Last week the AI trade showed some cracks as there was some rotation underneath. The Nasdaq fell 4.6% and the S&P 500 declined nearly 2%, while the Equal Weight S&P 500 (RSP) finished the week higher, suggesting investors were taking profits in AI-related names and rotating into other areas of the market. The concerns came from two fronts. First, higher technology costs began to show up in consumer products. Apple fell roughly 6% after announcing significant price increases across its product lineup, while Microsoft also raised Xbox prices, with both companies pointing to higher chip and component costs tied to AI. Second, OpenAI is reportedly considering delaying its IPO until next year due to the weak post-IPO performance of SpaceX and the recent volatility across AI-related stocks, adding to concerns about how long the current pace of AI infrastructure spending can be sustained.
That said, this wasn’t a broad risk-off move. Lower oil prices and declining interest rates supported a rotation into more cyclical sectors, with machinery, homebuilders, travel, and banks outperforming during the week. While the ceasefire in the Middle East remains in place, tensions are still elevated. On Friday, President Trump stated that Iran violated the truce with a drone strike on a cargo ship in the Strait of Hormuz, a reminder that oil prices and rate expectations remain highly sensitive to geopolitical developments. Looking ahead, the focus shifts to Thursday’s nonfarm payrolls report, which should provide another important read on the strength of the labor market and the Fed’s path forward.
Monday Quick Hits
The AI boom is undergoing a sharp shift in perception rather than a cycle end; markets are aggressively punishing heavy capex spenders and margin-crimped hardware giants while rewarding supply-bottleneck beneficiaries like memory producers.
The S&P 500 Equal Weight Index is outperforming its market-cap weighted counterpart year-to-date because of the rotation away from the Mag 7. The cash was redistributed into the other 493 names, boosting value, defensives (like healthcare).
Oil relief has curtailed inflation upside, and the primary risk to the US markets now is an economic
May Personal Consumption Expenditure (PCE)
The month-over-month (MoM) figure for Nominal PCE in May beat expectations, coming in at a gain of 0.70% versus expectations of 0.50%, a sign that the US consumer continues to remain resilient amid both rising inflation and geopolitical uncertainty. The inflation-adjusted measure, Real PCE, further confirmed this by coming in at a gain of 0.30%, showing that the nominal gains weren’t just a reflection of higher prices, but of genuine consumer demand, with the main drivers being personal incomes increasing 0.70% and a one-time USDA relief payment to farmers, which boosted incomes. A potential concern was that the personal savings rate remained low at 3%, with April’s savings rate at 2.60%, the lowest since June 2022. Meanwhile, Core PCE increased 3.4% year-over-year, showing that the Fed’s preferred price indicator remains well above its 2% target. Although the report is backward-looking and therefore doesn’t reflect the drop in oil prices in June, the effects of earlier energy price increases are still working their way through the supply chain, as businesses further downstream have yet to fully adjust their pricing.
The implications are that inflation may remain stubbornly elevated even though oil prices have fallen, leaving the Fed with no choice but to remain hawkish on its rhetoric and scrap the idea of any rate cuts it previously thought were appropriate. The AI buildout is also starting to create inflationary pressure on consumer electronics, as seen by computer software and accessories prices increasing 5% in April. Prime examples of inflation in electronics include both Microsoft raising prices on its gaming consoles and Apple similarly increasing prices on its devices due to elevated memory costs. Overall, the picture remains supportive for consumers as they continue to spend due to solid wage gains and relatively tight labor markets, but with a lower savings rate and inflationary pressures, there are reasons for concern about whether consumer strength will remain as sturdy or begin to soften.
Lido Advisors, LLC is an SEC-registered investment adviser. Please note that SEC registration does not denote any particular competence or ability and no inference to the contrary should be made. For complete information on the services we provide and our fees, please review our Form ADV at adviserinfo.sec.gov, call 800-301-LIDO, or mail us at 1875 Century Park East Suite 950, Los Angeles, CA 90067.
The information contained herein reflects Lido’s views as of the date of this newsletter. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. Lido has obtained the information provided herein from various third-party sources believed to be reliable but such information is not guaranteed. Any forward-looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. Lido is not responsible for the consequences of any decisions or actions taken as a result of information provided in this newsletter and does not warrant or guarantee the accuracy or completeness of this information.
Past performance is not indicative of future performance. The information in this report is for informational purposes only and should not be relied upon as the basis of an investment or liquidation decision. Nothing in this report shall be construed to be a solicitation to buy or offer to sell any security, product or service to any non-U.S. investor, nor shall any such security, product or service be solicited, offered or sold in any jurisdiction where such activity would be contrary to the securities laws or other local laws and regulations or would subject Lido to any registration requirement within such jurisdiction. All content herein has been obtained from sources deemed to be reliable, but is subject to unintentional errors, omissions and changes without notice, and is not warranted as to its accuracy or completeness. You should not rely on the information contained herein, and should rely solely on, and carefully read, the appropriate offering and related subscription materials relating to any specific investment product before making any investment decision.
Not all investments are suitable for all clients. It should not be assumed that any security listed or any recommendations made in the future will be profitable or without loss, including risk of loss of principal, or will equal any prior performance. All investments involve the risk of potential investment losses including the potential risk of loss of principal as well as the potential for investment gain. Further, the prior performance figures indicated herein represent portfolio performance for only a short time period and may not be indicative of the returns or volatility each portfolio will generate over a long time period. The performance of the portfolios should also be viewed in the context of the broad market and general economic conditions prevailing during the periods covered by the performance information. Any references to future returns/risk are not promises of the actual return the client portfolio may achieve. Before investing, investors should seek financial advice regarding the appropriateness of investing in any securities of investment strategies discussed. Not all investments are suitable for all investors.
The information herein is not legal, such as trust or estate planning, advice, or tax advice. Any such information is provided for illustrative purposes only and must not be relied upon without the benefit of the advice of your lawyer and/or tax professional. Lido specifically disclaims any liability from any reliance on such information. Lido is not a legal service provider or tax professional and does not offer legal or tax advice. Should you desire to obtain tax or legal services or advice, you must enter into your own, independent engagement agreement with a licensed attorney or tax professional.
Lido specifically disclaims any and all liability arising from the information or illustrations presented in these materials and is not responsible for the consequences of any decisions or actions taken as a result.
Lido Advisors, LLC is an SEC-registered investment adviser. Please note that SEC registration does not denote any particular competence or ability and no inference to the contrary should be made. For complete information on the services we provide and our fees, please review our Form ADV at adviserinfo.sec.gov, call 800-301-LIDO, or mail us at 1875 Century Park East Suite 950, Los Angeles, CA 90067.
The information contained herein reflects Lido’s views as of the date of this newsletter. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. Lido has obtained the information provided herein from various third-party sources believed to be reliable but such information is not guaranteed. Any forward-looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. Lido is not responsible for the consequences of any decisions or actions taken as a result of information provided in this newsletter and does not warrant or guarantee the accuracy or completeness of this information.
Past performance is not indicative of future performance. The information in this report is for informational purposes only and should not be relied upon as the basis of an investment or liquidation decision. Nothing in this report shall be construed to be a solicitation to buy or offer to sell any security, product or service to any non-U.S. investor, nor shall any such security, product or service be solicited, offered or sold in any jurisdiction where such activity would be contrary to the securities laws or other local laws and regulations or would subject Lido to any registration requirement within such jurisdiction. All content herein has been obtained from sources deemed to be reliable, but is subject to unintentional errors, omissions and changes without notice, and is not warranted as to its accuracy or completeness. You should not rely on the information contained herein, and should rely solely on, and carefully read, the appropriate offering and related subscription materials relating to any specific investment product before making any investment decision.
Not all investments are suitable for all clients. It should not be assumed that any security listed or any recommendations made in the future will be profitable or without loss, including risk of loss of principal, or will equal any prior performance. All investments involve the risk of potential investment losses including the potential risk of loss of principal as well as the potential for investment gain. Further, the prior performance figures indicated herein represent portfolio performance for only a short time period and may not be indicative of the returns or volatility each portfolio will generate over a long time period. The performance of the portfolios should also be viewed in the context of the broad market and general economic conditions prevailing during the periods covered by the performance information. Any references to future returns/risk are not promises of the actual return the client portfolio may achieve. Before investing, investors should seek financial advice regarding the appropriateness of investing in any securities of investment strategies discussed. Not all investments are suitable for all investors.
The information herein is not legal, such as trust or estate planning, advice, or tax advice. Any such information is provided for illustrative purposes only and must not be relied upon without the benefit of the advice of your lawyer and/or tax professional. Lido specifically disclaims any liability from any reliance on such information. Lido is not a legal service provider or tax professional and does not offer legal or tax advice. Should you desire to obtain tax or legal services or advice, you must enter into your own, independent engagement agreement with a licensed attorney or tax professional.
Lido specifically disclaims any and all liability arising from the information or illustrations presented in these materials and is not responsible for the consequences of any decisions or actions taken as a result.
Last week the AI trade showed some cracks as there was some rotation underneath. The Nasdaq fell 4.6% and the S&P 500 declined nearly 2%, while the Equal Weight S&P 500 (RSP) finished the week higher, suggesting investors were taking profits in AI-related names and rotating into other areas of the market. The concerns came from two fronts. First, higher technology costs began to show up in consumer products. Apple fell roughly 6% after announcing significant price increases across its product lineup, while Microsoft also raised Xbox prices, with both companies pointing to higher chip and component costs tied to AI. Second, OpenAI is reportedly considering delaying its IPO until next year due to the weak post-IPO performance of SpaceX and the recent volatility across AI-related stocks, adding to concerns about how long the current pace of AI infrastructure spending can be sustained.
