Everyone is asking what happened last week.
Stocks dropped last week around 4%, with gold, silver, and bitcoin all falling dramatically. Bitcoin is now down almost 50% from its October high. While it was a wild week, we’ve all struggled to point to a cause. A new feature launch from Anthropic, the makers of Claude AI, was pointed to as the culprit in stocks, but that still doesn’t explain the sudden risk-off mood across all asset classes.
For stocks, earnings are coming in better than expected, and it appears companies will increase earnings by about 13% over this time last year. Again, this is very good earnings growth. So long as companies continue growing earnings, I expect there is a floor to any selloff.
For precious metals, however, I am growing cautious. As I mentioned in last week’s note, they have significantly outgrown any reasonable valuations, and I think this is a good point for investors to take profits, where they can.
I have, for over a year now, been cautioning investors against the weakness brewing in the underlying economy. We got a fresh round of news on that front, unfortunately. Announced layoffs have grown to the highest number since 2009, standing at 108,000 announced in January. Job openings also fell much more than expected last month. While this may be AI-related, there are numerous forces at work on the labor market making it difficult to tease apart.
Overall, I am still cautious. I am tired of saying this, but it would appear that, so long as companies continue to make money, markets will go up. However, layoffs and unemployment are tell-tale signs of a recession, and it does appear that risk in markets has only built over the last year.
Chart of the Week
This week’s chart comes courtesy of Reuters and it illustrates the growing concern with AI investment, generally. Nvidia makes chips for Open AI and Oracle. However, OpenAI also received a $100 billion investment from Nvidia — effectively, Nvidia is buying their own chips. Similarly, Oracle is receiving a $300 billion of orders for infrastructure from OpenAI, but to fill that order requires chips from Nvidia.
It is a very circular loop and the question keeps coming up: are there enough paying customers to keep this cycle going?
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