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Intro
The S&P 500 finished May breaking records and crossing 7,500, while the average consumer is suffocating under record credit card debt and sticky inflation. It is officially dead as a reliable indicator of the U.S. economy, not to say it can’t come back to life at some point. It has mutated from a broad an index that measures the top 500 companies to one heavily skewed by only the top 5. Meanwhile, global oil trade is in crisis mode still as the U.S./Iran war drags on. And, as if we didn’t have enough volatility, we now have a new Federal Reserve Chairman. Kevin Warsh stepped in officially as Fed Chair, taking the place of Jerome Powell who will continue to remain on the board as a governor.
What Happened
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Early May - Big Tech and AI: Tech industry titans dropped a financial nuke during Q1 earnings season, updating annual AI capital infrastructure spending projections to an unprecedented $562 billion. NOTE: CapEx into AI is sitting around a staggering $630 billion presently. The top 5 S&P 500 companies now account for 30-35% of the entire index.
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Mid-May - The Energy Shock: The Strait of Hormuz maritime crisis chokes global oil transit. IEA Chief Fatih Birol warns of a permanent structural supply "red zone" for July/August, dragging crude oil up near $100/barrel and sparking severe stagflation fears.
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Late May - Changing of the Guard: Kevin Warsh was officially sworn in as the 17th Chairman of the Federal Reserve on May 22. Fed officials systematically wipe away their easing bias, locking in a "higher-for-longer" monetary reality.
Why It Matters
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The Breakdown: The structural mechanics of a market-cap-weighted index are demonstrating in real-time the spread between reality and euphoria. A tiny handful of 5–6 tech monopolies now dictate roughly 30% to 35% of the entire index's movement. This means we are no longer dealing with the S&P 500, we are dealing with the S&P 5. The concentration a select few tickers has never been higher. We often hear “this time is different”, and that sentiment is correct. This time IS different, we’ve never seen so much power concentrated into so few names. See for yourself:
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Regional banks, retail chains, and small-cap manufacturing are actively bleeding out from high interest rates and tapped-out consumers. However, as long as Nvidia, Microsoft, and Amazon are aggressively buying hardware and cloud services from each other, the S&P 500 prints all-time highs. There is a clear divide between the stock market and consumers. The question must be asked: How long can this continue? Can the economy function as intended when only a few big names redecorate their ivory towers while small business and average people suffer? We have record numbers of credit card debt, record low money in savings accounts, unemployment slightly elevated, and now inflation coming back in full force due to the oil crisis. Take a look at the chart below, which demonstrates the price of oil against consumer sentiment. They are mirror images of one another. NOTE: Even while oil prices have slightly declined in May, the consumer says their pain is still getting worse.
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The Counter-Argument: Let’s address the typical Wall Street talking point: "This isn't a bubble like 2000 because these tech giants have fortress balance sheets and cash." True, however even when accounting for inflation, CapEx spending and concentration is still TWICE what it was during the peak of the dot-com bubble. When comparing capital expenditure against GDP we can see a clear, inflation adjusted metric that demonstrates how out of control this is getting. All bets are on AI, hoping that it brings in an ROI that will surpass the record-breaking money invested into it. That MAY happen, and AI certainly is changing the world, but people still have to go to work everyday. What happens when average people suffer at the hands of big tech while they invest in infrastructure that won’t be able to ease said suffering for years or even decades? Big Tech's current data center, energy grid, and custom silicon buildout is draining an enormous slice of national wealth.
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The Federal Reserve: The icing on the cake in this volatile month of May is the fact that interest rates are likely to remain higher for EVEN longer than anticipated. When inflation began its welcomed downward slope in 2023/2024, the narrative changed. The Fed shifted its hawkish tone to one of easing and, at worst, pausing. We experienced significant rate CUTS and have been holding steady in the neutral zone for some time. Now, not only are we pausing with the hopes of cutting, we are pausing with some board members declaring we should HIKE. Inflation is now hovering around 4% YoY, the highest since 2022. Since 2020, the cost of just surviving—buying groceries, filling up a gas tank, and paying rent—is up a cumulative 28.7% (many sectors are MUCH HIGHER).
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Meanwhile, real purchasing power for the median American has effectively flattened out, lagging far behind pre-pandemic trajectory. The consumer isn't participating in a booming economy; Think of it like being on a track and hoping to stick with the leaders on a rune. However, when the gun shot goes off and they’re off to the races you notice that you’re actually running on a treadmill. It becomes impossible to keep up, and you begin to slow down due to exhaustion. Interest rates and inflation coming down is the thing that can get you off that treadmill and back in the race. It looks like that treadmill will remain at full speed for the foreseeable future. Kalshi betting markets show the likelihood of at least one rate cut in 2026 is down 72% from its peak in January.
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In Short
Thanks for reading! Until next time, good luck out there and Godspeed.
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