Inflation allows rate cuts

This week’s economic data highlighted key inflation figures, including the Consumer Price Index (CPI) and the Producer Price Index (PPI). The year-over-year CPI came in at 2.5%, just below the expected 2.6% and down from the previous 2.9%. The core CPI, which excludes food and energy, was slightly higher than anticipated at 0.3% for the month, though year-over-year, it held steady at 3.2%. The primary driver of sticky inflation was shelter costs, calculated using owner-equivalent rent, which tends to decrease more slowly. Overall, the inflation data gives the Federal Reserve room to cut interest rates by at least 25bps next week, with the likelihood of a 50-basis-point cut increasing to 50%.

• This CPI report was very important because it was the last report ahead of next week’s Fed meeting
• Since the trend remains lower, it is now almost a certainty that the Fed will cut interest rates by 25 basis points next week
• After the report, the odds of a 50bps cut rose to 50%
• The stickiest part of inflation remains shelter, calculated as Owner’s Equivalent Rent (OER)
• OER was up 0.5%, accelerating from the prior month, and is still up 5.2% over last year
• We believe the stickiness is due to the continued supply-demand imbalance in housing
• It is important to remember that prices are still up year over year, with the only categories down being energy and new and used cars

Gold hits all-time-highs again

Gold has reached a new all-time high, hovering just below $2,600 per ounce. Its 24% rise year to date outperforms both the S&P 500 and the NASDAQ this year. Gold has been higher as the US dollar has been weaker over the last few months and geopolitical risks persist. Given the wars in Ukraine and the Middle East, which continue to find no end, and a conflict with China looming, investors flock to gold as a safe-haven asset.

• Over the last few years, we have viewed gold as a potential diversification tool for a balanced portfolio
• This comes at a time when traditional fixed income has not had the negative correlation to stocks it has experienced in the prior several decades
• Gold has also benefited from demand from Central Banks, as countries look to diversify away their dependence on the US Dollar
• In addition, the heightened geopolitical climate makes gold attractive as a safe-haven asset

OpenAI releases new model that “reasons”

OpenAI continues to push boundaries by releasing its latest AI model, "Strawberry," which introduces the ability to "think" before responding. This enhancement represents a significant leap forward in AI’s reasoning capabilities, helping address previous shortcomings like solving basic math problems. The rapid iteration of these models, only months apart, highlights the accelerating pace of AI development. With AI poised to reshape industries, OpenAI remains at the forefront of innovation, and it is rumored to be raising funds at a $150 billion valuation, potentially making it one of the highest-valued private companies in the world.

• OpenAI continues to lead in the innovation of Gen AI technology
• Given one of the most significant issues with all of the recent models has been accuracy; Strawberry trades speed for accuracy
• We continue to be impressed with the speed of innovation in this space
• We believe GenAI will transform how we work and live over the coming years and decades
• Some have welcomed these developments as the beginning of the “era of agents”
• We will be writing a long-form piece on this shortly

‍