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Yesterday the odds of that explosive interest rate cut coming in the US in 34 days were 94%. Today Mr. Market says 88%. The latest inflation data suggests adding stimulus might be a bad idea. But the American president is demanding it. And out central bank will be in a tough spot on September 17th \u2013 making its rate decision hours before the Fed moves.<\/p>\n
Poor Tiff. What if he gets it wrong?<\/p>\n
Stocks gave back a little Thursday morning after a report showing producer prices popped last month \u2013 suggesting inflation is barrelling down the supply chain. But that didn\u2019t last long before the bulls moved back in. There were new record highs by lunch.<\/p>\n
Everybody has to admit that these are odd days. The conflicts in Gaza and Ukraine are hot and show no signs of being extinguished. A global trade war has been ignited. Tariffs at 1930s levels will surely increase prices and inflation in the months to come. Interest rates have stalled out. Most major western countries believe they have a housing affordability crisis. Wealth inequality continues to romp higher, fuelling deep political change.<\/p>\n
And yet, stocks fly.<\/p>\n
The S&P is up 18% in a year, 91% over five<\/p>\n
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So far in 2025 the S&P 500 is ahead 9.4%. For the past 12 months, the gain is 18.7%, and over the past sixty months the index has risen 91%. That\u2019s despite a post-pandemic inflation surge, an historic increase in interest rates, political upheaval in the US, new wars and now trade barriers unknown since the Depression, which are bleeding industrial giants. (GM says it\u2019s on track to lose $2 billion.)<\/p>\n
Inflation seems destined to creep back. Interest rates will probably fall, but that could change rapidly. Tomorrow\u2019s Trump-Putin meeting is daunting. American regulators are spiking risk as they unleash crypto (linking stablecoins and bonds). And there are three more years of chaos and change coming from the White House.<\/p>\n
And yet, stocks fly.<\/p>\n
The drivers are tech companies and, of course, AI. Nvidia has a $4 trillion market cap, which is astonishing. Investors are waiting to jump on initial public offerings of artificial intelligence outfits like OpenAI and Anthropic.<\/p>\n
Consider ChatGPT for a moment, the tool used the other day here to respond to a recent blog post in a convincing, conversational, human way. LLMs (large language models) are changing everything. This is the Internet all over again. Maybe even fire.<\/p>\n
The adoption of AI is massive \u2013 or manic. In the first five days ChatGPT had a million users. Now there are 4.6 billion visits a month. Half the folks are under 25 years old. OpenAI expects to have a billion registered users by the end of this year.<\/p>\n
ChatGPT user growth: are we reliving the past?<\/p>\n
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So where have we seen this kind of weed-like growth and market eruption before?<\/p>\n
Of course. The dot-coms. Way back a quarter century ago. In the late 1990s and early this century investors couldn\u2019t feast enough on web-based operations like Pets.com which had cool ideas, CEOs on skateboards, explosive market valuations and often no profits. It all melted down after Y2K and was in full collapse by Nine Eleven. Google it, kids.<\/p>\n
The tech-heavy Nasdaq gained 400% between 1995 and the millennium, only to shad a spectacular 78% of its value by the autumn of 2002. Millions of investors lost hundreds of billions while thousands of dot-com enterprises ran out of funds, went bankrupt and blew away.<\/p>\n
So are we back on the same trajectory again \u2013 only more dangerous as AI sweeps through society, erases jobs, lures in the young, is fed by market capitalization rather than earnings and comes at the same time crypto and digital currencies are turning money into a speculative asset? The top ten companies in the US stock market today are, apparently, more overvalued than they were thirty years ago \u2013 in terms of P\/E ratios.<\/p>\n
Reality matters. The real economy is being hammered by tariffs, supply chain issues, inflation and geopolitics. Recent jobs numbers are weak. GDP is struggling. Corporate profits for manufacturers are under assault. Costs are rising. Government deficits and debts are out of control.<\/p>\n
And yet, stocks fly. Investors are piling in. By all measures, we have a new bubble. The difference, however, is that many of the new titans are profitable. Their technology has the backing of governments. And real-world applications are exploding around us.<\/p>\n
So, a Nasdaq-style dot-com collapse is unlikely. A steep correction in stocks values is not \u2013 since Mr. Market has priced things for perfection, with barely a nod towards what a years-long trade war could do to our world.<\/p>\n
It will come. Be ready.<\/p>\n
About the picture: \u201cLong time reader here,\u201d writes \\Robin, on Vancoouver Island. \u201cI never miss a day reading your honest, amusing and informative blog.\u00a0 Thanks to you and your team for all you do.\u00a0 My little Mexican rescue Lola has appeared on your blog before, but she was wondering if you could feature her doing one of her favourite things\u2026.waiting for her dog mom to catch another trout\u2026 in the Caribou region of BC.\u00a0 It\u2019s an annual trip that Lola loves, almost as much as her mom.\u00a0 \u00a0She usually beats me to the boat when she sees her PFD come out.\u201d<\/p>\n