Market Thoughts
Politics and Markets
The political noise around the tariff war and the bizarre Jerome Powell situation is definitely stirring the markets, though it feels mostly like short-term turbulence. Honestly, trying to predict or even unpack the motivations behind this political circus is beyond me. I’d just be spouting nonsense no better than the millions of other opinions out there. So, I’m sticking to what I can see from a market perspective:
When headlines about firing Powell hit on Wednesday, markets took a dive—stocks, the Dollar, and bonds all tanked. But once the rumors were quickly shut down, everything bounced back.
On tariffs, the markets seem to have shrugged it off for now. Until we see a clear negative reaction to tariff talk, I’m assuming the market’s moved past it. No real evidence of panic or concern yet.
AI and Market Valuations
The question isn’t whether AI is real, it absolutely is. The massive investments pouring in are undeniable, and they’re not slowing down. This extends beyond AI itself to related sectors like energy and rare earth metals but also robotics and even health care and biotech (sectors and industries we are well positioned with some themes). The real question is: how much of this is already baked into market prices?
From what I’m seeing, there aren’t many AI skeptics left. Unless you’ve been living under a rock, you’ve noticed the huge bets being placed by major players. But it feels like the market has nearly fully priced in AI’s potential—not quite at the “over-discounted” stage yet.
Could this end in a massive bubble? Maybe, but we are far from it. We’re seeing some silly IPOs and sky-high valuations for certain AI-related stocks, but nowhere near past bubbles.
Take Netflix as an example: a top-tier company, head-and-shoulders leader in streaming. Its stock was up ~50% YTD as of June 30, but from there to July 17, it dropped about 5% while major indices hit new highs. After solid earnings and strong guidance on Thursday, the stock dipped less than 1% initially, but by day’s end, it was down over 5% in a flat market—now nearly 10% off its June 30 peak. This highlights a key point: a company’s fundamentals (Netflix is killing it) don’t directly translates to stock performance. Stocks are about pricing in expectations, and it seems like everyone already knows Netflix is great.
Market signals: Major indices are at or near all-time highs. NVDA, the AI darling, is riding high. SMH hit all-time highs (down 48 bps Friday), and Taiwan Semi was at a peak Thursday before dropping over 2% Friday. The market’s still optimistic.
Liquidity Observations
Liquidity is another piece of the puzzle:
Assets like metals and Bitcoin are showing no signs of liquidity drying up. Still flowing strong.
Government bonds: That’s where it gets interesting. Yields on long-term debt (Japan, Germany, UK, France) spiked Monday, with Japan’s 30-year notes jumping the most in two months and German bunds nearing 14-year highs. In the US, 30-year yields hit a one-month peak.
This could just be the bond market pricing in stronger-than-expected growth or higher inflation risks, not necessarily a liquidity problem yet. Governments’ endless money-printing (in one form or another) probably plays a role here. Fiscal deficit concerns are starting to overshadow central bank rate policies in some markets.
That's how I see the situation. Markets are sending mixed signals. Bullish on AI and equities, but with some cautionary notes in bonds and specific stocks. For now our allocation is bullish. Let’s keep an eye on how this evolves.
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