Weekly Commentary

As the month of May wraps up today, equities have continued their winning streak, based on geopolitical hopes, as well as chipmakers, including the inexorable rise of Micron, which passed the $ 1 trillion mark.  Investor sentiment in general was strengthened in large part due to the fall in treasury yields and crude oil, which signal that an elusive ceasefire in the Middle East could bring a longer agreement among the belligerent actors.  

An amazing run in US equities—nine straight weeks of gains, as well as a 20% rally since March 30—is now entering the summer months with strong momentum.  However, with the lack of major earnings reports, it does appear that macro factors, including the Fed’s next FOMC meeting in mid-June, will be catalysts more than company-specific news.  The caveat in this is the imminent IPO of SpaceX, which is slated for June, which is likely to be the biggest on record, and whose valuation is close to $2 trillion.  There are many dynamics in the SpaceX story that are at play, but being the first of an expected three major IPO’s this year (OpenAI and Anthropic being the other two) does give it an advantage, especially given SpaceX overt AI play with the xAI moniker.  Given the size of these fundraising efforts, liquidity could be a factor for the entire market, and it could also serve as a barometer of “irrational exuberance” witnessed in the 1990’s.  For now, however, the AI ecosystem remains on solid ground, but we are closely monitoring events in these blockbusters.

As mentioned earlier, treasuries rallied, given the lower oil prints, but also mixed signals in the economy overall.  We remain more vigilant with regards to the belly of the curve than longer duration and given the sharp backup on the 10 year to below 4.5%, it does seem that the technical levels do have meaning.  We continue to underweight high yield, given spread levels, but do see value particularly in Latin America corporates and sovereigns.

Finally, summer usually signifies lower liquidity, and long with it,  potentially higher volatility.   Buying the dips might become more relevant than in April and May, so for long-term investors, there is the potential for rebalancing opportunities in the weeks and months to come.

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