Good morning,

Yesterday as President Trump was preparing to leave for his trip to China there was a bout of profit taking in US markets. However, that selling pressure abated around midday with major indices rallying into the close. The S&P 500 closed down ~0.2% nearly a percent off the lows. Semis/memory which have been on a parabolic rise fell 3% while other AI component/infrastructure stocks also pulled back. Small and midcap stocks underperformed with the Russell falling 1% as the more speculative/thematic stocks got hit hard including quantum, space, nuclear, rare earths, and crypto. Defensive areas of the market like staples and healthcare moved higher. Oil prices were on the move higher again and yields were testing recent highs following a CPI report which came in a touch hotter than consensus.

It has been a somewhat quiet evening. The big story overnight was Nvidia (+2%) CEO Jensen Huang hopping on Air Force One in Alaska, in a last-minute twist. Memory stocks are also bouncing amidst threats of a strike at Samsung. Anthropic is reportedly in talks to raise $30B at a $900B valuation. S&P futures were trading modestly higher as AF1 landed in China, but have given up those gains after this morning’s PPI report came in very hot. Headline PPI was up 1.4%/6% m.m/y.y well ahead of the estimate of 0.5%/4.8%, the largest increase since April of 2022. Final demand services accounted for much of the gains as margins were up 2.7%. Treasury yields have moved a touch higher with the 2yr hovering ~4% and the 10yr ~4.5%. Markets have completely priced out the prospect of rate cuts this year. The odds of a hike by the end of the year have been creeping up now approaching 40%. S&P futures have turned a touch lower.