Weekly Newsletter: June 8, 2026
The markets are all about technology, all the time, and everywhere. Yes, there is economic data, a war in Iran, and a Fed meeting next week, but all pales compared to the companies going public over the next month. SpaceX is first up, followed by Anthropic and OpenAI. The SpaceX public offering will be the largest ever, and indices are changing rules to allow them to own shares, bypassing established rules. The outlier is the SP500, which may not add the company until this time next year. A better question may be where the money will be coming from to buy shares of SpaceX. The huge amount of supply of shares between these three companies could put pressure on the average stock as investors sell to re-allocate to these newly public companies. Without the addition of these companies to the indices, technology and communication services (which include Meta & Google) comprise 50% of the SP500, and have been the sectors that have carried the markets higher this year. For the first time in 25 years, we are seeing companies selling at multiples of sales that compare to the internet bubble. It does not mean the markets are heading immediately lower, but that future returns from here may be much less than the 15%+ annual return on the SP500 achieved over the past decade.
The economic data of the past week was surprising in its strength. Both the manufacturing and service surveys came in at levels indicating expansion. Prices moderated a bit, but are still at very high levels. Commodity prices, in general, have come down since their mid-May peak, indicating some easing in inflationary pressures. This week the “official” inflation data is released and will be watched very closely, as the Fed meeting in two weeks will begin the Kevin Warsh era. The jobs report, along with the various other job-related releases last week, indicated a still good jobs market. Hiring continues to be strong within healthcare, and gains in construction and hospitality indicate an overall healthy job environment. If there was a weak spot, it would be in wage growth. Wage growth has been declining over the past nine months from over 4% annually to now under 3.5%. This may not compare favorably with an inflation rate that may be closer to 4% than 3%, meaning wages are not keeping up with inflation. It is always hard to count out the US consumer, and retail sales, due later this month, will be instructive on the health of the consumer in the face of higher energy prices.
Interest rates have been moving with energy prices since the beginning of the Iran war; as energy moves higher, so too do interest rates. They moved significantly higher on the employment release, and investors are now “betting” that the next move by the Fed will be a rate hike by year-end. High-yield bonds continue to trade with yields close to treasuries as a still good economic backdrop can help companies refinance their debt without too much trouble. Bond investors will be focused on the consumer price index, likely confirming a good economy, but persistently high inflation driven by still high energy prices. The key question is whether a resolution to the war will bring down prices immediately. More likely will be a slow decline as global oil resources will take time to normalize. This could mean inflation remains a problem for a longer-than-expected period of time.
As highlighted above, the market is now driven by technology. Surpassing its weight in the SP500 during the tech bubble of the late ‘90s, many worry that a repeat is in our future. The semiconductors, the key component in AI, and historically a very cyclical industry, have soared by over 90% just this year. Without the semis, the SP500 would be up merely 3% year to date vs. just over 10%. Looking beyond the tech sector, every other sector has underperformed the SP500, and the net number of stocks rising vs. falling has been declining since its peak in April. To be fair, the net number of advancing stocks was falling for 2 years before the end of the 90’s tech bubble, so two months is not as big a deal, but worth watching. As of yet, higher interest rates have not derailed the rally, as the focus remains on the data center buildout and the huge spending on semis. Notorious for boom/bust cycles, the chip sector is enjoying its time in the sun. Valuations in the sector are being calculated as though their recent growth will last for the foreseeable future. History suggests that is not a profitable assumption.
Consumer prices are likely to be the focus for bond investors, while the SpaceX IPO is going to garner much of the market chatter all week long.
The opinions expressed in the Investment Newsletter are those of the author and are based upon information that is believed to be accurate and reliable but are opinions and do not constitute a guarantee of present or future financial market conditions.