two weeks since the Strait of Hormuz was closed, and we are already witnessing enormous shortages across Asia (80% of all the flows from the Strait of Hormuz go to Asia).

While the paper market is trading around $100, there is absolute panic in the physical market, with the Dubai Physical Swaps trading at a mind-boggling $140/b.

The last six years have been extremely challenging for the global economy, as we have been bombarded by various exogenous shocks: COVID-19, the Russia-Ukraine War, the Trade War, and the US-Israel-Iran War.

Note that these shocks have upended the global financial markets and the geopolitical setup.

As a result, we have seen multiple 6-7 sigma moves across financial markets over the past few years.

Therefore, there is a need to develop a robust risk management system as wild, volatile moves become more common and tail risks become harder to predict.

While there is uncertainty about how the war will progress, we have always believed that the charts don’t lie and the price action is supreme.

The cross-asset charts indicate that the market is poised for significant moves, and thus, we may be ready for an “Explosive Setup”.

We are up 1.64% YTD against the benchmark performance of -1.24%, thus outperforming the benchmark by 288 bps.

Let us now take a deep dive into the macro and geopolitical landscape and understand the explosive setup we foresee across markets.

US/Equities/Bonds/Oil/Dollar/Gold/Silver/BTC!

The macro universe was dominated by the CPI data this week in the US.

The Headline CPI (all items) came in at 2.4% YoY/+0.27% MoM, and the core CPI came in at 2.5% YoY/+0.22% MoM, meeting market expectations.

When we dig deeper, while used cars and trucks reported deflation, categories such as Apparel and energy reported positive increases, MoM.

Note that the rise in energy was before the war broke out, and oil crossed $100.

Furthermore, when we zoom out, the segments affected by tariffs (Apparel, household supplies, and other recreational goods) continue to see price increases, putting upward pressure on the CPI.

The disinflationary pressures are seen in Used Cars and Prescription Drugs (thanks to POTUS measures on prescription drugs).

JayPo popularised the Supercore CPI (Services Ex-Shelter), which is still stubborn.

Supercore CPI came in at YoY 2.75%/ MoM +0.35% .

JayPo’s favourite inflation indicator is PCE.

PCE came in at 2.8% YoY v/s Exp. 2.9% and the Core PCE came in at 3.1% YoY v/s Exp. 3.1%.

When we decompose the core PCE, the Acyclical Core PCE (financials, healthcare, clothing, etc) has been rising and seems to have bottomed out.

If energy prices remain elevated for extended periods, expect higher prices to percolate through the economy, potentially causing inflation across all sectors.

The Atlanta Fed published detailed CPI/PCE data, and although inflation has cooled since last year, it’s still well above the Fed’s 2% mandate.

We also got the GDP data for Q4, which was revised lower to 0.7% (estimate of 1.4%).

The culprit has been Core Cyclical GDP, which has decelerated significantly.

The war in Iran will have grave consequences for the economy, and we will assess the implications once it is over.

However, near-term impact will be a spike in inflation even if the war ends in March.

We have historical data to prove it.

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We saw an unprecedented price action in oil this week.

Producers rushing to hedge (hedging demand), a historic short squeeze, and speculative frenzy (USO witnessed the biggest day of retail net buying yesterday) led to a historic week, with Crude futures posting the biggest weekly jump since 1985, rising 34%.

Whenever the Iran-US/Israel war was discussed in the past, the worst-case scenario involved the closure of the Strait of Hormuz.

For those who are unaware of the significance of the Strait of Hormuz, let us explain to you:

More than 20 mbpd of crude flows through the Strait of Hormuz, roughly 20% of total world oil consumption (per day).

Furthermore, 84% of the crude from the Strait goes to only three countries: China, India and South Korea.

In the last week, Hormuz traffic has come to a complete halt.

This implies that we just witnessed one of the biggest disruptions in history.

Today, we will discuss the consequences of the disruption and model different scenarios and the likely cross-asset movements. (Paid subscribers can directly jump to the geopolitical section for war/oil analysis.)

Despite an extremely volatile environment, we continue to outperform the benchmark by more than 250 bps.

US/Equities/Bonds/Oil/Gold/Silver/Dollar!

Our favourite indicator of the cyclical economy has been the ISM Manufacturing Index.

Note that since 2022, ISM Manufacturing has been in a contraction zone as “manufacturing” and housing were in a recession.

However, since the last two months, there has been a notable recovery in the ISM Manufacturing.

We are now in an expansionary zone (greater than 50) with all the sub-components reporting satisfactory growth (except Employment, which is still below 50: contraction, but has been trending up).

However, when we dig deeper, the worrying signal is the ISM Manufacturing Prices Paid, which came in scorching hot at 70.5.

With oil prices on a tear, we don’t expect it to fall anytime soon, which will lead to higher prices for manufactured products in the coming months.

Our leading indicator for ISM Manufacturing is New Orders Less Inventories, which is buoyant and suggests that the manufacturing recovery will continue unabated.

ISM Services also came in higher than expected (the highest since 2022), with most subcomponents reporting robust growth.

The encouraging part was also the ISM Services Prices Paid, which fell MoM, and the trend seems to be lower (might change with elevated oil prices).

We discussed last month that with ISM Services Prices peaking, we might have seen a peak in the CPI due to the tight correlation between the two series.

Retail Sales came in slightly better than estimates.

Headline Retail Sales -0.2%, Exp. -0.3%
Retail Sales ex auto 0.0%, Exp. 0.0%
Retail Sales Control Group 0.3%, Exp. 0.3%

However, the housing-related components are still weak.

We expect retail sales to moderate further if oil prices remain above $80-90 for a prolonged period, as this will squeeze American households, given that real incomes have been declining for more than a year now.

Now let’s jump to the macro shocker of the week:

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With oil rallying to $67, Gold to $5200, equity VIX stubborn at 20, and the bond markets sensing a risk-off mode despite a hot PPI, Mr Market, to some extent, priced in a war.

However, there are different scenarios which can play out in the coming days. The response from Iran and the participation of other Gulf countries will dictate the intensity and duration of the war.

We will discuss the probable scenarios later on.

We closed at YTD highs and are up by 5.32%, compared to 3.3% for the benchmark.

The bond rally has been a tailwind for us, along with our positions in the US and RoW.

Let’s take a deep dive into the cross-asset universe!

Equities!

Roughly 18 months ago, we introduced the Thematic Investing Series, in which we discussed themes that are likely to outperform the markets in the coming decade.

We invested in several of the stocks and have delivered 6-7 multibaggers in the Thematic Investing series.

In Thematic Investing Part 1 & 2, we researched and analysed the Aerospace and Defence sector in detail and bought two stocks (it’s an equal-weight portfolio).

The equal-weighted PF outperformed the benchmark ITA ETF for most of the time since inception and has generated significant alpha.

While we didn’t buy the others due to valuation concerns, one of the recommended stocks turned out to be a multi-bagger.

In October 2023, we wrote about a theme which we believed had long-term potential.

Although there have been several challenges since we wrote the piece, especially the demand for luxury goods in the world’s largest market (China), we have been able to deliver superior returns.

We finalised two stocks and are currently holding one stock in the PF (purchased it late).

We are up 58% on Thematic Investing Part-3, outperforming the benchmark LUX ETF by a huge margin.

In Thematic Investing-4, we were early to the commodity supercycle, believing that the massive green transition would be a boon for the industry.

Thematic Investing Part-4 is an equalweight PF of 4 stocks.

We are up 81% compared to 87% returns for the benchmark ETF XME.

Last year, after a hiatus of more than a year, we wrote Thematic Investing-5, in which we discussed stocks that will benefit from billions of dollars in hyperscaler capex (particularly data centres).

In just one year, we are up 72% as one of the stocks has turned a multi-bagger (up 5X since liberation day).

Furthermore, in August last year, as tariffs took hold, there were concerns about stagflation in the US economy.

We formed a stagflation basket at that time, which is up 10% since inception compared to 5% for the benchmark.

PS: Benchmark here is 60% ACWI and 40% GLAG (SPDR Bloomberg Global Aggregate).

Except for these, we were in the process of writing Thematic Investing Part-6, which we never completed, but recommended a stock where we made a cool 30% returns last year. The Thematic Investing Part-6 was about the electrification theme.

Note that we still hold 1 position (an ETF) in the Portfolio dedicated to the electrification theme, which we believe will outperform the broader markets due to the gigantic AI rollout.

Before we proceed further, paid subscribers can find the list of all the stocks covered in Thematic Investing Series in the spreadsheet.

Since the last 15-18 months, we have been of the view that the Rest of the World (RoW) would outperform the US equity markets in the coming years, as the weight of the US in the ACWI Index has reached unprecedented levels, and the ROW has underperformed the US since the 2008 GFC.

Since Liberation Day, we have seen peaks in the SPY/EEM and SPY/VGK ratios, indicating that Emerging Markets and Europe have outperformed the US.

When we dig deeper, the outperformance was led by only 3 stocks as the flagship EEM ETF saw massive gains due to South Korea (Samsung and SK Hynix) and Taiwan (TSMC).

Furthermore, Latin America, led by Brazil and Peru, has been the outperformers due to the commodity gains we have witnessed in the last few months.

We believe that while the EMs will continue to outperform, the rally will broaden in the coming months, and we are very well prepared for it.

In developed markets, Japan and the UK have been the biggest outperformers YTD (the two markets outperforming the benchmark EFA ETF), and ironically, Japanese markets have witnessed a sea-change with valuations now approaching levels last seen decades ago.

Note that all the returns mentioned above are in dollars.

Since most currencies have significantly appreciated against the dollar, the returns have amplified.

While the benchmark indices (S&P 500, NDX) are subdued, small caps and Dow Jones have been relative outperformers.

In fact, when we dig deeper, some of the constituents have been massive outperformers.

The energy sector has witnessed massive short covering and is the biggest gainer YTD (XLE is up 25%).

Other cyclical sectors, such as XLB, XLI and XLRE, have also given double-digit returns, while consumer staples, led by Walmart, is up a whopping 16%!

As private credit concerns rise, especially after the default of the UK-based MFS, banks took a massive hit yesterday (also post Dimon warning about structured products in the market, similar to what transpired before the 2008 GFC).

As a result, XLF is now the worst performer YTD.

XLK and XLY (due to AMZN) also posted negative returns amid concerns about hyperscaler capex.

Equity Charts (Monthly)!

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This week, we were bombarded by unforeseen news across the spectrum:

• Blue Owl’s concerns.

• The Tariff Saga.

• The Geopolitical Drama.

We will discuss the Blue Owl story in detail in the introductory note and the Tariff Saga in the US section. Note that we covered the Geopolitical situation in chat this week.

For the first time since Wall Street raised alarms about issues in the private credit industry, the administration has acknowledged them.

“Don’t want rotten PE Assets dumped into 401(K)’s”- Bessent.

“Our job is to make sure the regulated system is not affected by problems in private credit”- Bessent.

Blue Owl announced a shocker this week, permanently restricting withdrawals from one of its retail-focused debt funds.

Furthermore, Blue Owl sold $1.4 billion in loan assets from three of its funds in a “fire sale” to generate liquidity for redemptions.

Although Blue Owl was able to sell the loans in the recent transaction at just below par, the deal itself was questionable, as one of the buyers was Blue Owl’s insurance arm and thus a RPT (Related-Party Transaction).

Note that the GFC experience teaches us that high-quality liquid assets are sold first, and the “trash” (low-quality, illiquid) assets are sold at enormous haircuts/discounts later, when the situation deteriorates at the industry level, and liquidity evaporates.

Note that, per management, while some of Blue Owl’s funds have software exposure as high as 30%, the total exposure is 8% of AUM.

Thus, we can expect a halt to redemptions in funds with high software exposure.

The markets have been sensing trouble in private credit, and as a result, we have witnessed carnage in the industry leaders.

Note that there has been a high correlation with the software sell-off (as shown in the chart via the flagship ETF IGV).

Another quake the market completely ignored was Blue Owl's inability to raise debt for the CoreWeave Data Centre project, indicating that the credit downgrade and the rise in the CDS of companies like CoreWeave and Oracle are derailing the capex plans.

While this might seem an isolated event due to a company-specific issue (CoreWeave), we can’t ignore the fact that the OpenAI ecosystem is a circular financing scheme which might fall apart if even one of the dominoes falls.

While the benchmark closed at YTD highs, we closed just shy of highs (5 bps lower) and are up 4.81% YTD.

Let’s dive into the macro universe and comprehend the cross-asset price action.

US/Equities/Bonds/Gold/Silver/Oil/Dollar!

The Supreme Court, after deferring the verdict on IEEPA tariffs multiple times, finally announced it yesterday and, with a 6-3 majority, struck down the tariffs in a historic judgment.

According to the YALE Budget Lab, after the SCOTUS judgment, the effective tariff rate fell from 16.9% to 9.1%.

After the imposition of 10% tariffs under Section 122 of the 1974 Trade Act, the effective tariff rate is around 13% (due to certain exemptions).

Note that we believe we might face further litigation, as Section 122 of the 1974 Trade Act can’t be used in the current macro regime to impose tariffs.

Note that BoP (Balance of Payments) deficits are entirely different from the trade deficits.

On the flip side, Trump refrained from imposing a 15% tariff (the maximum he could have imposed), which is a tailwind for a risk rally.

We believe it’s a measured decision, as Treasury Secretary Bessent confirmed (in prepared remarks) that using Section 122, with potentially enhanced Section 232 and Section 301 tariffs, will result in virtually unchanged tariff revenue in 2026, allaying bond market fears.

Furthermore, as the trade deals are signed, the tariffs will be imposed at the negotiated rates until the above-mentioned sections are enacted.

Thus, we don’t foresee a major disruption, and, as mentioned, an overall reduction in tariffs by roughly 200 bps from the current 16.9% (before the SCOTUS order) will be stimulative and margin-accretive for firms that have fully passed on the tariffs.

Now let’s jump to the macro data.

We received the Fed’s preferred inflation gauge, the PCE, yesterday.

The Headline PCE rose 0.4%, compared with the +0.3% consensus. (2.9% rise YoY, highest since March 2024)

The Core PCE also rose +0.4% M/M, above the +0.3% consensus and +0.2% in the previous month (a 3% YoY rise, the highest since November 2023).

Since the rise was due to Core Goods, we believe that as old inventory replenishes, the tariffs are responsible for the higher reading.

The one risk that we flagged last month as well, and which is now a unanimous concern among market participants, is the:

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The following stat says it all:

“Over the last 8 sessions, 115 stocks in the S&P 500 have declined 7% or more in a single day.

The average drawdown when that happens is 34%. Right now we're 1.5% below the all-time high.”

Markets are pricing in an AI-led disruption that will destroy well-established multi-billion-dollar businesses “overnight”.

The fear was visible in markets when a little-known former Karaoke Company worth $6 million wiped out billions of dollars in wealth in the logistics sector.

Furthermore, markets are pricing in a scenario in which automation and AI-led adoption will lead to millions of white-collar layoffs, triggering a recession. As a result, we saw massive move in bond markets.

Undoubtedly, portfolios tilted heavily towards tech across the board are in complete despair, comparable to COVID, when the index crashed by upwards of 30%.

Thanks to the bond rally, we hit fresh YTD highs yesterday and are now up 4.85% compared to 2.56% for the benchmark.

Let’s analyse global macro releases and understand cross-asset moves!

PS: A gentle reminder to new subscribers to avoid paying via Apple Pay as it charges enormous fees. Furthermore, one should download the Substack App and switch on the notifications to receive the updates on chat.

US/Equities/Bonds/Gold/Copper/Oil/Dollar!

The CPI came in slightly softer than expected, allaying fears of a second wave of inflation.

The headline CPI came in at 2.4% YoY (the lowest since May 2025), while the Core CPI came in at 2.5% YoY (the slowest since March 2021).

When we dig deeper, we observe that energy and used cars were responsible for pulling CPI down, while Transportation services saw a huge jump ( a likely January effect).

JayPo’s favourite metric during the 2022 rate hikes was the Supercore (Services Ex-Housing).

It has been sticky in the past few months, but saw a huge rise in January due to a one-off.

Higher Motor Vehicle Fees and Public transportation led the rise in Supercore.

JayPo introduced another CPI measure, Core CPI Ex-Tariffs, in the last few meetings to gauge the underlying CPI rise ex-tariffs.

When we dig deeper, the Core Goods is where we witness the impact of the tariffs.

The Tariff-Sensitive Sectors MoM Inflation:
•Other Goods: +1.07%
•Recreation: +0.63%
•Apparel: +0.31%

Note that these are import-heavy categories and account for a large share of core goods inflation.

One of the categories which is putting downward pressure on CPI and is expected to be a tailwind for disinflation in the coming months is the Prescription drugs (we all know the reasons for the same).

Retail Sales missed by a wide margin, coming in at 0% MoM vs the expected +0.4% MoM.

Retail Sales ex auto also came in at 0% MoM, vs expected +0.4% MoM.

Retail Sales Control Group came in at -0.1% MoM v/s expected +0.4% MoM.

Digging deeper, we discover that many categories saw a MoM decline, led by furniture and clothing.

We believe the Arctic storm that engulfed the US was partly responsible for this, and we need to wait for data in the coming months to determine the extent of the weakness in consumption.

Nonetheless, nominal retail sales have been sluggish in the past few months.

Now let’s jump to the positive surprise of the week:

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The Fear and Greed Index entered the extreme fear zone on Thursday, just before we saw a massive rebound yesterday.

In fact, Dow Jones has been on a one-way up and touched all-time highs.

It’s on a historic spree, as we will likely close up this month, marking the 10th consecutive green candle for the Dow.

Guess what?

This was last seen in 1958-1959.

Yes, what we are witnessing is not a risk-off/risk-on move, but a massive de-grossing of the overowned tech names and a rotation of billions of dollars of capital into value/real economy stocks.

There is a macro reason behind it, which we will explore in detail with charts later.

We were fortunate to be invested in the right place at the right time, and as a result, we have begun the year with a bang.

We are up 3.4% YTD and have beaten the benchmark for the most of 2026.

Let’s begin today’s newsletter and examine the cross-asset movements with a macro lens!

US/Equities/Bonds/Gold/Silver/BTC/Oil/Dollar!

Our favourite measure for tracking cyclical activity in the US is the ISM Manufacturing Index, which has successfully predicted the peaks and troughs of past business cycles.

ISM Manufacturing massively surprised on the upside.

It was an all-around beat with every sub-component (ex- employment & inventories) registering expansion.

Our favourite indicator is New Orders Less Inventories, which had been indicating recovery for the headline index, but such a significant beat wasn’t expected.

If the trend continues (which we expect it to), the cyclical economy, which has been struggling for the last 2-3 years, will lead to significant gains for companies focused on the real/old economy.

In fact, the MoM surge in ISM Manufacturing was the second largest of the past 30 years!

Nevertheless, amid signs of revival, the survey comments indicate that softness persisted across industries.

ISM Services met expectations, coming in at 53.8, indicating expansion.

However, the ISM Services Prices index once again accelerated and remains stubbornly elevated.

If the uptrend here continues, the CPI might rebound and cross 3%, a problematic scenario for the Fed given its dual mandate.

Labour Market!

• ISM Employment: A cyclical recovery augurs well for the labour market. This was visible in the ISM Manufacturing Employment data, which saw the highest reading in more than a year. However, the ISM Services Employment cooled a bit but remained above 50, indicating expansion.

  

• JOLTS-1: JayPo’s favourite labour market indicator:

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The biggest risks for 2026 are giving jitters, as BTC, private equity giants, and software names are witnessing an unbelievable bloodbath.

Let’s examine 16 charts to analyse the global macro and cross-asset movements in the global financial markets.

1. In continuation of the 2025 trend, Gold, along with LATAM equities, has been ripping since the beginning of the year.

   While the LATAM benchmark ETF: ILF is up 20.5% YTD, Gold is up by more than 14%.

   The US continues to underperform both its DM and EM peers. While the Emerging Market ETF EEM is up 8.94% YTD, the MSCI European ETF IEV is up 5% compared to the 1.1% gain in SPY and the 0.3% gain in QQQ.

   Thanks to the JGB rout, long-term bonds remain the biggest underperformers, with the flagship TLT flat YTD.

   

2. Historical data suggests that 87% of the time when January yielded positive returns for the S&P 500, the year gave a positive return.

   Furthermore, the average gain was 12.24%.

   

   

3. When we dig deeper into the equity market internals, we can see we hit an inflection point in October last year, as value has outperformed growth since then.

   We can cite multiple reasons for the same, ranging from weakness in tech, earnings recovery in value stocks and valuation comfort.

   

4. Looking at sovereign bonds, the data indicate that positioning has become extremely light as USTs have been in a bear market.

   Moreso, the valuations are now attractive. Thus, we won’t be surprised by a “rally” in bonds.

   

5. While USTs are unloved, corporate bonds have been witnessing massive inflows.

   The Global Corporate Bond spreads, as measured by the BBG Global Corporate Statistics Index, have reached pre-GFC levels.
   
   Even the High Yield (HY) spreads are at post-COVID lows and can’t get any tighter than they are today.

   

6. Coming to macro, we are witnessing a contraction in real disposable personal income as incomes have failed to grow despite higher GDP growth.

   On the contrary, the Real PCE has been trending higher, suggesting that lower-income consumers are drawing down their savings, while the spending is buoyant in the high-income consumers due to the wealth effect.

   

7. Nothing moves the needle at the Fed as a weaker labour market.

   While the labour market remains in a low-fire, low-hire paradigm, JayPo’s favourite indicator (Vacancies/Unemployed) has plummeted to 2017 levels.

   

8. Undoubtedly, there has been a cyclical recovery in the US economy, as the recently released ISM data portrays; however, the Heavy Truck Sales have fallen off a cliff.

   While a deeper investigation into the reasons is needed, some market participants believe it’s online sales that have eroded demand.

   

9. Across the Atlantic, industrial orders in Germany climbed by a whopping 5.6% MoM, led by large defence orders.

   If the uptrend remains intact, we expect the German economy to enter a gradual recovery path.

   While growth seems to be recovering, CPI is back below 2%, confirming that the ECB engineered a soft landing.

   

10. The UK has been facing a deterioration in the labour market and a slowing economic activity, led by weak consumption.

    However, there is a ray of hope, as the UK PMI future output expectations have surged to a multi-year high, suggesting a recovery might be on the horizon.

    

11. There is no end to the Chinese property crisis, as the balance-sheet recession and the massive overbuilding of the past decade, coupled with worsening demographics, are leading to a freefall in home prices.

    Unsurprisingly, the existing home prices are down 30 to 40% since mid-2021 in the 4 main cities.

    

12. The Japanese Government Bond (JGB) market once again led a global bond sell-off after Japanese Prime Minister Takaichi announced a snap election.

    The two-day move in the 30Y JGB was a 6SD move, prompting Bessent to call his counterpart to soothe nerves.

    For the stability of global financial markets, moves in the Far East matter more than ever.

    

13. January saw the US take an unprecedented action by arresting Venezuelan President Maduro and his wife from their home in an unimaginable operation conducted by the elite Delta Force.

    Behind the geopolitical win, the motive was to tap the billions of barrels of heavy crude that Venezuela possess, which will be beneficial for US refineries.

    

    ---

14. Silver saw extremely historic moves in January, and at one point, it was up more than 45% (the highest monthly gain since the Hunt Brothers squeeze).

    Nevertheless, despite an enormous 40% fall from the peak, Silver closed the month 19% up, and created history with 9 consecutive green candles and 6 consecutive closings above the upper Bollinger Band.

    It was mayhem for traders as traditional technical analysis completely failed.

    

    ---

15. It was not just Precious Metals and base metals that witnessed insane moves; natural gas, notorious among traders as the most volatile asset class on the planet, had the biggest move in the last 35 years.

    The US benchmark natural gas price rose 75% over just five trading sessions as the US was hit with one of the worst snowstorms of the last five decades.

    

16. BONUS CHART: While deterioration in demographics has been a significant concern in South Korea and Japan, it’s China which is undergoing a rapid population decline. Due to the infamous one-child policy, deaths have exceeded new births for the last 4 consecutive years. As a result, China’s population has plunged, leading to unforeseen consequences for the government, people and corporations.

    

Disclaimer

This publication and its author are not licensed investment professionals. The author & any other individuals associated with this newsletter are NOT registered as Securities broker-dealers or financial investment advisors with the U.S. Securities and Exchange Commission, Commodity Futures Trading Commission, or any other securities/regulatory authority. Nothing produced under Marquee Finance by Sagar should be construed as investment advice. Do your research and consult with your certified financial planner or other dedicated professional before making any investment decisions. Investments carry risk and may lose value; Marquee Finance By Sagar LLC, Marqueefinancebysagar.substack.com or Sagar Singh Setia is not responsible for loss of value; all investment decisions you make are yours alone

As it’s been happening since the beginning of Trump’s Presidency, we once again saw a chaotic week across markets as the weekend tariff announcement, along with the move in Japanese bond markets (a 2-day, 6 SD move), led to sharp cross-asset volatility.

We again got a TACO from Trump on Wednesday, as he said a "framework of a future deal" was sealed on Greenland. Ironically, the European Allies still have no clue about the deal, as negotiations are ongoing.

Nonetheless, the biggest highlight of the week, according to us, was the greenback's price action yesterday.

We wrote last month that the precious metals (PMs) might be preempting the move in the dollar as they did last year as well.

However, the extent of the PM's move has stunned everybody; we will discuss it in detail later.

Furthermore, Carney’s speech at Davos was an eye-opener as a “new world order” is now becoming a consensus among the political leaders as well.

A must listen!

As the world gears up for an unprecedented shake-up in trade, defence spending, and how relationships are forged in the future, investing and trading financial markets will require a deep understanding of macroeconomics and geopolitics.

We are up 2.07% YTD as the lower dollar pumps our unhedged equity ETFs.

Furthermore, our bet on value outperforming growth has helped to generate alpha early in the year.

Let’s dig deeper into the macro universe and comprehend the cross-asset price action!

PS: We will be in Helsinki for a few days starting on Sunday. If anybody in Finland wants to grab a coffee, please DM on Substack/LinkedIn.

US/Equities/Bonds/Gold/Silver/Oil/Dollar!

It was a data-light week in the US as all the action shifted to Davos and Trump’s Greenland ambitions.

Nonetheless, we received the GDP data and the PCE, the Fed’s preferred gauge of inflation.

Although we are not a big fan of the GDP because of its lagging nature, we would analyse the breakdown to understand what’s driving real growth higher in the US.

Note that the last three quarters have been volatile due to front-loading of tariffs and a surge in net exports in Q3, driven by higher gold exports.

We saw a 4.37% YoY growth in GDP, driven by higher consumption.

However, a concern is that consumption is higher not because of income growth, but because consumers are drawing on their savings, which has led to a record-low savings rate.

PS: Note that there is also an element of higher-income consumers spending more due to the positive wealth effect as asset prices reach record highs.

When analysing income growth, real incomes net of transfers are up just 0.5% over the last 12 months, well below normal levels.

One interesting stat has been the “NET” Private Domestic Investment as % of GDP (subtracts the depreciation from the calculation).

We saw a surge in the last year of Biden’s presidency, driven by the CHIPS Act and the Inflation Reduction ACT (IRA), leading to higher investment.

However, due to high depreciation and a decline in manufacturing incentives, we are witnessing a decline in Net Private Domestic Investment as % of GDP.

Thus, the massive reshoring claimed by the Trump administration has not yet appeared in the numbers and is not aiding US growth.

Moving on to PCE, headline PCE came in at 2.8% YoY v/s Exp. 2.8% and the
Core PCE came in at 2.8% YoY v/s Exp. 2.8%.

Digging deeper, Cyclical components are PCE items whose prices are more sensitive to overall economic conditions, such as housing, recreation services, and food services. Cyclical components account for about 40% of PCE in the US.

Due to a free fall in rent inflation, we are now witnessing the cyclical component of inflation at its lowest since early 2022, when the “transitory” mistake led to a steep rise in inflation.

Nonetheless, the acyclical component is proving sticky and has been rising due to the tariff impact.

We can conclude this by digging further.

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