Posts tagged ‘ai’
Trade & OBBB Deals Sealed, Fed Dread, and AI/Meme Dreams
As the stock market reached new all-time highs, investors had plenty to juggle—both in Washington, D.C., and on Wall Street. The S&P 500 climbed +2.2%, the NASDAQ surged +3.7%, and the Dow Jones Industrial Average edged higher by +0.1% for the month.
The One Big Beautiful Bill
What has fueled the rally? A major catalyst was President Trump’s signing of the One Big Beautiful Bill Act (OBBB) on July 4th. The nearly 900-page legislation spans a broad range of economic issues including tax reform, healthcare, energy policy, and national security.
According to the Congressional Budget Office (CBO), the combined impact of tax cuts, new spending, and spending reductions will result in a net cost of $3.4 trillion over 10 years (see chart above). Supporters of the bill argue that this projection underestimates the long-term stimulative effects of tax relief and strategic investments. Whether the deficit widens as the CBO projects, or narrows thanks to a stronger, growing economy, remains to be seen.
Trade Deals Sealed
Since Liberation Day on April 2nd, trade negotiations have progressed unevenly. The administration’s reciprocal tariff hikes were paused through August 1st to allow final agreements to be reached. Following months of tough rhetoric, multiple major trading partners ultimately signed deals before the deadline—including the European Union, Japan, the United Kingdom, Vietnam, and South Korea—thereby avoiding punitive tariffs.
Talks with our two key trading partners, Mexico and Canada, remain ongoing. While Mexico was granted a 90-day extension amid constructive dialogue, Trump slapped a 35% tariff on Canada (from 25%) due to what the White house said was “continued inaction and retaliation.” The tariff pause with China stops on August 12th.
Here’s a list of the new country tariffs released by the president late yesterday: CLICK HERE
Regardless of all the tariff uncertainty, investor sentiment improved last month as the terms of the signed deals were significantly milder than originally feared.
Adding to the optimism:
- Core inflation in June remained modest at 2.8% (Reuters), and
- Tariff revenues collected through July reached $126 billion, beating initial estimates (Politico) – see chart below. Strategist Ed Yardeni forecasts that 2025 tariff revenues could surge to between $400 billion and $500 billion (Barron’s).
Source: Politico
Fed Dread
Of course, when it comes to financial markets, everything can’t just be rainbows and unicorns without something for investors to worry about—and this month, a key concern remains Federal Reserve policy. Critics, including the president, argue that interest rates are too high, with the Federal Funds Rate currently set at 4.25%–4.50% (Yardeni Research) – see chart below.
By comparison:
- The European Central Bank’s Deposit Facility Rate stands at 2.00%, and
- The Bank of Japan’s overnight rate is only 0.50%.
Source: Yardeni Research
Fed Chair Jerome Powell has held off on further cuts, citing the need for more clarity on inflation and labor market data, especially in light of recent tariffs. Ironically, when the Fed last cut rates by -1.00% late last year, the 10-year Treasury yield rose by roughly +1% (see chart above), reflecting fears of rising inflation.
This week, the Fed held rates steady for the fifth consecutive meeting (YouTube). Notably, two FOMC members—Christopher Waller and Michelle Bowman—dissented, voting in favor of a rate cut. It was the first dual dissent by Fed governors in over 30 years—a clear signal of division inside the central bank.
Meme Dreams
With the major indexes at new highs, speculation has returned in full force. Money-losing, struggling companies like Opendoor Technologies, GoPro Inc., and Kohl’s Corp. saw their shares double, triple, or even quadruple over a short span (WSJ) – see chart below. We saw similar trends occur during the GameStop and AMC meme craze in 2021.
Source: The Wall Street Journal
Adding fuel to the fire:
- Cryptocurrency prices are on the rise again.
- Euphorically priced IPOs (Initial Public Offerings) like Figma, Inc. (FIG), which more than tripled in value ($115 per share) on its first trading day above its offering price ($33 per share) valuing the company above $50 billion – more than 30 times next year’s forecasted revenues.
- SPACs (Special Purpose Acquisition Companies)—often criticized for poor governance—are staging a comeback.
Combined, all these trends raise concerns about froth, which investors have experienced at previous peaks.
Climb in AI Stocks Persists
No discussion of this rally would be complete without highlighting the AI mega-cap giants. Companies like Alphabet (Google), Meta (Facebook), Microsoft, and Amazon all recently announced capital expenditures for 2025 that will likely exceed an astounding $350 billion —most of it allocated to AI infrastructure.
Meanwhile, NVIDIA Corp., the AI-chip juggernaut and major beneficiary of all the AI capex, has seen its share price soar +63% in just three months, reaching a staggering $4.4 trillion market value.
Source: Yardeni Research
Valuations High but Fundamentals Remain Strong
While stock valuations remain elevated above historical averages (the S&P 500 red line trades at 22x forward earnings, according to Yardeni) – see chart above, the macro backdrop remains supportive:
- The economy is strong,
- Unemployment is low,
- Corporate profits are growing, and
- Monetary policy may turn more accommodative in coming months.
In this momentum environment, the market should continue its productive juggling, but if the frothy or economic winds worsen, investors should be prepared for a dropped ball.
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
This article is an excerpt from a previously released Sidoxia Capital Management complimentary newsletter (August 1, 2025). Subscribe Here to view all monthly articles.
DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in GOOGL, META, AMZN, MSFT, NVDA, and certain exchange traded funds (ETFs), but at the time of publishing had no direct position in OPEN, GPRO, KSS, GME, AMC, FIG or any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC Contact page.
Mideast War an Investor Bore as Markets Soar
If I told you at the beginning of the year that the U.S. would bomb key nuclear sites in Iran, would you have guessed that Middle East stability would follow—and that global financial markets would soar to record highs? Personally, I wouldn’t have bet on that outcome. But that’s exactly what happened last month. While geopolitical dynamics remain fluid, markets shrugged off the chaos. The S&P 500 rallied +5.0%, the Dow Jones Industrial Average climbed +4.3%, and the NASDAQ catapulted +6.6%, powered largely by artificial intelligence stocks like NVIDIA Corp., which surged +16.9% for the month to a market value of $3.9 trillion (more on AI below). This is an important reminder that trading off of news headlines is a fool’s errand.
Economy Resilient Despite Tariffs and Geopolitical Turmoil
Source: Calafia Beach Pundit
Credit Default Swaps (CDS) act as insurance contracts that protect investors against corporate debt defaults. During financial stress—like the 2008 crisis or the COVID crash in 2020—CDS prices surge as investors seek protection. Today, however, CDS prices are falling across both high-yield (junk bonds) and investment-grade (Blue Chip) debt. As seen in the chart above, the cost to insure corporate bonds has declined steadily over the past two years. This signals bond investors aren’t worried about a recession or a wave of defaults, despite tariff policy uncertainty, geopolitical risk, and modest GDP growth.
Inflation Tame as Tariffs Loom
President Trump has repeatedly criticized Fed Chair Jerome Powell for not cutting interest rates, calling him everything from a “dummy” to a “major loser” and a “stupid person” to a “numbskull”. While the name-calling is colorful, the economic pressure is real: U.S. GDP contracted -0.5% in Q1 2025. Powell, however, wants to see the full impact of upcoming tariffs before making a move. . A new tariff deadline looms on July 9th, and the market is anxiously awaiting clarity. But even if tariffs are implemented, many economists believe the inflationary impact will be temporary—what’s known as a one-time price shock.
Source: Calafia Beach Pundit
The Fed’s preferred inflation gauge—the Personal Consumption Expenditure (PCE) index—has been easing and is now near the 2% target (see chart above). With inflation cooling, Trump’s case for rate cuts gains credibility. Still, the Fed appears in no rush. It will take time to understand the lasting effects of the tariff rollout.
AI Wave Fueling Markets
For a generation, the semiconductor revolution has quietly powered innovation, guided by Moore’s Law—the principle that chip performance doubles roughly every two years (see my article The Traitorous 8). Sixty years after Gordon Moore wrote his seminal article, “Cramming More Components onto Integrated Circuits”, the power of software is catching up. NVIDIA’s Grace Blackwell GB200 chip contains an astronomical 208 billion transistors, supercharging AI software models like ChatGPT.
The AI revolution is fueling trillions in global investment and rapidly transforming industries – from data centers and self-driving cars to robotics and drug discovery. It’s important to realize that this AI arms race is not just occurring in the United States. AI investment spending extends way beyond Silicon Valley to countries like Saudi Arabia, Singapore, and China.
The AI boom is not a U.S.-only phenomenon. Countries like China, Saudi Arabia, and Singapore are pouring capital into AI, creating a global arms race in tech. In the U.S., the four biggest hyperscalers—Amazon, Microsoft, Google, and Meta—are projected to spend over $300 billion on capital expenditures in 2025 alone (see chart below).
To illustrate the scale: Amazon is forecasted to spend more than $100 billion in CapEx this year. For context, that’s 40% more than the company spent over the entire 2000–2020 period combined.
Source: The Financial Times
The Stargate Initiative: AI Infrastructure on a Galactic Scale
A prime example of the AI gold rush is the $500 billion Stargate initiative, with Phase 1 already underway in Abilene, Texas (see rendering below). The initial construction includes two buildings totaling 1,000,000 square feet. Ultimately, the full project will cove about 1,000 acres and be powered by an on-site natural gas facility generating 360 megawatts—enough to support 300,000 homes.
A huge portion of the project costs are dedicated to the budget for NVIDIA super chips. Oracle Corp. has committed $40 billion to purchase 400,000 of NVIDIA’s GB200 chips, making this project a centerpiece of the global AI infrastructure boom. Just this week, Oracle also announced a new $30 billion cloud deal, which will soak up a good chunk of the data center supply created by the database and enterprise software company.
Source: CoStar
The Big Picture: Volatility and Opportunity
There’s no shortage of risk—geopolitics, inflation, Fed uncertainty, tariffs. But the economy is showing surprising resilience. If tariff clarity improves, interest rate cuts materialize, and AI capital spending accelerates, a “boring” market could rapidly turn into a soaring one.
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
This article is an excerpt from a previously released Sidoxia Capital Management complimentary newsletter (July 1, 2025). Subscribe Here to view all monthly articles.
DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in certain exchange traded funds (ETFs), but at the time of publishing had no direct position in any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on the IC Contact page.
Par for the Course
Stocks have been in a multi-year bull market, but just as investors cannot earn positive returns every month, golfers also cannot achieve a hole-in-one or birdie on every hole, either. A challenging performance is exactly what happened last month when stocks recorded a bogey on the scorecard.
More specifically, this is how far out-of-bounds the major indexes were last month:
- S&P 500: -1.4%
- Dow Jones Industrial Average -1.6%
- NASDAQ: -4.0%
Technology stocks and the Magnificent 7 stocks felt the largest brunt of the force last month as tariffs and the impact of Chinese AI (Artificial Intelligence) competition gave investors heartburn as they digested the information (see New Year, New AI ERA & New Tariff Sheriff).
Tariffs – More Molehill Than Mountain
As mentioned, a large part of last month’s volatility can be explained by the policy uncertainty surrounding the impending tariffs on China, Canada, and Mexico. Despite the absence of new tariffs being implemented, in an attempt to lock in cheaper imported goods, U.S. corporations and consumers have been stockpiling foreign goods before prices move higher due to tariffs. The 25% proposed tariffs on Canadian and Mexican goods are set to be applied as soon as March 4th. A flat 25% tariff on imported steel and aluminum products is expected to begin on March 12th – these particular tariffs are expected to have a disproportionately negative impact on the automotive industry.
Regarding other proposed reciprocal trade agreements, the White House’s analysis on tariffs for all other countries (beyond China, Canada, and Mexico) is expected to arrive on the president’s desk on April 2nd.
All these proposed changes are having an immediate economic impact whether intended or not. Not only are consumers buying more overseas products now, as they brace for higher prices, but businesses are also shifting supply chains to countries outside of China, Canada, and Mexico, in hopes of finding temporary tariff loopholes.
The bottom-line is our country’s imports have been spiking up recently, especially in the first quarter. Imports by definition subtract from America’s economic activity, so if businesses and consumers are rationally stockpiling foreign goods before prices go up from tariffs, investors should not be surprised that GDP (Gross Domestic Product) growth is set to go negative in the first quarter (-1.5%), according to the Federal Reserve Bank of Atlanta.
This short-term spike in foreign product purchases should be temporary until the tariffs are officially put in place. Subsequently, demand for relatively cheaper U.S. goods should rise because foreign goods will be pricier. In other words, buyers may begin purchasing more American-made t-shirts on Amazon because those shirts could be cheaper than the Chinese-made t-shirts after the additional tariffs commence on China.
How large are these overall tariffs? When it comes to Mexico and Canada, the size of these countries’ imports is estimated at $918 billion (see the 2023 import breakdown below for the two countries). On the surface, this sounds like a very large number, and it is. However, if you consider the size of the U.S. GDP ($29.4 trillion), these tariffs will mathematically have less than a 1% impact on the direction of our country’s economic activity.
However, if demand for American products goes up after the tariffs begin, as mentioned above, then it is perfectly logical to expect the drag from imports can be diminished or possibly completely reversed, if consumers decide to buy more American goods.
Source: Visual Capitalist
Also worth noting, as I documented last month in my Investing Caffeine blog, imports only account for 13.9% of our country’s economic activity (see New Tariff Sheriff). So, while tariffs make for great scary headlines, the reality of the numbers paints a different picture. Overall, the uncertainty surrounding the discussion of tariffs is having a much larger economic impact than the actual tariffs themselves. In other words, what we are discussing is more molehill than mountain. We saw this same movie before during the administration’s first-term when tariffs did not crater the economy into recession or create disproportionately high inflation.
War at the White House
A geopolitical soap opera played out on global television last Friday during a meeting between Ukraine’s President Volodymyr Zelensky and President Trump in the Oval Office. The meeting was designed to be a celebratory signing of a minerals deal in which the U.S. would gain access to strategically important Ukrainian rare earth metals in exchange for continued U.S. aid and military support. A signed deal would increase the probability of a peace deal between Russia and Ukraine dramatically. What actually happened was a war of words at the White House, which resulted in Zelensky getting kicked out of the White House with no signed deal.
Both sides have economic and strategic incentives to reengage in peace and mineral deal negotiations, but if the U.S.-Ukraine relationship totally crumbles, Europe and the other NATO (North Atlantic Treaty Organization) countries will need to pick up the slack in their military and economic aid to Ukraine. Regardless, increased European support is required to stave off a broader incursion by Russia and Vladimir Putin into a wider portion of Europe.
Tariffs, the Russia-Ukraine war, and AI issues may have heightened investor anxiety last month, but long-term investors understand that annual -5% and -10% corrections in the equity markets are considered par for the course. In fact, over the last 12 months, the S&P 500 index has declined -5% five times, and -10% one time, yet the stock market is still up +16% on a trailing 12-month basis (see chart below).
Source: Trading Economics
Financial markets end up in the rough plenty of the time, which often results in performance scorecard bogeys. However, long-term investors and Sidoxia Capital Management clients have won more often than not because the benefits of American capitalism have created many more birdies and pars over time.
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
This article is an excerpt from a previously released Sidoxia Capital Management complimentary newsletter (March 3, 2025). Subscribe Here to view all monthly articles.
DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in META, NVDA, certain exchange traded funds (ETFs), but at the time of publishing had no direct position in BABA or any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on the IC Contact page.
New Year, New AI Era & New Tariff Sheriff
The first month of 2025 started with a bang when newly-inaugurated President Donald Trump announced a groundbreaking AI (artificial intelligence) program led by business titan thought leaders called Stargate, which promises to spend a half trillion dollars on AI data center infrastructure projects and create hundreds of thousands of jobs. Just one week later, a wet blanket was placed on the Stargate euphoria when a Chinese AI upstart announced a technological breakthrough. Stocks moved lower on the last day of the month when Trump added insult to injury by confirming 25% Mexican/Canadian tariffs and 10% additional Chinese tariffs would be implemented immediately.
Regardless, positive economic and corporate data coupled with other pro-business fiscal policies (e.g., deregulation and lower proposed taxes) allowed the financial markets to finish the month with respectable gains. More specifically, the S&P 500 surged higher by +2.7%; the NASDAQ +1.6%; and the Dow Jones Industrial Average +4.7%.
DeepSeek = Deep AI Trouble?
Ever since OpenAI launched its ChatGPT language model (LLM) at the end of 2022, the global AI gold rush began. Just as the United States appeared to be dominating the AI race to global superiority, a bombshell was recently released, when a new Chinese AI upstart, DeepSeek, released a white paper claiming the company’s R1 large language model (LLM) rivaled competitors’ LLMs like OpenAI’s ChatGPT, Meta’s Llama (META), Anthropic’s Claude, and Alibaba’s Qwen (BABA) for a small fraction of the price spent by DeepSeek’s American rivals. The “DeepSeek Freak” caused a chain reaction of selling across a wide swath of companies (including NVIDIA Corp – NVDA) that have benefitted from hundreds of billions in AI infrastructure spending. The fear that Chinese AI competition may leapfrog U.S. companies, and potentially dramatically reduce AI-related capital expenditures caused the NASDAQ to almost fall -2% last week, and AI juggernaut NVIDIA shed more than a half trillion dollars in the company’s market value in a single day. Overall, U.S. stocks lost more than a trillion dollars in value on the day of the DeepSeek Freak unveiling.
Although investors were initially panicked by the DeepSeek revelations, not all of the Chinese claims have been substantiated. In fact, a just-released report by SemiAnalysis, a semiconductor research and consulting firm, states that DeepSeek’s costs for its R1 LLM likely exceed $500 million, much higher than the $6 million training costs stated in DeepSeek’s initial pronouncement.
Source: NBC News
New Tariff Sheriff in Town
While many investors were hoping for a delay in the implementation of President Trump’s tariffs on Mexico, Canada, and China, Trump decided to move full steam ahead with a February 1st start date. In 2023, Mexico was the U.S.’s largest trade partner and Canada was the second largest. These Mexican and Canadian tariffs are very broad based and impact many different industries, including autos, agricultural products, and crude oil. You can see the extent of the impact in the graphic below graphic below.
Source: VisualCapitalist.com
But what does this mean for the economy? In short, it will mean higher prices for U.S. consumers and businesses. The Tax Foundation, an 85-year-old, non-partisan, tax policy non-profit attempted to quantify some of the potential impacts from the proposed tariffs. The bottom-line findings from the Tax Foundation were that tariffs would “shrink economic output by -0.4% and increase taxes by $1.2 trillion between 2025 and 2034 on a conventional basis, amounting to an average tax increase of more than $830 per US household in 2025.” Please, also see table below (Scenario 2).
Source: Tax Foundation
In addition to American consumers having to pay higher taxes and prices for tariffed import products, there will be an estimated -344,000 jobs lost and there could be unintended consequences from retaliatory tariffs imposed on U.S. exports (i.e., our goods shipped internationally will be priced uncompetitively). In fact, Canada and Mexico just jointly announced tit-for-tat tariffs on U.S. goods and services, which will hurt these U.S. sales abroad.
With all of that said, the bark of the 25% tariffs on Mexico and Canada, along with the 10% in additional tariffs on China could be worse than the actual bite. Especially, if Trump uses these tariffs successfully as a negotiating tool and provides foreign countries with significant exemptions.
It’s also important to keep the size of these tariffs in context. Imports of foreign good and services only represented 13.9% of the Unted States’ Gross Domestic Product in 2023. Of that small percentage of imports, Mexico, Canada, and China only represent a fraction of that. It’s true that imports subtract from our country’s economic activity, but even if tariffs on foreign goods lead to the consumption of more American manufactured products, those benefits will be somewhat offset by higher inflated prices that will pinch consumer wallets. The new year marks an exciting new era of AI and global trade, but with that comes many new threats and opportunities. Throughout our 17-year history at Sidoxia Capital Management, we have successfully navigated these pivot points, and we are excited about effectively managing through this current transitional period.
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
This article is an excerpt from a previously released Sidoxia Capital Management complimentary newsletter (February 3, 2025). Subscribe Here to view all monthly articles.
DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in META, NVDA, certain exchange traded funds (ETFs), but at the time of publishing had no direct position in BABA or any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on the IC Contact page.
Time in the Market Beats Timing the Market
It was another great year in the stock market. But predicting the timing of a bear or bull market is more challenging. Fortunately for investors, the stock market is up a lot more of the time than it is down. More specifically, over the last century, the stock market has been up 73% of the time for one-year periods and 94% of the time for 10-year periods (see graphic below and Time is What Matters). That’s why investors’ time in the market beats the fools’ errand strategy of trying to time the market. The long-term, consistent upward trend in stock prices makes investing in the stock market akin to sailing around the world with a persistent tailwind for the whole trip.
Source: Capital Group and S&P 500 Index
Many people believe investing in the stock market is gambling, but 73% and 94% odds for stock market gains seem a lot better than the probabilities of making money in Las Vegas. I explored this concept further in one of my recent articles (see Elections Status Quo). Even with those favorable, lopsided odds, recessions do occur, albeit infrequently. As you can see from the chart below, since World War II, we have experienced a dozen recessions averaging 10 months in duration. And guess what? Successful post-recession recoveries have equaled 100% (12 for 12). Despite the short-lived bear markets, stock prices have appreciated more than 30x-fold since the end of World War II.
Source: Yardeni.com
2024 Predictions
There were plenty of pundits and talking heads who falsely predicted a recession in 2024, but the odds certainly worked in investors’ favor. For 2024, the S&P 500 index gained +23%, and this comes on the heels of a banner 2023, which was up +24%. Experiencing back-to-back +20%-years is a rare occurrence, which hasn’t occurred since the late-1990s. As we look into 2025, achieving three consecutive positive years in the stock market is not unprecedented, but as I mentioned earlier, predicting the timing of a down market can be tricky.
Case in point, predicting the outcome of stock returns, even with perfect information can be very daunting. What would have been your prediction of the 2024 stock market return, if I told you the following events were to occur this year (in no particular order)?
- Two assassination attempts on a presidential candidate
- An ongoing bloody war between Russia and Ukraine that reaches one million deaths
- Brutal Israeli-Hamas war in Gaza moves into its second year
- Nationwide Palestinian protests across college campuses
- Israeli-Hezbollah war commences in Lebanon
- Rebels in Syria topple the Assad regime
- A hotly contested presidential election triggering fears of a civil war
- A Baltimore bridge collapses killing six people and costing the overall economy upwards of $10 billion
- After crypto exchange goes bankrupt, CEO is sentenced to 25 years in prison for fraud
Most intelligently honest people would not have predicted a +23% return, but that is exactly what happened. As part of this extended bull market, some major stock market milestones were achieved: 1.) the Dow Jones Industrial average eclipsed 40,000; 2.) the main benchmark S&P 500 index surpassed 6,000; and 3.) the NASDAQ index temporarily triumphed the 20,000 level. The market took a breather in December (the Dow -5.3% and S&P -2.5%), so we have momentarily pulled back from some of these key levels.
What Next in 2025?
As I alluded to earlier, pulling off a three-peat in 2025 with a third consecutive year of gains may be a difficult feat, but not impossible. There remains some room for optimism. First of all, we have an accommodative Federal Reserve that has cut interest rates three times in 2024 (see chart below) from a target of 5.5% to 4.5% (see red line). Currently, expectations are set for the Fed to make another two interest rate cuts in 2025. All else equal, this should provide some mild stimulus for both borrowers and investors in 2025.
Source: Yardeni.com
Next, we have a new pro-business administration entering the White House that has promised lower taxes and less regulation, which should aid business profits. Tariff policies remain a wildcard, but if used judiciously for negotiation purposes, perhaps there could be more bark than bite from the rhetoric. Time will tell.
The 2024 chapter has closed, and we have started the 2025 chapter. Regardless of the outcome this year, history teaches us the time in the market is much more important than timing the market. This philosophy has served Sidoxia Capital Management and its clients well over the long-run.
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
This article is an excerpt from a previously released Sidoxia Capital Management complimentary newsletter (January 2, 2025). Subscribe Here to view all monthly articles.
DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in certain exchange traded funds (ETFs), but at the time of publishing had no direct position in any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC Contact page.
Fed Injects Rate Cut Adrenaline
There were a lot of injections, of the COVID vaccine variety, four years ago, but now the Federal Reserve is injecting some financial adrenaline through stimulative interest rate cuts. Expectations are for seven more -0.25% cuts over the next 12 months, but this cycle started two weeks ago when the FOMC (Federal Open Market Committee) initiated a larger -0.50% reduction in the benchmark federal funds rate target (see chart below). For now, investors have enjoyed the boost of adrenaline, which should help lower consumer interest rates on things like home mortgages, credit cards, and car loans.
Source: Yardeni.com
For the month, the S&P 500 climbed +2.0%, the Dow Jones Industrial +1.9%, and the NASDAQ index +2.7%. The monthly gains are adding to a 2024 that is shaping up to be a potentially banner year. With one quarter left in the year, the S&P has catapulted +21% higher, the Dow Jones Industrial Average +12%, and the NASDAQ index +21% for the first nine months.
Economy Strong, So Why Cut Now?
Before the Fed’s last action a couple weeks ago, the last Fed rate cut occurred in 2020 (a -1.50% cut) in the midst of a global pandemic with the aim of boosting financial activity while the brick-and-mortar economy had effectively been shut down. But compared to today, the economy is performing much better. Second quarter GDP growth came in at +3.0% with 3rd quarter GDP growth forecasts coming in at +3.1%.
So, if things look so great, why would the Fed be cutting rates to stimulate the economy now? In short, inflation has been coming down (see chart below) from a peak of 9.1% a couple years ago to 2.5% last month (near the Fed’s long-term 2.0% target). And although the current unemployment rate is low at 4.2%, it has nevertheless weakened and climbed substantially from a 3.4% level last year).
Source: Trading Economics
China Chugs Higher
While the U.S. economy has been leading developed countries during the post-COVID recovery period, China’s financial system has been struggling due to a collapsing real estate market and deteriorating consumer spending. As a result, the Chinese stock market has been drastically underperforming other foreign markets, until Beijing just recently announced a number of stimulus initiatives last week in hopes of buoying economic growth closer to its 5% target.
Here are some of the Chinese government measures:
- China plans to issue 2 trillion yuan in special sovereign bonds
- China’s central bank cut its reserve requirement ratio by 50 basis points
- Fiscal policies to focus on increasing consumer subsidies and controlling government debt
- Shanghai, Shenzhen plan to lift key home purchase restrictions
Investors cheered the announcements by binge-buying Chinese stocks, as you can see from the CSI 300 China index, which rocketed +21% higher last month – the largest monthly gain since 2008.
AI Revolution Continues
While economic headwinds and tailwinds continue to swirl, the AI (Artificial Intelligence) revolution has persisted in the background. While some traders have solely focused on AI juggernaut NVIDIA Corp. (NVDA), which has steamrolled its way into becoming a three trillion-dollar valued company, there are other tech titan companies like Oracle Corp. (ORCL), which are also riding the AI wave. Just last month, Oracle’s billionaire founder, Larry Ellison, stated, “We have 162 data centers now. I expect we will have 1,000 or 2,000 or more data centers…around the world.” Each large-scaled data center can cost in the hundreds of millions or multi-billion-dollar range. With hundreds of billions (if not trillions) of dollars to be spent on the multi-year AI infrastructure buildout, as you can imagine, there is a large, diverse ecosystem of other companies that stand to benefit. At Sidoxia Capital Management (www.Sidoxia.com), we have identified a wide swath of AI investments that have benefited our investors and stand to do so in the future.
Flies in the Ointment
By simply judging the performance of the U.S. stock market, one might think there is nothing for investors to worry about. But as is always the case, there still remain some flies in the ointment. With a tight, hotly-contested presidential election just one month away, coupled with escalated wars in the Mideast and Ukraine, future volatility or a correction in the stock market should come as no surprise to anyone, especially in light of the rich gains already registered this year. Another concern is the risk of rising inflation, which could rear its ugly head again if the Federal Reserve misjudges its rate-cutting program and overheats the economy.
Normally, interest rate cuts are reserved by the Fed for periods when the economy is headed towards a recession or there are major systemic disruptions in the financial system, which affect market liquidity and/or bank lending. That’s not the case today. Thanks to declining inflation and a robust but weakening job market, the Fed has been equipped to provide investors with a healthy injection of adrenaline through an early round of interest rate cuts, which has contributed to the powerful stock market gains. So far, the adrenaline is doing its job.
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
This article is an excerpt from a previously released Sidoxia Capital Management complimentary newsletter (October 1, 2024). Subscribe Here to view all monthly articles.
DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in individual stocks , certain exchange traded funds (ETFs), including AMZN, MSFT, META, GOOGL, NVDA, but at the time of publishing had no direct position in any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC Contact page.
Another Hot Month, Another Fresh Record
Summer is coming to a close, but the weather is not the only thing that remains hot. The stock market has been scorching hot as well. Both the S&P 500 and Dow Jones Industrial Average blazed to all-time record highs last month. In fact, both of these indexes have risen seven out of eight months this year, including gains in the last four consecutive months. More specifically, the S&P 500 was up +2.8% last month and +18.4% this year, while the Dow Jones has advanced +1.8% for the month and +10.3% for the year.
How can this surging bull market be in existence while undergoing a war between Russia and Ukraine; military conflict in Gaza; a nasty Japanese Yen Carry Trade unwind; a highly divisive upcoming presidential election; a weakening economy; and rising unemployment (see chart below)?
Source: Calafia Beach Pundit
For all investors and traders, there is never a shortage of issues to worry about, even when times are good. However, despite the long laundry list of concerns, there are plenty of opposing tailwinds supporting the upswell in stock prices, starting with growing record corporate profits with strength forecasted through 2026 (see chart below).
Source: Yardeni.com (Yardeni Research)
Another factor underpinning the strength of stocks has been the decline in the inflation rate. The latest headline inflation rate (CPI – Consumer Price Index) fell to 2.9% in July, and if you exclude shelter costs, inflation has fallen below the Federal Reserve’s 2% target rate.
Source: Calafia Beach Pundit
Conversely, the story was quite different in 2022 when the Federal Reserve began its crusade against out-of-control inflation (see chart below) by starting its first of 11 interest rate hikes that spanned from January 2022 through July of 2023. The net result was a stock market that tanked -19% in 2022. More recently, the Fed has clearly signaled that inflation is more under control with traders predicting a 100% probability of a -0.25% or -0.50% cut in the targeted Federal Funds interest rate on September 18th. The Federal Reserve Chairman Jerome Powell gave a dovish speech at the annual policy meeting in Jackson Hole, Wyoming strongly portending September action – the first cut in four years since the pandemic.
AI Arms Race on Spending
Another dynamic contributing to new stock market record highs is the boom in AI (Artificial Intelligence) spending by the technology behemoths like Amazon.com Inc. (AMZN), Microsoft Corporation (MSFT), Meta Platforms Inc. (META), and Google – Alphabet Inc. (GOOGL). As I have been talking and writing about for some time (see World of AI), there is an arms race in spending to create the next, latest-greatest large language model (LLM) like ChatGPT. The goal is to bring more efficiency and accuracy to businesses and provide consumers more pleasure and time savings at both work and home. As you can see from the chart below, the four colossal technology companies previously mentioned are currently on a run-rate of spending more than a mind-boggling $200 billion annually, much of that going to the king of AI GPU (Graphics Processing Unit) manufacturing, NVIDIA Corporation (NVDA).
Why are companies spending so much on AI? Because they agree with NVIDIA CEO, Jensen Huang, who last week stated, “Generative AI will revolutionize every industry.” Despite all the spoils migrating to NVIDIA, traders were still looking for warts on the AI supermodel when they reported 2nd quarter results last week. Nonetheless, NVIDIA still delivered its 5th consecutive quarter of greater than 100% revenue growth, while generating revenues of almost $100 billion over the last 12 months – not too shabby. Although greedy investors wanted more, the stock was still up +2% for the month and +141% so far this year.
Source: Sherwood News
While economic, political and geopolitical concerns have been boiling over around the world, the stock market continues to sizzle higher. Declining inflation and interest rates, escalating business profits, and spiking artificial intelligence expenditures across corporate America have kept stocks cooking to record highs. It’s been a sweltering summer but not yet too hot for investors to get roasted out of the stock market kitchen.
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
This article is an excerpt from a previously released Sidoxia Capital Management complimentary newsletter (September 3, 2024). Subscribe Here to view all monthly articles.
DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in individual stocks , certain exchange traded funds (ETFs), including AMZN, MSFT, META, GOOGL, NVDA, but at the time of publishing had no direct position in any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC Contact page.
Economic & Inflation Information Create Market Jubilation
Ever since the Federal Reserve went on a crusade to increase interest rates and slow the progression of inflation at the beginning of 2022, investors have been cheering for a Goldilocks-type of economic “soft landing.” Last month, this narrative remained intact.
The S&P 500 index surged +3.5% for the month, the technology-heavy NASDAQ rocketed +6.0% (fueled by NVIDIA and other AI-related companies), and the Dow Jones Industrial Average a more modest +1.1% move thanks to the contribution of older economy stocks.
Despite the looming presidential election this November and the recent debate, the stock market has continued on a +56% bull market tear since the October 2023-low, eight months ago (see chart below). The not-too-hot, not-too-cold economic data have provided comfort to investors. For example, growth in Gross Domestic Product (GDP), the broadest measurement of economic activity, was positive (+1.4%) during the first quarter and it is expected to modestly accelerate in the second quarter (+2.2%), as forecasted by the Federal Reserve Bank of Atlanta.
In addition, the job and inflation stories are staying consistent with the “soft landing” plot line, as well. The unemployment rate has been creeping higher, but currently remains near multi-decade lows at 4.0%. Inflation also continued its downward trend as evidenced by last week’s Core PCE inflation data (the Federal Reserve’s favorite inflation gauge), which came in at +2.6%, the lowest level since March of 2021 (see chart below).
Gasoline and food costs are significant inputs to the overall declining inflation dynamics. The two largest crops in the United States are corn and soybeans, and with those prices down significantly year-over-year (see chart below), it should come as no surprise that consumers are finally seeing some relief in skyrocketing food prices. Declining gasoline prices have also chipped-in to the improving inflation outlook.
With all these economic statistics harmoniously aligning with a “soft landing” scenario, investors are currently comfortable in forecasting one interest rate cut over the next six months, and three and a half interest rate cuts over the next 12 months (see chart below).
Source: Yardeni Research
But a bull market cannot survive on interest rate cut expectations alone. Over the long-run, stock prices generally follow the direction of corporate profits, and as the chart below indicates (red line), fortunately, the path of profits has been rising after a period of stagnation last year.
Source: Yardeni Research
The last eight months have been an exhilarating ride in the overall stock market, which has been propelled by the multi-trillion dollar technology companies participating in the A.I. (Artificial Intelligence) buildout revolution (i.e., NVIDIA, Microsoft, Alphabet-Google, Apple, Meta Platforms, Amazon, et.al.). However, neither trees nor stock markets can grow, uninterrupted, to the sky forever. The recent environment has been jubilant for investors, but party participants cannot go on forever without experiencing a hangover. The best advice is to celebrate responsibly, while managing the risk of your investment portfolio, because eventually the cops will arrive and the party will come to an end.
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
This article is an excerpt from a previously released Sidoxia Capital Management complimentary newsletter (July 1, 2024). Subscribe Here to view all monthly articles.
DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in individual stocks , certain exchange traded funds (ETFs), including NVDA, MSFT, GOOGL, AAPL, META, and AMZN but at the time of publishing had no direct position in any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC Contact page.
Bad News is Good News?
Remember that global pandemic back in 2020 called COVID-19 that killed over 350,000 people in the U.S.? That same year, the unemployment rate reached a sky-high level of 14.9% (vs. 3.9% most recently) and the economy went into recession with GDP (Gross Domestic Product) declining by -2.2%. With the whole population locked in their homes and 9.4 million businesses closed, this debacle doesn’t sound like a real great environment for the stock market. What did the stock market actually do in 2020? The S&P 500 surged +16.3% (see chart below). Bad economic news turned out to be good news for stocks.
On the flip side, during 2022, the economy was firing on all cylinders. GDP was advancing at a reasonable +1.9% growth rate, and the unemployment rate stood at a near generationally low rate of 3.6%. What did the stock market do? It fell -19%. This time around, good economic news meant bad news for stock prices, primarily because the Federal Reserve was slamming the brakes on the economy by increasing the Federal Funds interest rate target.
These examples are powerful reminders that the direction of economic trends does not necessarily move in tandem with the direction of the stock market. Just this last month, investors experienced this same phenomenon when GDP growth figures were revised lower from +1.6% to +1.3%, and pending home sales dropped by -7.7% to the lowest level in four years during the pandemic. What did the stock market do last month? The S&P climbed +4.8% and the NASDAQ soared +6.9%. Once again, bad news has equaled good news due to higher hopes for Fed interest rate cuts.
For the year, the S&P has already appreciated a very respectable +10.6%. This stellar performance has come despite heated election concerns, persistent wars overseas, nervousness over the Federal Reserve’s monetary policy, and wild volatility in the cryptocurrency markets.
Fighting against these headwinds has been the tsunami of corporate investing dollars piling into the Artificial Intelligence (AI) spending tidal wave. I have been writing about this trend for a while (see AI World) and NVIDIA Corp (NVDA) confirmed this trend a couple weeks ago, when the AI juggernaut reported its fiscal first quarter financial results. Not only did NVIDIA more than triple its revenue above $26 billion for the three-month period compared to last year, but the company also increased its net profit by more than seven-fold to almost $15 billion for the quarter, in addition to announcing a 10-for-1 stock split (see chart below).
What these examples teach you is that it is a fruitless effort for investors to try to time the market based on economic news headlines. Yet, every day you turn on the television or comb through the avalanche of news headlines through various media outlets, there is always some Armageddon story about an impending market crash, or some other speculative, get-rich-quick scheme. As Warren Buffett states, “Investing is like dieting. Easy to understand, but difficult to execute.”
In other words, there is no simple solution to investing. It requires patience, discipline, and financial emotional wherewithal to allow the power of long-term compounding to grow your retirement nest egg. Short-term news cycle headlines shouldn’t drive portfolio decision-making, but rather your personal objectives, goals, and risk tolerance. These items are not static, and can change over time, therefore it’s important to revisit your asset allocation periodically as financial circumstances and life events change your objectives.
Of course, improving economic news can also lead to rising stock prices, just as deteriorating economic news can result in declining prices. Regardless, attempting to time the market is a fool’s errand. Rather than trying to maneuver in and out of the stocks, long-term investors should focus more intently on the four key factors that drive the direction of the stock market: corporate profits, interest rates, valuations, and investor sentiment (see also Don’t Be a Fool, Follow the Stool). If you understand the stock market doesn’t logically follow the daily headlines, and instead you follow the key fundament factors driving equity markets, then your investment portfolio should be blessed with plenty of good news.
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
This article is an excerpt from a previously released Sidoxia Capital Management complimentary newsletter (June 3, 2024). Subscribe Here to view all monthly articles.
DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in individual stocks , certain exchange traded funds (ETFs), including NVDA,, but at the time of publishing had no direct position in any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC Contact page.
The Art of Maximizing Gains and Minimizing Taxes in a World of AI
The AI Wave
The weather may be cold during winter, but stocks were scorching hot last month, fueled in part by the surge in performance from AI (Artificial Intelligence) stocks. More specifically, the Dow Jones Industrial Average was up +2.2% to 38,996. The S&P 500 surged +5.2% to 5,096. And the AI-heavy Nasdaq index climbed the most by +6.1% to 16,092.
Leading the bull market brigade higher was NVIDIA Corp (NVDA), which saw its stock launch higher by +29% for the month after reporting eye-popping quarterly revenues of $22 billion, more than tripling versus last year’s comparable quarter. Customers of NVIDIA, like Meta Platforms, Inc. (META), are also benefiting from the rising tide of investor sentiment.
To put this AI wave into perspective, you need look no further than to the comments made by Meta CEO Mark Zuckerberg, who stated by the end of 2024, the company should have 350,000 of NVIDIA’s H100 graphics processing units (GPUs) as part of the company’s AI infrastructure. At roughly $25,000 to $30,000 per GPU, the total cost is likely approaching $10 billion for just this one NVIDIA customer. Also, Dell Technologies’ (DELL) stock price opened more than +30% higher today after reporting quarterly financial results that exceeded forecasts due to robust demand for AI servers, which led to their backlog almost doubling in three months to $2.9 billion.
When you have corporate America in addition to the large cloud data center providers (think Amazon Web Services, Microsoft Azure, and Google Cloud) all battling to secure NVIDIA chips for their generative AI, machine learning initiatives, you can understand why NVIDIA’s stock is up +250% in one year to a company value of $2 trillion.
Japan’s Nikkei & Dow Both Break 39,000 Record Concurrently
Not only did the Dow hit an all-time record high of 39,000 last month, but a stunning coincidence also occurred in Japan. The Nikkei 225, which is like the Japanese equivalent of the Dow Jones Industrial Average, also hit a record high of 39,000 last month. What’s the big difference between these two indexes simultaneously surpassing a record 39,000 in the same month?
It took the Nikkei over 34 years to surpass its previous record peak, which was last achieved in 1989 when Japan experienced a massive bursting of an asset bubble. On the other hand, it merely took the Dow just one month to break its previous record…not four decades. Worth noting, so far in 2024, the Nikkei has been the world’s best-performing major index surging 19%, almost triple the gain of the S&P 500 index.
Tax Time
April is fast approaching, which means it’s that time of the year when Uncle Sam will come knocking on your door with your tax bill. Perhaps your taxes have already been prepaid and a refund is coming your way. Regardless, the goal of long-term investing is to master the art of maximizing returns and limiting taxes subject to your risk tolerance.
How does one create an investment masterpiece? One way to maximize return is to lower costs, including lower management fees, fund fees, and transaction costs. You can think of these investment costs as a leaky faucet. In the short-run, most people do not care about or are unaware of a leak.
The same principle applies to investment fees/costs. Investors can ignore these fees in the short-term, but over months or years, these costs can become enormous and destructive. I experienced this firsthand. Recently, normal monthly water bill was $40, but one leaky toilet resulted in an $800 monthly bill…ouch! Just imagine what unknown leaky costs on your investments could mean for your retirement. Do you want high or unknown investment fees to delay your retirement by years? I think not. Focus on lower costs because quite simply, the less you pay, the more you keep, and the earlier you can retire.
Another way to maximize your investment performance is to benefit from the power of compounding. This phenomenon can only be achieved via the snowball-effect of long-term investing. This is why Albert Einstein called compounding the “8th Wonder of the World.” At Sidoxia Capital Management, we have experienced this marvel on many of our investments, including our exponential gains in Amazon.com, which we first purchased in 2008 at s split-adjusted price of about $2.95 per share. The stock price recently closed at $177, a 60-fold increase from our initial purchase.
The risk-adjusted aspect of your nest-egg is also important because most people should consider decreasing risk as you more closely approach retirement age, especially if you are planning to tap your investments for liquidity. If risk wasn’t a consideration, going to the Las Vegas roulette table and betting your life savings on black might be a good idea. Sure, you might have a chance of doubling your money instantly, but you could also lose it all in a blink of an eye.
Another way of thinking about risk, since we are in the heart of ski season, is to contemplate a ski instructor’s advice for an 80-year-old beginner vs. an experienced Olympic downhill gold medalist. It wouldn’t make sense for the 80-year-old beginner to train on the steep, advanced black diamond runs. Similarly, it wouldn’t make sense for the gold-medalist Olympian to train on the flat beginner runs. The same concept holds true for investing. Young investors generally can take on more risk, while retirees often should be more conservative in their asset allocation, especially if they need liquidity from their investments to fund their living expenses and lifestyle.
Although it would be nice to have ChatGPT create a luxurious retirement for you with a click of a button, unfortunately life is not that simple. You certainly can, and should, take advantage of the AI revolution in your investment portfolio to support your retirement goals, but successful investing requires more than that. With over 30 years of investment experience under my belt, at Sidoxia, we understand there are multiple facets to successful investing. In a diversified portfolio that that takes account of your risk tolerance, we strongly believe low-cost, tax-efficient, long-term investing is the best way to create your retirement masterpiece.
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
This article is an excerpt from a previously released Sidoxia Capital Management complimentary newsletter (March 1, 2024). Subscribe Here to view all monthly articles.
DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in individual stocks, including NVDA, META, GOOGL, AMZN, MSFT, and certain exchange traded funds (ETFs), but at the time of publishing had no direct position in DELL or any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC Contact page.
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