While in New York morning trade, we are digesting the latest batch of US economic data and we saw that the Fed's preferred inflation gauge continues to climb well in his first policy meeting new thatcher Kevin was delivering a massive shift not just in tone but also in substance and the debasement trade is unraveling as more reaffirms price stability as his top priority we have been.
The US dollar higher and this did weigh on Bitcoin as well as gold prices.
As for attacks since the debut of chat GPT brought stocks have pocketed a staggering over 450% again, leaving the rest of the market in the dust and speculation is ripping through the actual economy.
Producer prices for circuit boards are running at a hot over 200% annualized pace.
Well joining me to weigh in on what we're seeing.
Ahead of the market open is Sonia Varghese, chief macro strategist for Carson Group.
So great to have you here at the exchange.
Welcome.
No, thank you for having me.
It's nice to be here live.
Yes, and first and foremost in New York morning trade, we are looking at chip makers soaring in particular micron.
So given what we saw at the beginning of this week over concerns about valuation and the AI trade.
What do you make of the.
We're seeing ahead of the open.
It's no surprise we got a little bit of a pullback in technology stocks at the start of the week, and every time we get that, people say, oh, maybe this is the beginning of a big rotation, and then earnings come through and guess what, all these companies that are purchasing chips from your microns of the world are buying even more.
Demand is far outstripping supply, which is why Micron's numbers are as high as they are.
Just think about this, Remy.
Micron's last quarter income was higher than Nvidia's income a year ago.
That is incredible.
Yeah, that's a staggering.
But on the other side of it, as you mentioned in the introduction.
PC inflation just came out.
That's the Fed's preferred gauge that's running hot.
It's not just about energy.
Oil prices are coming down.
Oil prices are below $70 a barrel right now.
So you think, oh wait a minute, inflation is OK, but no, it's not quite solved.
Because you also have AI-related bottlenecks, so what you see in Macron's earnings is reflected in BCE inflation, core inflation.
Yes, absolutely.
So you hit on a lot of key points there, and I do want to get your take on the Federal Reserve as we move forward because earlier this morning I was looking at The 52 week range for Macron as well as the year to date one year gains, and those gains are staggering.
But of course when we're trying to make heads or tails of what's happening with the AI trade, give us your take on what's happening below the surface and how this could, as you mentioned, affect the Fed moving forward.
Look, I think it impacts the Fed by inflation, right?
And given what we saw with the Fed, the first meeting in that warschwitz Airport.
I think the committee is divided, right?
I do think they have an inflation problem as reflected in core inflation, and it's not just core goods, which is where your AI related bottlenecks show up.
It's in core services too.
And that gets to the other thing you mentioned in the introduction, which is unemployment claims just went down.
The labor market is pretty strong.
If anything, I think that puts more inflationary pressures as we go into the back half of the year, making the Fed's job even harder.
But the committee split down the middle.
Walsh sounds hawkish.
He said they care about price stability, but they didn't quite tell us what are they going to do about it.
I think push comes to shove.
I think the committee falls on the side of letting things run hot, and you know we just got consumption numbers.
Consumption, nominal consumption is running about 7-8% annualized over the last 3 months.
That's incredible.
Yes, so a lot of data to parse through this morning, as you mentioned.
We got the jobless claims figures as well as the personal income and spending as well as PCEs.
So while we're digesting this, we're still expected to see elevated prices when it comes to the US economy.
So for the American consumer who is watching right now and is wondering when will we see some relief, what would you say to them?
For now I think the immediate relief will be in gas prices.
At the same time, you know, the AI related infrastructure buildout will probably result in electricity prices continuing to stay on the higher side and go up higher than they were probably used to be.
Already seen that I think electricity prices are up 6% year over year.
Before, you know, 5 years ago, 6 years ago, that wasn't the case.
But hopefully as the year progresses, as the Iran crisis becomes less of a problem, hopefully food prices don't see as much inflation as well.
And of course Sony, you're here at the New York Stock Exchange and we're counting down to the market open here.
So I do want to get your take on levels when it comes to the major US stock averages.
So how are you looking at the outlook as we head into the second half of 2026?
I must say I'm here in New York.
I'm usually in Chicago, so the time difference, usually the market opens at 8:30 for me. throwing me off a little bit, but yes, look, we believe we are in an inflationary growth period.
Inflationary growth is not great for bonds, but it's good for stocks, as we can see in Macron's earnings, and I think continuing into earnings season, which will start in about 2 weeks, I think we see that as earnings seasons come through, that inflationary growth aspect will push profits higher.
That's good for the stock market.
And so we are remaining overweight equities and a slight tilt to the AI wave, but we are also diversifying on the other side.
And while we're talking about markets, I do want to get your take on what we're seeing in terms of sector when it comes to dispersion as well as rotation.
So where are we at as we get ready to wrap up the first half?
It's one thing to see small cap stocks rise.
Is 50%, 100% over a short period of time.
It's a whole other thing to see that in the largest stocks in the index, including the microns of the world.
Microns just under $1 trillion market gap, and today it's up 15 to 18%.
Who knows where it's going to open, right?
So there's a massive wave happening, but we do think at the same time, so that's where the dispersion comes in, right.
But that tells you the wave continues, the AI trade continues.
If we do start to see rotation, sustained rotation for about 56 months, that's not bad, and I think we're preparing our portfolios for that.
But it would also tell you that the AI story is running up against a wall.
We don't think we're there yet.
This could run for another 6 months, 1 year, maybe even 2 years.
Yes, and we don't have a crystal ball, but there are certain factors we continue to monitor, and that includes value versus growth as well as IPOs because we have to keep in mind that we did see SpaceX, the IPO, the most historic IPO.
Yet to date and at the same time we got news of SK Heinix listing their ADRs here in the US as well, but there are mega IPOs expected coming down the pike, including OpenAI as well as Anthropic.
So where do you stand when it comes to some of these names?
That's another big shift that we're seeing.
The overall picture is that more equity supply is coming to the market.
SpaceX obviously the story, but anthropic and open air, as you mentioned.
And that's usually what you see when you know there's a big wave, dare I say the bubble word, I mean, but because I'm saying the bubble word doesn't mean I think it's going to burst anytime soon.
That could continue.
I don't know exactly where we are in this stage of things.
I do know that we are part of this big wave right now, and for now I think we have to ride it, but you also have to sort of try to avoid a wipeout, and that's why diversification is important.
But you know, I think so far so good.
I think the stock market looks good for the rest of the year.
And finally, before I let you go, I do want to ask you about diversification and the value play.
So is, so this is the thing with AI.
AI is sort of making its way.
You would think it's a growth story like technology stocks, but it's more than that.
It's making its way into industrials.
It's making its way into utilities via power.
It's making its way into real estate via data center construction.
So you have to be careful of how you diversify.
You could go into industrial and say, Oh, that's a traditional diversifier to technology, but maybe not quite this time.
Right, maybe it's healthcare and financials, or even we like low volatility stocks which are more defensive in nature.
So that's how we're diversifying our portfolio.
But like I said, we're still overweight, the AI trade a little bit, and even value, you have to be careful just to give you an example of one ETF, the VLUE Value Factor ETF.
25% of that is micron.
So that ETF today is going to have a big gain, right, but that's an AI trade.
It's not quite your traditional value story.
Well, a lot of moving parts here.
So thank you so much for joining me today and thank you so much for breaking all of it down for us.
Thanks so much for having me.
Thank you so much, Sonu.
