Happy Earth Day!
In following Stotra, we remember Mother Earth every morning before touching feet to the ground.
Meaning:
1: (Oh Mother Earth) O Devi, You Who have the Ocean as Your Garments, and Mountains as Your Bosom,
2: O Consort of Lord Vishnu, Salutations to You; Please Forgive my Touch of the Feet (on Earth, which is Your Holy Body).
(source: Green Message site)
So let's make sure that we honor Earth every day and preserve her for millions of years..After all we have only ONE!
It has been six weeks since I wrote about markets. During that time, markets reached all time highs (almost touching 5300) and down by 5% from those levels. What's worrying markets?
Back in August of 2023, I wrote about three "i" influencing markets (Interest rates, inflation and A"i" momentum). 8 months later markets are up by 11% even after recent drawdown of 5%. There are two additional "i" which got added to market worries...let's look at all of these once more...
Inflation:
Last mile is always difficult..Inflation getting down to Fed's target of 2% is going to take longtime and may happen only if there is recession. So as I wrote about "3% is new 2%", Fed needs to start getting comfortable that supposedly golden 2% target may not happen in a very strong economy. Fed needs to look at 2% as average over a decade in which economy would go thru shocks like Pandemic or Wars, growth spurt after shocks and mundane growth as seen in 2010s....then only markets will not get too obsessed with every CPI, PPI and PCE reports as long as inflation does not get out of hand like in 2022. Both Fed and markets need to target range of 1-3% as average over 10 year period..
Interest Rates:
Interest rates are directly linked to inflation.. And level of rates decide everything for borrowing costs across the board (Home loans, business loans, savings rate and so on). That why when 10-year treasury start inching towards 5%, markets get very nervous. That's what is happening over last 3 weeks with 10-year going near 4.7% with predictions of it breaching 5%. Projections for Fed rate cuts have gone from six at the start of year to zero in a span of 4 months...and there is even talk about rate hike (2% probability). This was not supposed to happen in supposedly efficient markets...
(Artificial) Intelligence:
After first two factors, this is the most talked about topic...is momentum for AI slowing down? What about real outcomes or use-cases outside of ChatGPT creating itinery for summer trips or writing a thank you letter? What about monetization of tens of billions of $ spent on building AI infrastructure? After nearly quadrupling revenues, is growth for NVDA and associated AI stocks over? Earnings season is about to get into high gear...and these questions are coming to the forefront. One example - after announcing earnings date (but not pre-announcing great results), another AI darling, Supermicro (SMCI) got crushed in one day (-22%). NVDA and AMD are in bear territory. The earnings announcements from Alphabet, Microsoft and Meta would give indications on AI momentum next week...So tighten your belts (and money purses)...we are entering into interesting part of markets ride over next 4 weeks.
Israel and Iran:
These are two new "i" worrying markets. I am not going to comment on geo-political aspects of this. After nearly 4 decades of shadow war between Israel and Iran, last week, World saw first direct confrontation between these two nations. Both countries demonstrated that they can hit each other with missiles and drones. At same time, they had also shown great restraint (maybe under pressure from their "big" brothers) so that the skirmish does not lead to full fledged war...Given the impact of such war can happen to oil markets, markets are rightfully nervous till both sides finished their "tit-for-tat" show of strength for their domestic audience and World. Hopefully these two nations will go back to what they have been doing for last 4 decades and not engage in full-fledged war. And that would be one way to honor the Mother Earth!
/Shyam
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