The information and opinions included in this document are for background purposes only, are not intended to be full or complete, and should not be viewed as an indication of future results. The information sources used in this letter are WSJ.com, Jeremy Siegel, Ph.D. (Jeremysiegel.com), Goldman Sachs, J.P. Morgan, Empirical Research Partners, Value Line, BlackRock, Ned Davis Research, First Trust, Citi research, and Nuveen.
IMPORTANT DISCLOSURE
Past performance may not be indicative of future results.
Different types of investments and wealth management strategies involve varying degrees of risk, and there can be no assurance that their future performance will be profitable, equal to any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.
The statements made in this newsletter are, to the best of our ability and knowledge, accurate as of the date they were originally made. But due to various factors, including changing market conditions and/or applicable laws, the content may in the future no longer be reflective of current opinions or positions.
Any forward-looking statements, information, and opinions including descriptions of anticipated market changes and expectations of future activity contained in this newsletter are based upon reasonable estimates and assumptions. However, they are inherently uncertain, and actual events or results may differ materially from those reflected in the newsletter.
Nothing in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice. Please remember to contact Signet Financial Management, LLC, if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and/or services. No portion of the newsletter content should be construed as legal, tax, or accounting advice.
A copy of Signet Financial Management, LLC’s current written disclosure statements discussing our advisory services, fees, investment advisory personnel, and operations are available upon request.
Investment advisory and financial planning services offered through Summit Financial, LLC., a SEC-Registered Investment Adviser, doing business as Signet Financial Management. The views and opinions expressed in this newsletter are solely those of the author and should not be attributed to Summit Financial, LLC., a SEC Registered Investment Adviser.
Exceptional tech margins support valuations but leave thin room for error
US economics, inflation, jobs and the Fed
The Middle East tensions again pushed the price of oil higher, as we are near the peak of summer driving season. Higher energy prices could force families to scale back their vacation plans, as well as cut back on discretionary spending. The University of Michigan’s preliminary May Consumer Sentiment reading fell to 48.2, a record low for the survey according to Value Line. Likewise, despite a very profitable first quarter for Corporate America, a number of companies began to note the negative impact of increased energy bills and higher expenses stemming from tariffs.
Inflation is still the Federal Reserve’s biggest concern, as Kevin Warsh begins his four-year term as central bank leader. Chairman Warsh, despite calls from the Trump Administration, will likely have little wiggle room to reduce interest rates. Indeed, after the bigger-than-expected price increases in the April Consumer and Producer Price Indexes, the possibility of an interest-rate hike late this year or next increased in the Fed futures market.
U.S. Treasury yields are on the upswing. When yields rise, it’s typically a sign of positive investor sentiment for a strong economy. However, the latest surge also reflects inflation worries. The yield on the 10-year Treasury note, which is used as a barometer for setting long-term interest rates, especially mortgage rates, recently surged to its highest level in more than a year. Value Line notes that this bears watching, as the higher borrowing rates will likely continue to have an adverse effect on housing, which accounts for more than 15% of the nation’s gross domestic product (GDP).
Global economy
The JP Morgan’s (JPM) latest forecast incorporates a tension between a large energy shock and strong cyclical lift as non-tech business spending and hiring rebound from depressed levels, amidst an ongoing tech boom. This cyclical impulse is evident in this year’s activity readings. Global GDP grew at a strong 2.8% annual rate (ar) pace in 1Q26, led by a 6.6% ar surge in tech centric Asia. Global factory output is expanding at a 3-4% ar pace with sectoral PMI readings and trade data pointing to a non-tech lift. A modest pickup in job growth is also underway, which JPM anticipates returning US and global employment growth to near 1% ar this year.
The cyclical upswing has proven stronger than expected, but the headwinds from the energy shock are also building. While JPM’s baseline anticipates the Strait of Hormuz reopening by mid-year, a large drawdown in energy inventories and lingering geopolitical risk should keep Brent crude prices close to $100/bbl. Global consumer prices are tracking a 6% ar gain this quarter and look set to reduce global real household purchasing power by more than 1%-pt this year. As the upswing meets this building drag, JPM sees global growth bending towards a 2% ar pace, an outcome that would represent the slowest pace of expansion since 1H22.
Recent readings provide the first clear indication that this downshift is underway. The developed markets (DM) May flash PMI dropped to its lowest level in a year while China April activity readings disappointed, with domestic demand weakness intensifying and tech production gains more than offset by sharp falls in energy intensive sectors. These outcomes are consistent with JPM’s views – the PMI at 50.3 aligns with JPM’s current quarter growth DM forecast, while 2026 China was anticipated to be frontloaded and with a downshift to a weak 3% ar pace around midyear. Nonetheless, the wide divergence evident in regional and sectoral performance raises important questions around growth momentum.
A cumulative 3.1% slump in the DM services PMI output since January contrasts with a 1.2% rise in manufacturing. While momentum swings in manufacturing often represent the forward edge of the business cycle, the recent sharp slide in services could point to a broad turn towards business and household caution. Nevertheless, JPM still forecasts the global economy to expand at a 2.5% rate this year.
Stock market
In one of his latest notes Professor Siegel remarked:
“Investors must grapple with the tension between short-term geopolitical turbulence and the underlying strength of the U.S. economy. The basic positives remain in place: solid growth, resilient labor markets and an economy that is far less vulnerable to oil shocks than it was in the 1970s. But parts of the market priced in too much hope around diplomacy. It does not stay sunny every day. We have had a great deal of good news priced into equities, and this week reminded investors that geopolitical overhangs matter. I remain constructive on the U.S. economy and on equities over the longer run, but the near-term market is likely to face more pressure until oil reverses, or at least stabilizes, yields stop rising and investors get clarity on whether the Fed is ready to abandon its easing bias.”
Empirical Research Partners in their latest Strategy Report resonate with Professor Siegel. Here are some relevant bullet points from the paper:
In the meantime, investors can’t wait for SpaceX and Open AI’s IPOs to take place. While highly anticipated, these IPOs should not significantly affect the stock market according to the latest Market Monitor publication from Goldman Sachs:
The information and opinions included in this document are for background purposes only, are not intended to be full or complete, and should not be viewed as an indication of future results. The information sources used in this letter are WSJ.com, Jeremy Siegel, Ph.D. (Jeremysiegel.com), Goldman Sachs, J.P. Morgan, Empirical Research Partners, Value Line, BlackRock, Ned Davis Research, First Trust, Citi research, and Nuveen.
IMPORTANT DISCLOSURE
Past performance may not be indicative of future results.
Different types of investments and wealth management strategies involve varying degrees of risk, and there can be no assurance that their future performance will be profitable, equal to any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.
The statements made in this newsletter are, to the best of our ability and knowledge, accurate as of the date they were originally made. But due to various factors, including changing market conditions and/or applicable laws, the content may in the future no longer be reflective of current opinions or positions.
Any forward-looking statements, information, and opinions including descriptions of anticipated market changes and expectations of future activity contained in this newsletter are based upon reasonable estimates and assumptions. However, they are inherently uncertain, and actual events or results may differ materially from those reflected in the newsletter.
Nothing in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice. Please remember to contact Signet Financial Management, LLC, if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and/or services. No portion of the newsletter content should be construed as legal, tax, or accounting advice.
A copy of Signet Financial Management, LLC’s current written disclosure statements discussing our advisory services, fees, investment advisory personnel, and operations are available upon request.
Investment advisory and financial planning services offered through Summit Financial, LLC., a SEC-Registered Investment Adviser, doing business as Signet Financial Management. The views and opinions expressed in this newsletter are solely those of the author and should not be attributed to Summit Financial, LLC., a SEC Registered Investment Adviser.
LET'S GET ACQUAINTED