Hope you are all doing well. The positive 0.7% returns that the S&P 500, NASDAQ, and Dow each posted for the week didn’t look possible after stocks sold off on Wednesday. A big rebound on Thursday and Friday led stocks to a comeback. Speaking of comebacks, the Knicks pulled off yet another comeback last night to capture they’re first championship in 53 years. I have broken down this week’s update using some of the big plays from the NBA finals.
A tip for the ages – Game 4
Like Anunoby soaring from out of nowhere to bring the Knicks back, IPO demand has returned this week thanks to SpaceX. The SpaceX debut is the first real-time gauge of investor sentiment and willingness to invest in a company with a sky-high valuation. Many of you reached out for my opinion. The valuation is high, but given the excitement about the stock, it may not fizzle out the way some IPOs have recently. With many IPOs, investors exercise caution after the initial excitement and the stock drops as a result. Large IPOs have often underperformed the S&P 500 over their first year. Not saying that will happen here, but if you didn’t get in yet, then probably better to wait a bit to see if it cools over the next few days. See if the stock drops and presents a better entry point. SpaceX is likely the first in a pipeline of mega-IPOs tied to AI and next-generation technologies, with companies such as Anthropic and OpenAI potentially following.
Tempers flare between both stars – Game 3
Like the physical play in the NBA finals, both sides of the U.S.& Iran ceasefire have pushed the envelope of what they can get away with. Supposedly, we are going to see a signed peace deal that reopens the Strait of Hormuz, though it’s hard to believe until we see pen to paper. Oil fell to its lowest point since the beginning of March. President Donald Trump has said a deal to end fighting between the US and Iran is scheduled to be signed on Sunday. Iran cast doubt on the timing, Iranian foreign ministry spokesman Esmaeil Baghaei expressed caution over the timeline, saying: “We will have to wait and see about the exact date of the signing of the memorandum of understanding, although it will not be tomorrow.” Peace in the region would provide a lift to stocks if it were to happen.
Pressure causes critical error – Game 2
Like the Knicks’ full-court press, the prices at the pump are causing pressure on U.S.households. Consumer prices rose 4.2% year-over-year. That is the highest reading in over three years. Heavily driven by energy costs, the data presents a difficult decision for the Federal Reserve. The overall inflation spike illustrates how sensitive the consumer wallet is to global commodity and energy shocks. However, core inflation, the number most linked to Fed decision-making, is improving. The softer core reading suggests that prices outside of food and energy are under control. I expect, as a result, that the Fed will maintain its pause on interest rates as it evaluates whether the surge in energy costs will seep into broader consumer spending habits.
NOTE: I WILL BE OUT OF THE OFFICE UNTIL JUNE 18th. You can use my calendar link below to schedule a phone call or Zoom meeting. The calendar link allows you to schedule appointments after I return on June 18th. If you have a time-sensitive issue, use email; I will check and respond to emails throughout the day while I am out of the office. If you need to place a trade, call Charles Schwab directly at 800-435-4000; for all other requests, email me.
