Knowing The Future

Where Do We Currently Stand?

…and where are we going?

Stock prices are primarily driven by low inflation, growing earnings and valuations that are reasonable.

Inflation is coming down.

Analysts are increasing their forecasts for S&P 500 earnings.

Keep in mind, this is all happening after the announcement of tariffs back in April.

What this means is that - in spite of these tariffs that every midwit told you would ruin the economy - there’s actually been no significant bump in inflation. Not only that, but companies are able to grow their earnings even with higher input costs.

With inflation coming down and stabilizing, real incomes are rising.

As of right now, things look pretty good market-wise.

That’s pretty amazing considering we’re seeing tensions rise in the Middle East, tariffs implemented, concerns over the Treasury market…

All of these perceived issues could take mainstage at any moment and we could see things deteriorate but at the moment stocks are humming along just fine.

“Bull markets climb a wall of worry.”

And there’s always going to be a “wall of worry”. It’s why I always stress keeping a cool head and a long-term outlook.

In the last few months, NVDA 0.00%↑ got clobbered for multiple reasons - Deep Seek, tariff worries, ban on exporting to China. Tons of reasons to sell this stock. Fast forward to today, it’s positive YTD and up ~70% off its lows.

Worries create opportunities and opportunities create long-lasting wealth.

No matter the headline, the fear or the uncertainty…one thing’s for sure. Technology will continue to disrupt. This is why QQQ 0.00%↑ is such a great “set it and forget it” investment.

7 vs 493

We discussed Circle’s IPO run, but Circle isn’t alone. Coreweave CRWV 0.00%↑ has also had an incredible run since recently joining the public markets. One company is crypto-based, the other is AI-based. There’s a demand for these themes.

It helps paint a broader picture of how stocks have been reacting over the last couple years. The Mag 7 (Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla) has significantly outperformed the rest of the market.

So we see a divergence between between these 7 stocks in the S&P index (+ some other names that are outperforming but aren’t included in the S&P) and the all the rest - the S&P 493.

Why is that?

The average profit margin of the S&P 493 is 12% with single-digit growth.

Who wants to own these legacy companies when you can own the future? Mag 7 companies are seeing rapid growth, investing in future technologies and are competing for moats within their sector.

If you’re hitching your wagon to AI and/or crypto, you’re seeing significant gains while the rest of S&P is giving you - at best - moderate returns.

Artificial Intelligence is coming for everyone - legacy industries included. AI is going to make everything faster, cheaper and more efficient. You’ll see random startups take on generations-old companies that have been lethargic. It’s the natural state.

Don’t believe me? Take a look at Google’s new announcement of Veo 3.

Hollywood is on borrowed time.

Own the future - not the past.

Stablecoin Summer

Circle CRCL 0.00%↑ the company that issues USDC and other fiat-linked stablecoins IPO’d about two weeks ago. There’s really no way to properly describe how it’s been performing other than simply providing the chart. Just an insane run. This opened at $31 as it’s IPO price.

Why? Because there’s a MASSIVE market in the stablecoin space and it’s incredibly disruptive. It’s a faster, more efficient way to transact with dollars and it’s more cost-effective than credit card transactions (credit companies charge a 3% fee on every transaction).

Last week, the Senate passed the GENIUS Bill which is a regulatory framework for dealing with stablecoins. This bill will allow different institutions to issue/use their own stablecoins.

Even Secretary Scott Bessent is a huge fan of this technology. Why? Stablecoins create a large demand for US Treasuries. US Treasuries are what backs coins like USDC and USDT.

Remember, in order to keep interest rates stable (and low), the government needs buyers of its debt.

Coinbase Rerate?

Coinbase COIN 0.00%↑ saw a big jump last week. This was following the passing of the GENIUS Act.

It seems like the market is slowly discovering that Coinbase gets 50% of Circle’s net revenue generated from USDC + 100% of revenue from USDC on Coinbase platform + has an equity stake.

Coinbase is also seeking SEC approval to offer tokenized equities on their platform. This would be monumental for not only the company but for the entire financial industry. Keep an eye on this.

If we break above $365, watch out.

“Americans Don’t Want Those Jobs”

Just leaving here as a reference point during the ICE raids, deportation debates.

GENCO