Two narratives have shaped how investors think about Bitcoin’s place in the macro landscape. Both feel intuitive. Both get repeated as if they were settled. Neither has been seriously tested in the open.

Legend One: “Bitcoin is digital gold.”

The claim says BTC and Gold are substitutes — capital rotates between them based on relative attractiveness, both serve as inflation hedges, both protect against currency debasement. If this were true, the spread between the two would be statistically mean-reverting. When Gold rallies, BTC should see outflows. When BTC rallies, Gold should consolidate. The substitution dynamic should produce a stationary relationship.

Legend Two: “Bitcoin leads the Nasdaq.”

The claim says BTC moves first and tech equities follow — crypto-native sentiment, established over the 24/7 weekend tape, feeds into institutional risk-on positioning when traditional markets reopen. If this were true, we should see a measurable lead-lag where BTC moves precede NDX moves by a stable window of trading days.

(2) The verdict

Both legends are partially true. Both are partially false. The honest answer requires statistical testing — and the test reveals something more interesting than either yes or no.

The methodology is rolling-window cointegration analysis. For each trailing 180-trading-day period from 2018 to today, we test whether the spread between the two assets is statistically stationary. The output is not a single answer. It is a time series of regime classifications.

What the data shows: both relationships oscillate. BTC and Gold are coupled in some periods and decoupled in others. BTC leads NDX in some windows and trades on its own crypto-native dynamics in other windows.

The coupling is real when it operates. The legend fails when applied as a constant.

This is the methodologically honest framing: cointegration is a regime, not a state. Markets transition between phases where statistical relationships hold and phases where they break. The value is in detecting which mode we are in, not in declaring permanent truths.

A 2x2 macro quadrant

Combined, the two regimes produce a 2x2 macro-quadrant matrix with four distinct modes — from “Bull Risk-On” (both relationships operating) to “Structural Stress” (both broken). Each quadrant carries a specific macro interpretation, and the current quadrant is itself a real-time read on which analytical frameworks apply right now and which do not.

The full Lab Read drops this weekend on closelook.net — methodology, worked examples covering 2018-2026, the full 2x2 framework, and an honest limitations section. We will cover the live reading in this week’s Closelook Newsletter on Substack, with the actionable cross-asset implications.

Read the methodology (on the page sometime today): closelook.net/reports/cointegration-regime/

#Bitcoin #MacroAnalysis #Quant #StatArb #Cointegration

Share Closelooknet

The official explanation — delayed Middle East deals, Armis integration, cautious guidance — is the management narrative. The real reason is more fundamental: the question of genuine investment.

ServiceNow on April 22: Revenue beat ($3.77B vs. $3.75B consensus), cRPO +25% YoY, Now Assist ACV target raised from $1.0B to $1.5B. Result: −17.75% on the trading day, from $103.07 to $84.79. Market cap from $107B to $87.8B. Roughly $20 billion evaporated in a single session — on a beat.

IBM on the same day: Revenue beat, Adj. EPS beat, software guide raised to >10% CC. Result: −6%.

Two beat-and-lose prints on the same day. That is not a coincidence, and it is not the Middle East. The market is recalculating a structural equation:

Legacy deceleration + insufficient AI uplift + hybrid-instead-of-outcome pricing = premium multiple no longer defensible.

This equation deserves the real work, term by term.

II. The bridge math that does not add up

Layer 1 — Legacy Decay is real

• Subscription growth 19% CC in Q1, down from historical 20%+

• cRPO Q2 guide of 19.5% CC — 150bp sequential deceleration versus 21% in Q1

• Renewal rate from 98% to 97%

• 150bp headwind from mix shift toward hosted hyperscaler offerings (already quantified in Q4 2025)

• ServiceNow’s own case studies tell the story: Robinhood deflects 70% of employee requests before any human intervention. A British engineering company with 45k employees reports 38,000 tickets deflected, resolution time down by two full days.

In the ServiceNow pricing model, every deflected ticket means one fewer fulfiller seat at the next renewal. The company celebrates the deflection numbers on the earnings call — and each of those numbers is simultaneously the evidence of seat erosion the bears are pricing in.

Layer 2 — AI uplift is real, but too small

• Now Assist ACV target for 2026 raised from $1.0B to $1.5B

• $1M+ Now Assist customers +130% YoY

• Net new logo ACV +50% YoY, including the largest single deal in company history at $15M

• AI Control Tower: average deal sizes more than doubled QoQ

• Raptor DB Pro: deal volume +80% YoY, five deals over $1M

But: $1.5B AI ACV on $15.7B FY subscription = 9.5% AI mix. Even if Now Assist delivers 50% ahead of plan (to ~$2.25B), that is 14% mix. The core accounts for 85–90% of revenue and is decelerating by 100–150bp per year.

The bridge math: +$500M AI uplift against ~$150–200M core deceleration. Net positive. But not positive enough to justify a forward P/E of 50x+.

Layer 3 — The market wants an outcome, ServiceNow delivers a hybrid

• Salesforce Agentforce: $2 per conversation — pure outcome pricing

• Workday: moving toward share-of-value capture on agent output

• ServiceNow: Foundation/Advanced/Prime with token pools — hybrid with consumption overlay

• CPO Amit Zavery expressed explicit skepticism about pure outcome pricing on the Q1 call

Why this matters for valuation: Pure outcome scales non-linearly with AI proliferation in the customer context. If an agent delivers $10M in business value and the vendor captures 5%, that is $500k in ARR from a workflow that previously generated two seats at $20k each — a 12x increase. Hybrid consumption scales linearly with token consumption: 1–2x per workflow, not 10x. The valuation multiple implied by these two models is dramatically different.

The synthesis: The market is not pricing that ServiceNow is broken. The market is pricing the equation as not matching a premium multiple. Slowly eroding core + AI uplift that does not fully compensate + a monetization model that caps the valuation upshot.

III. Where the multiple compression stands today

This is where it gets interesting. The compression has already played out in large part:

• Forward P/E: 20.37x — below the S&P 500 (~21x)

• EV/Revenue 2026E: 5.3x — below the SaaS median (6.1x)

• Drawdown from peak: −59.9% (from $211.48 to $84.79)

• Peak forward P/E ~80x → today 20.4x = −75% multiple compression

• Peak EV/Revenue ~13x → today 5.3x = −60% multiple compression

ServiceNow has already absorbed the full magnitude of the 2022–2023 SaaS bust (which compressed medians by around 60%). The category leader's premium over the sector median is fully eliminated. The market is pricing ServiceNow not as a premium name but as an average SaaS, for the first time in the company’s post-IPO history.

Analyst target cuts have happened. Stifel $135, Goldman $163, Jefferies $135, Piper Sandler $140, Raymond James $130, Evercore holding $175. Mean target post-cut at ~$148. At $85 current, that is +74% to the mean target. Even the harshest target (Raymond James $130) implies +53% upside.

IV. The only test that matters now

Now the loop closes. The fundamental equation explains the selloff; the multiple compression is 85–90% done. What remains open: does the market accept the net-positive bridge math — or does it continue pricing in pure outcome disruption?

This is a binary test with two technical anchors:

Scenario A — the hold: NOW $81.24 / IGV $74.62 hold on a daily close basis. Implication: the market accepts that core deceleration is net compensated by AI uplift. Capitulation is done, the bottom is in. The entry level for AW25 Agentic Winners is established. The risk-reward structure becomes asymmetric to the upside: 10–15% downside vs. 50–75% upside to the analyst mean. A 1:5 ratio.

Scenario B — the breakdown: New lows. The market concludes that hybrid pricing is structurally inferior and that AI uplift is not enough. Pain continues. The cycle runs to the absolute floor at 3–4x EV/Revenue, which for ServiceNow would be ~$60–65. Another 25–30% leg down.

This is not a technical chart level. This is the price point at which the fundamental thesis crosses with the disruption thesis.

Share Closelooknet

V. The three layers of relative strength observation

The next 5–10 trading days contain more information than an entire quarter in normal market conditions. Three layers matter:

Layer 1 — Who holds in the decline? Future leaders lose less than their peer group. The signal is the differential, not the absolute performance.

Layer 2 — Who turns first? The first two or three names to recoup their losses within 48–72 hours are the leaders of the next cycle. Classic AW25 upgrade candidates.

Layer 3 — What does not repeat? The catalyst calendar is dense: Microsoft on April 29, ServiceNow Analyst Day on May 4, Knowledge 2026 from May 5–7, Workday on May 27, Salesforce on May 28. If the weakest names stop participating in the next negative impulse, the bottom is in.

VI. Generation Rotation: the software layer as next phase

In the Closelook Rotation Framework, each Nvidia generation cycles through Dawn → Early Ramp → Mid-Ramp → Sunset. April 2026 sits in Rubin Early Ramp — Memory +61% YTD, Packaging +43%. The infrastructure layer has been discovered and bought.

The next rotation is the orchestration layer on top of the infrastructure layer: enterprise software that operationally integrates AI agents. If $81.24 / $74.62 hold, this is the Rubin Dawn phase for the software layer — not hardware, but workflow. And it starts from valuations below the broader market, with bridge math that does not explode but does carry.

VII. What invalidates the thesis

No position without a defined exit. The bottom thesis is dead if:

• NOW < $81.24 or IGV < $74.62 on a daily close basis — technical bottom break

• Peer cRPO deceleration at WDAY (May 27) or CRM (May 28) below 15% CC — a sector-wide fundamental problem, not idiosyncratic

• Now Assist ACV walk-back at the ServiceNow Analyst Day on May 4 — the AI bridge math collapses in that moment

• Microsoft Azure AI revenue growth on April 29 below 30% — enterprise AI adoption slower overall than modeled

Each of these triggers forces an exit. All four together are unlikely enough that the opposite thesis holds the higher base rate — conditional on $81 / $74.62 holding.

VIII. Closelook Watch List — AW25 Nexus / Rubin Dawn

Primary orchestration layer (AW25 Core): NOW · PLTR · CRM · WDAY · MSFT · ORCL

Secondary (Platform / Security Nexus): PANW · CRWD · DDOG · SNOW

Rubin Dawn infrastructure flank (cross-read): MU · AVGO · TSM · ASML

What to watch: which names close on April 24 and 25 above their Wednesday lows? Which hold even on a further down day in the indices? The list still standing after these two sessions is the watch universe for the next AW25 recalibration.

IX. Closing

The asymmetry is the core of this setup. The multiple compression is quantifiably 85–90% complete. The fundamental equation — legacy decay against AI uplift — is uncomfortable but nets positive. Over the next five trading days, the market is not deciding the direction of individual stocks. It is about deciding whether hybrid consumption models survive or whether pure outcomes become the only accepted monetization path in the AI era.

If $81.24 / $74.62 hold, the bottom is in, and Agentic Winners have their entry level. If not, the cycle runs to the absolute floor at 3–4x EV/Revenue.

Yogi Berra coined the formulation in a different arena, but the logic is identical. It ain’t over till it’s over. For the SaaSpocalypse thesis, the same applies — in reverse. The bottom is not confirmed until the retest has held. And that retest is running now.

If you’ve been trading this bull market since the October 2022 low, you’ve seen this movie roughly twice a year. Same script, different macro villain, same ending. At some point, it stops being a coincidence and becomes a business model — for media, for strategists, for tech haters and value investors — anyone who needs something new to say every Monday morning.

Here’s the honest chronology.

Nine consolidations, nine rotation calls

February 2023 — SVB. Regional banking crisis, credit crunch fears. Tech sold off into the panic. Narrative: “Duration assets get hit first when liquidity breaks.” Resolution: Nvidia’s May guidance beat, triggering +53% in a day. Semis went vertical for the rest of the year.

August–October 2023 — The rate scare. 10-year yield ran from 3.8% to 5.0%. QQQ down 12%. Every strategist on television: “Higher for longer kills tech multiples, rotate into value.” Resolution: Powell pivot in December. NDX +25% in ten weeks.

April 2024 — Sticky CPI. Hot inflation print blew up rate-cut hopes. Nasdaq –7% inside a week. Narrative: “No landing, multiples have to compress.” Six weeks later: new all-time highs.

July–August 2024 — The Yen carry unwind. IWM +11% in a single week, Mag-7 –15%. Every macro desk called the regime change. “Breadth is broadening. The mega-cap era is over. Equal-weight finally wins.” Small caps rolled over within four weeks. Nasdaq made new highs through December.

September 2024 — AI capex bubble, wave one. Goldman’s “Too Much Spend, Too Little Benefit” paper went viral. Narrative: “Hyperscaler capex has no ROI, semis crack.” Hyperscalers raised capex guidance the next quarter. SMH made new highs.

January 2025 — DeepSeek. NVIDIA –17% in a single session on R1’s release — roughly 600 billion in market cap gone in an afternoon. “Compute thesis is dead. Efficiency kills infrastructure demand.” Jevons paradox played out in two weeks. Back to all-time highs by spring.

March–April 2025 — Liberation Day. Tariff shock, broad de-risking. “Supply chains unwind, semis are uninvestable.” Exemptions came. A pause came. Full recovery in weeks.

Summer 2025 — AI capex bubble, wave two. Stronger hyperscaler reports, and yet: “Circular financing, OpenAI deals aren’t real, this whole thing is a Ponzi.” Guidance kept climbing.

Q1 2026 — the current one. Energy leads. Staples hold. Russell 2000 up 9.5% in three weeks. Every strategist note: “The equal-weight trade was right all along.” Six weeks later, the CNBC obituary you just read.

Nine windows. Nine rotation narratives. Same ending every time.

Why the script never works

There’s a specific reason the “rotation out of tech” call keeps failing, and once you see it, you can’t unsee it:

“Tech” isn’t a sector. It’s the label markets attach to whichever segment of the economy is compounding innovation fastest at any given moment.

The theme rotates constantly — mainframes, PCs, enterprise software, internet, mobile, cloud, social, SaaS, semis, AI infrastructure, memory, advanced packaging. Within this bull market alone, the baton has changed hands four or five times. Software led into 2023. Semis took over mid-2023. Hyperscalers dominated 2024. In 2025, the weight moved down the stack to compute infrastructure. Right now in 2026, it’s rotating again — memory +61% YTD, advanced packaging +43%, Rubin in early ramp.

From 30,000 feet, this looks like “tech is leading.” From closer range, it’s a relentless reshuffle within the category. What strategists consistently misread as “rotation out of tech” is almost always rotation within Tech — from last cycle’s winners into next cycle’s. The exit door they keep pointing at isn’t actually a door. It’s a mirror.

The two conditions under which the call is actually right

I’m not saying the rotation-out-of-tech thesis is always wrong. I’m saying it’s right under exactly two conditions, and neither is in play right now.

Condition one: a hard rate shock. Duration assets compress first and most violently when the discount rate moves abruptly. 2022 was the textbook case — Fed Funds from 0% to 4.5% in 12 months, NDX down 33% — the rotation call was correct for roughly 13 months. Since the October 2022 low, no macro print has been large enough to repeat that. The 2023 yield spike came closest and still resolved in Tech’s favor within a quarter.

Condition two: the innovation layer is private. This one gets underappreciated, and for long-term allocators, it matters more than the first. Between roughly 2004 and 2012, public tech indices genuinely underperformed in stretches — because the compounding was happening in Facebook, Twitter, Uber, Airbnb, Palantir, SpaceX, all private. The public-tech investor of that era was looking at a shell of the real opportunity set.

The same structural risk exists today, arguably larger. OpenAI, Anthropic, xAI, SpaceX, Stripe, Databricks — collectively among the highest-growth entities in the global economy, none listed. If your exposure is purely public-market Tech, a meaningful slice of the actual innovation is not in your portfolio, full stop. That’s not “tech is weak.” That’s “the object of desire isn’t on the ticker tape yet.” The correct response is access, not rotation.

Everything between those two conditions — the stuff that fills 95% of the rotation commentary — is noise dressed up as a regime change.

The 2026 version is no exception

Q1 handed the rotation camp a convincing story. Small caps ripped. Energy led through mid-February. Materials outperformed. Strategists who’d been calling for equal-weight for three years finally got their victory lap. Then six weeks after the March 30 low, information technology was up 20% and communication services up 16.5%, versus 11.4% for the S&P. Energy, the Q1 hero, is now down 10.3%. Staples flat. Materials trailing.

The rotation was real. It just went the direction rotations in this market almost always go — from the previous cohort of tech winners into the next. From last generation’s Hopper-era exposure into the Rubin early-ramp names. From generalist semiconductor exposure into the specific links of the stack where the capex is landing this quarter.

Next time the headline comes back around — and it will, probably by late August and last through September/October (seasonal pattern) — save yourself the anxiety and pull up this list.

Nine in a row. You don’t need a tenth data point to see a pattern.

Share Closelooknet

That spread is the story. Not that semis are running. Semis always run in AI cycles. The story is that the specific supply-chain layers we mapped in the Rubin index are running harder than any broad ETF captures. The Nasdaq dilutes the signal with software, consumer, and services exposure. The SMH averages across the entire chip complex. Rubin isolates the AI infrastructure supply chain and nothing else.

The sector breakdown YTD shows why

The top five Rubin sectors year-to-date: High-Speed Interconnects +124%, Memory (HBM & NAND) +107%, Advanced Materials +99%, Substrates & Interposers +94%, Testing & Metrology +78%. Those are the Early Ramp layers of the Rubin GPU cycle — the layers our Generation Rotation Framework predicted would lead first. They led.

The bottom three: Wafer Processing +3%, EDA & Chip IP +16%, Architects (Chip Design) +16%. That is the Sunset of the prior cycle — Hopper-era leaders absorbing capital rotation away from them. Also predicted by the framework.

This week the ranking reordered

Power Semiconductors +13.53% is the new #1 — up from rank #7 on the year-to-date view. EDA & Chip IP +10.71% is second, recovering sharply from its Sunset trough. Foundry & Integration +10.18% and Testing & Metrology +8.40% complete the top four. Gases, Chemicals & Consumables at −0.56% is the only negative sector on the week.

The Mid-Ramp layer is joining. Power delivery for GB200 and Rubin rack architectures is the structural catalyst: ON +44% on the month, STM +37%, MPWR +36%. The old leaders did not hand over — High-Speed Interconnects is still positive at +7.95% on the week, still up 124% YTD. Nothing rotated out. One more layer rotated in.

Share Closelooknet

Constituent zoom — High-Speed Interconnects, 10 names:

Three-month prints inside this sector alone: Applied Optoelectronics +341%, Lumentum +176%, Marvell +84%, Coherent +82%, Credo +63%. That is the dispersion behind a single sector number of +124% YTD. Every Rubin sector hides a similar distribution.

Constituent zoom — Memory, 5 names

Memory at +107% YTD also hides a split: SK hynix +56% on three months leads HBM, SanDisk +121% leads NAND for AI inference storage, Micron +24% lags on both. The sector index averages three different theses into one number.

Closing thought. When a custom index runs thirteen times the benchmark, the question is not whether it is right. The question is what it measures that the benchmark does not. Rubin measures the AI supply chain layer by layer. The Nasdaq measures averages. The spread is the framework working.

Full sector map and constituents: closelook.net/indices/rubin

This is not what flight-to-safety looks like. This is what the unwind of a crowded momentum trade looks like.

The historical reference makes the point harder. Across ten major conflicts over the past fifty years, gold has never performed this badly in the first four weeks of fighting as it has in 2026. If the parabolic leg into January were driven by sovereigns and family offices hedging a breakdown, this price action would be structurally impossible. Central banks do not sell into a war they are supposedly front-running.

The only reading that reconciles the tape: the late-2025 rally was momentum capital riding a trend, not capital positioning for tail risk. The stress test arrived. The bid wasn’t there.

The mirror trade

While gold has bled, Bitcoin has quietly reclaimed the high-$74,000s from its **5 February crash to $60,000**. Ether is back above $2,200. More interesting than price: Santiment reports BTC open interest **+59%** over seven weeks, ETH OI **+45%**. Open interest rebuilding *into* strength is the signature of a market that has finished being force-fed supply.

This is the same pool of risk-on capital we watched rotate **into** gold through Q4 2025 and **out of** crypto during the October–February drawdown. Same money, same momentum book, opposite direction.

*Two mean reversions, mirror-imaged. GLD (lower panel) broke above its upward regression channel into January — a statistical overextension — and is now unwinding back toward the midline. IBIT (upper panel) has spent the quarter pressed against the lower band of its downward channel and is now lifting toward the mean.*

The regression channels make the point quantitatively. Gold printed its January high **outside** its own 360-bar channel — a statistical overextension, not a haven bid. IBIT spent the same quarter pinned to the **lower** band of its channel, force-fed supply by the symmetric flow. Both instruments are now reverting toward their respective means. The tape is telling one story in two languages.

Three takeaways

**One — The gold unwind may not be finished.** If the flow that pushed gold from ~$3,200 to $5,594 was momentum rather than conviction, the symmetric retracement still has runway. We watch the $4,500 shelf closely; a clean break opens a gap back toward the $4,000 round number.

**Two — The Bitcoin liquidation phase may be.** BTC’s drawdown from the October ATH reached ~53% — painful, but well short of the 77% purges of prior cycles. That is the bear case. The bull case is structural: the people who had to sell, sold. Open interest rebuilding into higher highs is a late-stage bottoming signature, not a blow-off.

**Three — “Safe haven” gold needs new labels.** Gold has been trading as a risk asset with a geopolitical ticker in the background — the asset you bought because it was going up, the oldest reason in markets, dressed up in haven clothing. The Iran war stripped the costume.

Skin-in-the-game read

The 2026 Iran War has handed us something more valuable than a directional call: a behavioural X-ray of who actually owns what, and why. Gold’s failure and Bitcoin’s quiet bid are the same sentence, read in different languages. The positioning reveal is the trade.

Standard Valuation
→ November 2022
SaaS valued on RARR with 10–15 year DCF visibility. Rule-of-40 companies at 10–20x sales. NRR, churn, cohort economics — the model is well understood.

Phase 2 — Euphoria

AI Lifts All Boats
2023 – 2025
Every company with “AI” in the earnings call gets a multiple expansion. No differentiation between cosmetic AI and structural AI architecture.

Phase 3 — Fear

AI Kills All Software
2025 – Q2 2026
Pendulum swings: if agents do the work, why pay for the tool? Blanket multiple compression. Visibility collapses from 10 years to 3. Stocks drop 40% on perfectly good earnings.

Phase 4 — Structured

Decomposition
Q2 2026 →
The market differentiates. Each company becomes two businesses: a disrupted legacy stream and a growing agentic stream. Sum-of-parts replaces blanket valuation.

Between Phase 2 and Phase 3, revenue growth held, guidance held, interest rates held, but the duration of discounting collapsed. Investors stopped projecting RARR over 10 years because AI makes the business model unforecastable beyond 3 years.

In a standard DCF at 15% discount rate, eliminating cashflows after year 3 reduces fair value by 40–60%, even with identical near-term earnings.

The transition into Phase 4 is the trade. The market stops asking “does SaaS survive?” and starts asking “how much of this company’s revenue is legacy, and how much is agentic?” That question requires decomposition, and decomposition creates dispersion.

The Valuation Decomposition

In Phase 4, most enterprise software company becomes two businesses with fundamentally different valuation characteristics. The legacy stream — seat-based licences, workflow tools replicable by agents, point solutions without data gravity — gets a short-duration DCF: 2–5x sales, 3-year visibility, contracting multiples.

The agentic stream — agent operating layer, API infrastructure, data gravity moats, usage-based pricing — gets a long-duration DCF: 12–20x sales, 8–10 year visibility, expanding multiples. The blended multiple is a sum-of-parts, and it shifts every quarter as the revenue mix evolves.

The three-layer valuation model

Standard analysis covers numerator (earnings) and denominator (rates). The third layer — DCF visibility horizon — explains why stocks collapse on good numbers. The fourth question — how to price agentic revenue — is what Phase 4 adds.

Layer 1

Legacy stream: the duration collapse
Earnings are fine. Rates are fine. But if the market can no longer project RARR beyond 3 years fair value drops 40–60%.

Layer 2

Agentic stream: how to price the unknown
Agentic revenue is real and growing fast — but what business model will it follow? SaaS 3.0 is output-based, not seat-based. Does that give investors a 10-year runway or a 3-year runway? This uncertainty IS the valuation question of 2026.

Continued at https://lnkd.in/d7DjzPbU

Not training. Inference. Token generation. That’s agents consuming compute in production — millions of autonomous workflows executing in real-time.

This is the structural thesis behind the Closelook Lab tools we launched today:

𝟏. 𝐓𝐡𝐞 𝐝𝐞𝐦𝐚𝐧𝐝 𝐬𝐢𝐝𝐞 𝐢𝐬 𝐚𝐫𝐫𝐢𝐯𝐢𝐧𝐠. The Agentic Winners 25 tracks 25 software companies that agents cannot operate without — across 7 sectors from Toll Booth infrastructure (Cloudflare, Datadog, CrowdStrike) to Commerce orchestration (Palantir, Shopify). If inference demand surges, every one of these sectors collects more rent per API call, per workflow, per transaction.

𝟐. 𝐓𝐡𝐞 𝐦𝐚𝐫𝐤𝐞𝐭 𝐡𝐚𝐬𝐧’𝐭 𝐩𝐫𝐢𝐜𝐞𝐝 𝐢𝐭. Our Money Temperature dashboard reads 38 — cool regime. SPY and QQQ both at 36. Gold at 62, Dollar at 58. The classic defensive configuration. But if inference demand is truly inflecting, the rotation into agentic software names should show in sector temperatures before it shows in consensus.

𝟑. 𝐒𝐭𝐫𝐮𝐜𝐭𝐮𝐫𝐚𝐥 𝐫𝐞𝐥𝐚𝐭𝐢𝐨𝐧𝐬𝐡𝐢𝐩𝐬 𝐚𝐫𝐞 𝐛𝐫𝐞𝐚𝐤𝐢𝐧𝐠. All 6 cross-asset cointegration pairs are BREAKING simultaneously — cascade status CRITICAL. SPY/GLD, TLT/SPY, VEU/SPY — the assumptions behind 60/40 portfolios, equity-bond correlation, and US vs. non-US allocation have all dissolved in the current 60-day window. This doesn’t happen often. When it does, the old playbook doesn’t apply.

The Marvell deal adds a hardware lock-in dimension: custom XPUs that only work within NVIDIA’s NVLink ecosystem. Switching costs at the silicon level. This is the NVIDIA Revenue Multiplier thesis extending from training into inference.

MRVL +11% on the news. A Rubin Build-Out 100 constituent.

What we’re watching: does the AW25 basket temperature rise from 38 on the next update? If the inference inflection is real and being priced, S3 Toll Booth and S7 Commerce should heat up first.

Three new live dashboards — updated daily: → AW25 Dashboard: closelook.net/lab/agentic/ → Money Temperature: closelook.net/lab/temperature/ → Cointegration Monitor: closelook.net/lab/cointegration/

But the first viable agents won’t replace cheap repetitive tasks. They’ll replace expensive human judgment — $500/hour legal reviews, M&A due diligence, clinical workflows. Because only high-value tasks absorb messy inference costs today. The cheap stuff comes later. This creates a massive investable ecosystem.

We built the Rubin Build-Out 100 to track the supply side of AI — 18 sectors, 100 companies forming the physical infrastructure constraint that NVIDIA cannot route around. It has worked exceptionally well for investment purposes. Now the demand side is forming.

We’re building the Closelook Agentic Ecosystem Index to track the companies that turn tokens into economic output.

Share Closelooknet

The structure: 7 layers, 24 sectors, 130-150 companies with global exposure.

Layer 1 — Silicon & Architecture. GPU design, edge inference chips, chip IP, semiconductor equipment. Rubin overlap, but weighted for inference volume rather than node advancement.

Layer 2 — Inference Infrastructure. Neoclouds, hyperscale platforms, optimization software. Where cost deflation happens.

Layer 3 — Toll Booth Infrastructure. Observability, cybersecurity, data infrastructure, edge delivery, identity, communication APIs, and power. Companies that win on rising transaction volume, regardless of which application prevails.

Layer 4 — Foundation Models & Orchestration—the companies producing tokens and the frameworks coordinating agents—heavily private today.

Layer 5 — Horizontal Agent Applications. Coding agents, enterprise workflow automation, search. Where some beaten-down SaaS incumbents get repriced.

Layer 6 — Vertical Agent Applications. Legal, healthcare, financial services, and industrial operations. Highest margins, deepest moats, 3-5x higher retention than horizontal solutions.

Layer 7 — Backdoor Exposure. Public companies owning stakes in private agentic companies.

We’ll add a viability timeline overlay. Each sector tagged Phase 1 (viable now), Phase 2 (viable once optimization hits, 2027-2029), Phase 3 (viable at commodity inference costs, 2029+). The thesis shifts as costs fall.

And a two-tier structure: ~90 public companies, plus a ~50-company private pipeline with IPO readiness, and backdoor public exposure.

The Rubin tracks what enables inference. The Agentic Index tracks what inference enables. Together, they map the AI economy.

Full breakdowns and company maps will soon be published on closelook.net.

1. The Great Divergence: Semis vs. Software
For months, we’ve seen an aggressive inverse correlation between the infrastructure providers (Semis) and the platform builders (Software). While Software has been hammered by "AI disruption" fears, we are finally seeing a temporary floor in the SaaS space. As the semi-trade becomes "crowded" and overextended, tactical capital is beginning to sniff for value in the battered software names that have reached deep-value territory.

2. The Shift to "HALO" Compounders
Perhaps the most significant development is the rotation into non-tech growth. We are seeing a move toward stable "compounders" with a technological edge—HALO stocks with an edge (Not traditional value stocks).
Investors are increasingly favoring high-quality industrials and essential services that offer "defensive growth." Look at the relative strength in:
Waste Management ($WM): The ultimate "moat" play with a hidden edge in RNG (Renewable Natural Gas) and automated logistics.
Linde ($LIN): While their FY26 guidance was prudent, the stock hit an ATH this week even as NVDA faltered. Their role in the hydrogen economy and industrial gas infrastructure provides a "green" alpha that the pure-play AI space lacks.
These are the "steady-hand" stocks that lead when the high-multiple tech names need to digest their gains.

3. The Roadmap to GTC 2026
Do not mistake this localized top for a trend reversal. The NVIDIA GTC Conference (March 16–19) remains the magnetic north for this market. I expect a period of "churn" and consolidation over the next few weeks as the "Rubin" trade resets.

We may see:
Side-ways price action in Semis to shake out late-cycle longs.
A "bid" in Industrials and Software as capital seeks safety and rotation.
The GTC Spark: A new run at the ATHs as Jensen Huang unveils the next stage of the physical AI roadmap in San Jose.

The Bottom Line: The bull is not dead; it’s just rotating. Respect the local top in semis, watch the floor in software, and keep an eye on the industrial compounders. They are the ones currently providing the "HALO" for this portfolio.

A technical review of the Bitcoin (BTC/USD) chart suggests that its severe cyclical correction may have reached structural exhaustion.

Following the peak near $126,500, Bitcoin has undergone a complex corrective phase. However, the price action now indicates the completion of a standard A-B-C corrective wave, characterized by a 5-3-5 subwave internal structure—a classic signature of trend exhaustion, with the final wave of selling fully played out.

The most critical development is where this sell-off has terminated so far. Price has established a pristine double bottom directly on the 61.8% macro Fibonacci retracement level at roughly $57,890. In technical analysis, this “Golden Ratio” is a high-probability zone for cyclical reversals.

Coupled with momentum oscillators like the RSI and Stochastic, and trendline support, a reset from deep oversold territory may soon cause mechanical selling pressure to evaporate.

For active allocators, a tactical long position at these levels is mathematically warranted, offering a clearly defined invalidation point below the double bottom and substantial upside as the market mean-reverts.

Full analysis → https://closelook.net/pulse

Share Closelooknet

While US tech has been dwarfed/resized by AI in 2026, global markets have done much better.

For the better part of the last 15 years, global capital has been highly concentrated in U.S. equities. However, a technical and macroeconomic review of the Vanguard FTSE All-World ex-US ETF (VEU) indicates that a historic reallocation of global capital is now underway.

From a technical perspective, the most critical development on the long-term monthly chart is the decisive break above the 64.02 resistance level. This price point represents the absolute peak of the 2007/2008 pre-financial crisis market. By clearing this ceiling, VEU has completed a 15-year consolidation base, signaling the start of a secular uptrend.

Furthermore, the asset has broken above its uppermost of three primary ascending trendlines. Shifting out of a steady ascending channel into a steeper trajectory indicates an asset entering a momentum-driven markup phase fueled by institutional accumulation.

This technical resolution is supported by concrete macroeconomic fundamentals:

Valuation Normalization: The historic valuation premium of U.S. markets over the rest of the world has reached extremes. Capital is now seeking more attractive risk premiums and higher dividend yields in Europe, Japan, and Emerging Markets.

The U.S. Dollar Cycle: The sustained strength in unhedged international equities implies a structural softening of the U.S. Dollar, which mechanically eases global liquidity conditions.

Sector Composition: Unlike the technology-heavy U.S. indices, VEU is heavily weighted toward traditional sectors such as financials, industrials, materials, and energy. Outperformance here points to a global environment favoring physical infrastructure, supply chain reshoring, and commodity demand.

The data indicate that the era of exclusive U.S. market outperformance has concluded. Investors heavily concentrated in domestic markets should critically evaluate their geographic exposure for the coming cycle.

I expect the rise in ex-US stock markets to continue and accelerate in the months to come.

Full analysis → https://closelook.net/pulse

After rejecting the 115 level in late 2022, the dollar has steadily eroded, finally slicing through the primary trendline support that has held firm since 2011. This may not be a technical glitch but a fundamental shift in the multi-year chart structure.

Full analysis → closelook.net/pulse

The “sell first, ask later” wave hit everything — including names that are structural AI beneficiaries.

Now I’m screening for individual stocks showing relative strength against the IGV benchmark. Snowflake stands out: a core data infrastructure play that should benefit from every agentic AI deployment.

Earnings February 25 — last quarter saw a slight miss followed by a sharp selloff. This time the setup is different.

Full analysis with SNOW wave count → closelook.net/pulse

This week, a significant shift in market dynamics has caught the attention of investors, marking a potential rotation away from the traditionally dominant Mag 7 tech stocks and towards software and growth-oriented assets.

Mag 7 Underperformance

The Magnificent Seven, comprising tech giants like Microsoft, Amazon, Google, Nvidia, Apple, and Tesla (with some analyses excluding Tesla), have shown underperformance.

• For the second month in a row, the Mag 7 have underperformed the rest of the S&P 500, a trend that has not been seen consistently since 2023

• Individual stock performances were mixed but generally negative: Meta was down 3%, Amazon was down 7%, Microsoft was down 3%, Google was down 6%, and Nvidia was flat, while Apple and Tesla saw slight gains.

Software and Growth Stocks Surge

In stark contrast, software and cloud stocks have experienced a remarkable surge:

• The WCLD index, which tracks cloud and software companies, was up 6% over the last week.

• Snowflake saw a 30% increase after reporting solid earnings, lifting the entire software market.

• Other notable gains include Mongo, up 14%, Confluent, Datadog, and Cloudflare, each up 7%, and many others, rising close to 5%.

• Elastic reported a 20% stock rise after hours following its earnings report

(2) So what?

This shift raises questions about whether this is the beginning of a broader trend that will continue into 2025 or just a temporary fluctuation:

• The high valuations of the Mag 7, with PE ratios significantly higher than the rest of the S&P 500, may be contributing to their underperformance as investors seek more diversified and potentially undervalued opportunities

• The strong performance of software and cloud stocks could indicate a rotation into more risky assets, driven by optimism in sectors like cloud computing and artificial intelligence.

Subscribe now

(3) Backing it up: Notable Quotes and Figures from the Report

The table below shows the top 10 Cloud and XaaS sector market movers in the last seven trading days.

The chart below compares the 7-day performance with the 30-day and YTD performance.

(4) Now what?

A significant shift appears to be emerging in market dynamics, with some evidence suggesting a potential rotation away from the Magnificent Seven tech giants towards broader software, cloud, and other growth stocks.

Market Rotation Analysis

The data shows remarkable strength in software stocks, with companies like C3 and Snowflake posting 33% gains in just seven days, while traditional tech leaders have faltered. The software sector's broad-based rally, demonstrated by solid performances across market caps (from Kaltura at $329MM to Snowflake at $57.4B), indicates this may be more than a temporary shift (such as the outperformance starting in July 2024, which faltered quickly).

Risk Appetite

The market appears to be seeking new opportunities beyond the established tech giants:

• Smaller, higher-growth software companies are seeing significant gains

• Companies with negative YTD returns (like Unity and BigCommerce) are showing strong recent performance

• The sector's average 30-day gain of 30% suggests increasing risk appetite

Share Closelooknet

(5) And next?

The market's behavior suggests a natural evolution away from the concentrated Magnificent Seven trade that dominated 2022-2023.

This rotation could represent investors' search for new sources of alpha, recognizing that no single group of stocks can outperform indefinitely.

Small-cap and mid-cap stocks may be outperforming in the months ahead. Inside this group, small and mid-cap software and cloud stocks that have properly embraced AI and thus hugely benefit from the third stage of the AI revolution (the first was dominated by semiconductors, the second by broader AI infrastructure plys) may lead.

The strong performance across the hypergrowth software sector, particularly in companies with varying market caps and risk profiles, indicates a broader market appetite for growth opportunities beyond the established tech leaders.

Read more

(1) OGs refuse to sell bitcoin

If they don’t sell when prices are low or when prices are high, when will they?  Wallets holding $10 million or more account for over half of all wallets. Now that’s dedication!

"Below we see the distribution of [Bitcoin] wallets by the value they hold. It’s remarkable how committed the OGs have been, despite three harsh winters and massive profits ... (Jurien Timmer)

For more information, click here.

Share

(2) A secular valuation trend or just a bubble

"Small caps and companies that pay a high dividend yield are currently 1.5 standard deviations cheaper than their average for the last 35 years. High-margin companies [are] some 2.5 standard deviations above the 35-year norm." (David Kostin)

For more information, click here:

Subscribe now

(3) SP 500 sector outperformance

Since the start of the bull market, the following cyclical sectors have outperformed the index: S&P 500 Information Technology, Communication Services, and Financials.

Ed Yardeni has recommended them along with Industrials and Energy. He is sticking with all of them except for energy.

He thinks they should all get a boost from stronger-than-expected economic growth over the next few months.

For more information, click here:

(4) Wage gains have outpaced inflation for 18 months now

For 18 months now, wage gains have outpaced gains in inflation.

In October 2024, wage gains were 4%, and inflation settled at 2.6%. For more information, click here:

Read more

On Tuesday, Walmart (NYSE: WMT) saw its stock rise in early trading after the retailer exceeded Q3 expectations and increased its guidance ahead of the crucial holiday season.

In the U.S., comparable sales increased by 5.3%, surpassing the consensus estimate of 3.8%. This growth was driven by a 3.1% rise in transactions and a 2.1% increase in the average transaction size compared to the previous year.

Share

E-commerce sales jumped 22% during the quarter, contributing significantly to comparable sales growth. Sam's Club reported a 7% increase in comparable sales, considerably outperforming the consensus expectation. This strong performance was led by robust sales growth in both club and digital channels, particularly in the food and health & wellness categories.

Internationally, Walmart's sales rose 8.0% year-over-year to $30.3 billion, driven by solid performances in Flipkart, Walmex, and China. Transaction counts and unit volumes increased across international markets.

The company's global advertising business saw a 28% growth during the quarter, with Walmart Connect in the U.S. growing by 26%.

Walmart's consolidated operating income increased by 8.2%, attributed to higher gross margins and growth in membership income. Adjusted earnings per share (EPS) reached $0.58, beating the consensus mark of $0.53.

At the end of the quarter, Walmart had a cash position of $10.0 billion and a total debt of $47.3 billion, which includes short-term borrowings, long-term debt due within one year, and finance lease obligations. The company generated $6.2 billion in free cash flow, and its inventory level decreased by 1% year-over-year to $63.3 billion.

(2) So what?

Walmart anticipates a full-year sales increase of 4.8% to 5.1%. The company projects full-year earnings per share (EPS) to be between $2.42 and $2.47, with a midpoint of $2.445, slightly below the consensus estimate of $2.45.

During the earnings conference call, CEO Doug McMillon mentioned that prices remained stable during the recent quarter despite the challenges posed by East Coast port strikes and the impact of several hurricanes on the supply chain. He also highlighted that store delivery sales exceeded $2 billion for the quarter.

On Wall Street, Jefferies analyst Corey Tarlowe noted that Walmart's sales trends in groceries, health & wellness, and general merchandise remained positive during the quarter.

Subscribe now

Tarlowe and his team believe that Walmart is well-positioned for the upcoming holiday season, expecting the strong traffic trends observed at Walmart U.S. and Sam's Club to continue. Jefferies has Walmart slotted as a top retail pick.

(3) Backing it up: Notable Quotes and Figures from the Report

Q3 Results

• Net sales reached $169.60B, beating consensus of $166.62B by $2.98B

• Adjusted EPS was $0.58, exceeding consensus of $0.53 by $0.05

• Walmart U.S. comp sales ex-gas grew 5.3% (no consensus provided)

• Sam's Club comp sales ex-gas grew 7.0%, beating consensus of 4.22% by 2.78%

• Total U.S. comp sales ex-gas increased 5.5%, beating consensus of 3.8% by 1.70%

FY2025 Guidance

• Net sales growth guidance of +4.8% to +5.1% (midpoint 4.95%), slightly below consensus of 4.97%

• Adjusted EPS guidance of $2.42 to $2.47 (midpoint $2.45), in line with the consensus of $2.45

(4) Now what?

Walmart sources approximately two-thirds of its merchandise for Walmart U.S. domestically, meaning these products are made, grown, or assembled within the United States. The remaining one-third is sourced internationally to meet customer demand for variety, quality, and affordability, especially for items like certain electronics and produce not readily available domestically.

Market Share Growth: Walmart reported gains in market share across various markets and formats, with increased transaction counts and unit volumes. In the U.S., comparable sales for Walmart U.S. grew by 6.4%, and Sam's Club U.S. saw a 5.5% increase. International sales rose 11%, led by double-digit growth in Walmex and China.

Advertising Growth: The company highlighted the expansion of its advertising business, noting that Walmart Connect ad sales grew by 22%, with more than 50% growth from marketplace sellers. Sam's Club's ad business achieved a new high, with almost 50% more advertisers than the previous year.

Guidance: For fiscal year 2025, Walmart expects net sales to grow between 3% and 4% on a constant currency basis, with operating income projected to increase by 4% to 6%. The company anticipates that all three segments—Walmart U.S., Walmart International, and Sam's Club U.S.—will contribute to operating income growth.

China: Walmart's operations in China showed strong performance, particularly with Sam's Club. The company reported that Sam's Club in China experienced over 30% growth in membership income, with more than 80% of deliveries being completed in under an hour, reflecting the attractiveness of their customer value proposition.

Share Closelooknet

(5) And next?

Walmart has recently introduced several products, services, and initiatives to enhance customer experience and operational efficiency.

2024 Initiatives:

1. Bettergoods Private Label Food Brand: In May 2024, Walmart launched "Bettergoods," its largest store-label food brand in two decades, targeting younger shoppers seeking chef-inspired, affordable foods. The line features 300 items, including frozen foods, snacks, and beverages, with most products priced under $5.

2. Walmart+ Membership Enhancements: Throughout 2024, Walmart expanded its Walmart+ membership program, offering benefits such as free same-day delivery, fuel discounts, free shipping on most items, and access to a free Paramount+ Essential Plan subscription. Additional conveniences include Scan & Go shopping and returning items from home.

3. AI-Powered Logistics and Route Optimization: In March 2024, Walmart Commerce Technologies launched an AI-powered logistics product aimed at optimizing delivery routes, enhancing efficiency, and reducing costs for both the company and its partners.

4. Generative AI and Augmented Reality Initiatives: In October 2024, Walmart unveiled its strategy to accelerate adaptive retail by leveraging proprietary generative AI platforms, including "Wallaby," a series of retail-specific large language models designed to create customer-facing experiences. The company also explores augmented reality and immersive commerce experiences to enhance shopping interactions.

5. Express Prescription Delivery Service: In October 2024, Walmart introduced an express delivery option for prescription medications, allowing customers to receive their prescriptions within 30 minutes. This service is available in select states with expansion plans.

6. Enhanced Anti-Theft Technology: In November 2024, Walmart began testing new technology that allows employees to unlock secured displays via an app on their devices, with potential plans to extend this feature to customers.

2025 Initiatives

As of November 19, 2024, Walmart has announced plans for 2025, including:

1. Store Expansion and Remodeling: Walmart plans to build or convert more than 150 locations by 2029 and remodel 650 stores during the next 12 months, reflecting the retailer’s "Store of the Future" concept.

   Grocery Dive

2. Supply Chain Automation: Walmart is introducing a plan for a new, more connected, and automated supply chain, aiming to improve the experience for customers and associates while boosting productivity

Read more

The latest CPI report indicates that inflation might persist above the Fed's 2.0% target. In October, the headline and core CPI inflation rates increased by 2.6% and 3.3% year-over-year, respectively.

Although goods prices continue to decline, supercore inflation, rent inflation, and wage growth all saw an increase last month, suggesting they are becoming stuck at relatively high levels.

The charts above demonstrate a significant divergence between inflation measures using real-time shelter data versus the official BLS shelter metrics. When using real-time shelter data, inflation rates are notably lower:

Key Observations

Headline CPI

• Real-time shelter metrics show headline inflation at approximately 1.32%, well below the 2% target, while BLS shelter metrics indicate 2.6%

Core CPI

• Using real-time shelter data, core inflation is around 1.76%, compared to 3.3% with BLS shelter metrics.

Shelter Inflation

• The most dramatic difference appears in shelter inflation itself, where real-time metrics show approximately 1.29%, while BLS housing metrics indicate about 5.0%

• The real-time shelter metrics from Zillow and ApartmentList data suggest significantly lower inflation rates than the BLS methodology.

This divergence suggests that using more current shelter data would place overall inflation comfortably below the Fed's 2% target, in contrast to the higher readings produced by the BLS methodology.

Share

(2) So what?

Sticky inflation is one reason why the Fed may not cut interest rates as much as anticipated by the market in 2025. More than fifty percent of the recent advance of the SP 500 is due to multiple expansion and not rising earnings.

Higher rates may lead to multiple contraction in 2025, offsetting the effects of growing earnings. No matter which valuations to apply, the US stock market is expensive.

Subscribe now

(3) Now what?

This is especially true when earnings growth is not as stellar as it seems when looking at GAAP earnings growth.

The image above shows two financial charts from BCA Research about S&P 500 earnings trends:

Left Chart Analysis

• Shows three earnings metrics from 2018-2024:

  • 12-month forward earnings-per-share

  • 12-month trailing operating earnings

  • GAAP earnings-per-share

• Indicates a 21.7% percent change in 12-months forward earnings per share change since December 2021 peak

• Operating earnings only show an 8.8% increase

• GAAP earnings only show a 2.2% growth

Right Chart Analysis

• Focuses specifically on S&P 500 Information Technology sector

• Compares two metrics from 2000-2025:

  • Free cash flow-per-share

  • Earnings-per-share

• Notable divergence since the end of 2021:

  • EPS has grown by 25%

  • Free cash flow-per-share has only increased by 11%

• Shows a significant upward trend in both metrics since 2000, with particularly steep growth after 2020

Key Observations

Recent earnings growth may be a bit fake news given the much lower GAAP earnings growth figures and the gap between EPS growth and free cash flow growth in the technology sector.

(4) And next

Seth Golden points out in the table below that the average length of a bull market that was not preceded by a recession is 33 months. That would take this bull market cycle out until May 2025 only.

Here is a close look at where this current bull market is compared to other bull markets dating back to 1957. The table is from the summer of 2024, so please add four months to the current bull market.

Right now, the length of this bull market (25 months) is four months longer than the shortest bull market in history, the last one, which ended in January 2022.

Read more

Read more

The 2024 U.S. election has concluded with a dramatic "red triple sweep," marking a significant shift in the political landscape.

Election Outcome

• Republicans secured the presidency, control of Congress, and won the popular vote by over 3 million

• President-elect Trump received an unprecedented mandate to lead the country with little checks and balances left

Market Reaction

• Initial market response aligned with pre-election expectations:

  • Stocks and cryptocurrencies rallied

  • Bonds and precious metals faced selling pressure

• A significant VIX compression rally occurred, with the index dropping from above 20 to below 15

Relief Rally Factors

• Swift election resolution eliminated concerns about a contested outcome and potential domestic instability.

• Fears of a prolonged legal battle or challenges to the peaceful power transfer were alleviated.

Reconsidering the Rally
Despite the initial positive market reaction, several factors warrant caution:

1. Geopolitical Risks: Potential for major escalations in the Middle East, Ukraine, or elsewhere before the January 20th inauguration

2. Changed Economic Landscape: The 2024 macro environment differs significantly from 2016-2017:

   • Higher inflation rates

   • Increased national debt and budget deficits

   • Strong U.S. economic growth amid global recession fears

   • S&P 500 showing bubble-like characteristics, with the Shiller P/E ratio at its second-highest historical level

These factors suggest that Trump's previous economic strategies may require adjustment to be effective in the current economic climate. As the transition period unfolds, markets and policymakers will closely watch how the incoming administration plans to address these unique challenges.

Share

(2) So what?

The economic landscape of 2024 presents a stark contrast to 2016, potentially challenging the effectiveness of Donald Trump's previous campaign strategies. Key differences include:

Inflation and Economic Indicators

• Inflation rates have surged significantly

• U.S. national debt and budget deficits have reached unprecedented levels

• The American economy shows robust growth despite global economic headwinds

Global Economic Climate

• The world economy teeters on the brink of recession, creating a complex international backdrop.

Stock Market Valuation

• The S&P 500 exhibits signs of a bubble, with the Shiller P/E ratio reaching its second-highest level in history

• Current market valuations are surpassed only by the 2000 dot-com bubble, raising concerns about sustainability.

• Over half of the S&P 500's trailing 12-month return can be attributed to multiple expansion, which usually requires sustained lower interest rates not to fade.

These factors collectively shape a unique economic environment that may require new strategies and approaches from political candidates, including former President Trump, as they navigate the 2024 election landscape.

Subscribe now

(3) Now what?

As President-elect Trump prepares to take office, his economic strategy appears to mirror his 2016 approach. However, the drastically different economic landscape of 2024 presents unique challenges and potential risks:

Trump's Economic Playbook

1. Lower corporate taxes

2. Impose tariffs

3. Implement stricter immigration standards

4. Reduce regulations

5. Expand the budget deficit

Key Economic Indicators: 2016 vs. 2024

Challenges in Implementing 2016 Strategies

1. Corporate Tax Cuts: Lowering the rate from 21% to 15% may have less impact than the 2017 reduction from 35-38% to 21%.

2. Global Economic Context:

   • China's growth has slowed from 7% to 4.6%

   • Germany is in a recession

   • Increasing tariffs could potentially trigger a global recession and heighten geopolitical tensions.

3. Stock Market Valuation: The S&P 500's Shiller P/E ratio has risen from 26.8 to 38.2, indicating potential bubble conditions and increasing market vulnerability. The index's forward P/E ratio is at its highest (22.2) since April 2021. Ten of eleven sectors are trading at multiples that exceed their 25-year averages.

Potential Risks

• Inflationary pressures could intensify with expansionary fiscal policies

• Debt downgrade risk if deficit spending increases significantly

• Possible USD currency crisis if fiscal and monetary policies are misaligned

• Global trade tensions may escalate, particularly with struggling economies

The incoming administration faces the challenge of adapting its economic strategies to a fundamentally different economic environment.

Balancing growth initiatives with inflationary pressures, managing a high budget deficit, and navigating a potentially overvalued stock market will require careful policy calibration.

(4) And next

The effectiveness of Trump's economic approach will largely depend on how well it can be tailored to address new economic realities.

Tailwinds

Industry analysts are likely to revise their earnings estimates upward. Ed Yardeni has raised the 2025 operating earnings per share forecast for the S&P 500 from $275 to $290 and the 2026 forecast from $300 to $320

These estimates assume that the incoming administration will swiftly reduce the corporate tax rate from 21% to 15%. As of early November, industry consensus estimates stood at $275 for 2025 and $308 for 2026

S&P 500 profit margins may climb to new record highs of 13.9% in 2025 and 14.9% in 2026, driven by corporate tax cuts, deregulation, and accelerated productivity growth.

It's worth noting that these projections align with the broader optimistic outlook for the S&P 500, with some analysts forecasting the index to reach 7,000 by the end of 2025 and 8,000 by the end of 2026.

Headwinds

They depend on the long-term bond yields to stay within the current trading range, and bond vigilantes not driving yields close to the 5 % level in 2025.

"Fed expectations are wrong. The economy is strong, and there are upside risks to inflation. Markets are pricing in too many Fed cuts." Torsten Slok (Apollo)

Read more

Astera Labs delivered exceptional Q3 results, with record-breaking revenue growth and strong profitability.

The company's performance significantly exceeded analyst expectations, leading to a surge in stock price.

Read more