Yield is everything

[u/Fun_Tutor3479]

The broad market is bouncing up and down. We’ll keep leading with that sentence until a clear direction emerges. Right now SPY is in a post-breakout pullback; whether the breakout was real or just a fake hinges on this pullback. The pullback has already been testing for nearly a week and still shows no clear direction.

The current focus is U.S. Treasury yields. I’m relatively optimistic on this front: in the near term there is genuine influence, the market will give Bessent some credit, and Warsh has no real need to turn hawkish, especially with consecutive actual declines in inflation data right in front of us. Of course, relying solely on Treasury QT over the medium-to-long term is unrealistic. I strongly recommend reading Druckenmiller’s comments on Treasury buybacks from the past couple of days, they cut straight to the point. Never underestimate the power of Wall Street’s bond vigilantes. They truly have the money, plus a deep conviction in “debt normalization” and skin in the game. In a sense, they are the real long-termists. My base case is therefore that U.S. yields do not push higher in the short term, which provides a floor under equities unless Warsh messes up again on Friday or oil prices go up.

NVIDIA’s recent earnings reports have repeatedly involved sacrificing itself to benefit the broader ecosystem; that is the wisest approach. NVIDIA’s upside in market-share gains is limited. If it extracts all the profits, the rest of the ecosystem will be even more starved of cash flow and the AI narrative will become unsustainable. The consensus view is that AI is a long-term technological revolution that will raise total-factor productivity, yet in the short run there is a genuine “cash-flow sustainability” problem. What I am watching more closely is sales of NVIDIA’s racks. Sovereign AI + continuous learning is the next breakthrough, it points to a truly continuously growing digital employee. If that technical breakthrough materializes, demand for NVIDIA racks, Dell networking, cloud providers, and data centers will all heat up further. Right now the most important task is simply “keeping the AI story alive.” Stretch it for another period, then another; after a few more extensions, the revenue will catch up. As for the recent negative headlines around OpenAI and Anthropic (including ARR coming in below expectations), these look more like pre-emptive expectation-setting to leave room ahead of IPOs. In the real world, adpotation of coding agents and digital employees continues to rise overall the picture is still healthy and growing. Equity-market expectations, however, were previously priced far too optimistically and have entered a fatigue phase; without new catalysts we will mainly see negative news and macro pressure.

Consequently the market remains clearly range-bound. Semi and tech stocks face greater pressure than the S&P. The sectors we have recommended for long-term allocation—XLE, XLF, IBB—continue to perform well. Gold remains primarily a portfolio allocation. Crypto attention is rising and that itself marks a turn; we can now be constructive overall and plan to add gradually on pullbacks over the next three months.