Newsletter

The artificial intelligence bottleneck is the most important theme in the market. Semiconductor demand is outstripping supply; prices are rising, as are profits. Take Micron (MU), for example: 2024 annual net income was $791 million. In 2025, net income rose to $ 8.7 billion. Net Income in Q1/26 was $ 25b. It is expected to be $68b in 2026. They are not alone.
No surprise to see that Chipmakers are by far the best performers since the market low on March 30th. Since then, Micron is up 230%. The Semiconductor Index is up 83%. The State Street Tech ETF is up 54%. QQQs are up 33%, the Nasdaq is up 30%, and the S&P 500 is up 20%.
This is an astonishing run – not because it is overdone but – because it is forecast to continue.

Investor confidence is rising. There are no bombs falling in Tehran (although we expect that to change very soon), no missiles exploding in Tel Aviv, and, at the moment, no drones crashing into Ukraine or Russia. It is hardly surprising that the S&P 500 (7,398) is up 17% from its March 30 low. Oil closed Friday at $95. It is down 20% since April 8th, the day the ceasefire went into effect. Volatility (17) is below the 200-day moving average. ALERT: Iran’s “Totally unacceptable” proposal has resulted in Oil opening in Asian trading at $98 (+3.25%). Oil traders expect escalation imminently

The S&P 500 rally is accelerating. Earnings drive prices. Earnings are well above forecasts. Revenues and profits, especially those generated by the companies leading the AI Industrial Revolution, are consistently being revised higher.

China buys 95% of all Iranian oil exports and 50% of all oil that transits the Strait of Hormuz. In return, Iran receives lifesustaining
economic support. China, as the buyer—and crucially, the payer in yuan—is complicit in facilitating death and
destruction throughout the Middle East. Eliminating China as a vital part of this arrangement would go a long way
toward ending it.
The end of hostilities in the Middle East is surely a goal worth achieving, and it is finally within reach. If we cut off the
flow of money into the coffers of the IRGC, the IRGC will die along with the hostilities it has fomented for so long
through its sponsorship of global terrorism. To achieve that, the intermediary banks complicit with the Iranians and the
Chinese must also be exposed, and the funds they hold must be confiscated for the eventual rebuilding and renewal of
the Middle East.

The U.S. will do everything in its power to reestablish a steady flow of Gulf oil distribution to the global economy. It will also seek to maintain its hegemony in selling Oil in Dollars. Of course, China will do everything in its power to disrupt and diminish U.S. power in the Gulf and around the world to increase its primacy and influence not only in Asia but also globally. China buys 95% of all Iranian oil exports, and 50% of all oil that transits through the Straits of Hormuz. In return, Iran receives life-saving economic support. China, as the buyer (and cash payer – importantly, in Yuan), is complicit in facilitating death and destruction throughout the Middle East. Eliminating the Chinese as a vital part of this mess will go a long way towards solving it.

The U.S. will not allow an Iranian oil supply disruption to destroy the global economy or U.S. Petro Dollar hegemony. China buys 50% of all oil exported from the Straits of Hormuz, and 95% of all Iranian exports. In return, Iran gets economic support. China knows that Iran’s oil supply is vulnerable, and I suspect it is losing patience with Iran. So… Will hostilities end just before… Or just after… The upcoming Trump/Xi summit in Beijing??
Part of the upcoming U.S./China Summit will include re-engaging China with the Petro-Dollar regime. The U.S. will try to encourage China to buy oil from alternative Gulf producers (i.e., those not named Iran) – in Dollars.

Nirvana? Some think so. Why? The Fed’s dual mandate is full employment and stable prices. Right now, the unemployment rate is 4.3%, and the CPI is 2.4%. These are the best metrics since the pre-pandemic era.
Expect stronger, more productive economic growth in 2026 as the economy becomes more efficient and competitive.
The U.S. domestic policy agenda is built on a foundational philosophy of smaller government and includes:
• Lower taxes.
• Deregulation.
• Lower budget Deficit.
• Lower Trade Deficits, and…
• Enhanced National Security.
This policy agenda has resulted in rising household spending, increased business investment, and lower government spending. Recession expectations are the lowest in 4 years, and inflation expectations are the lowest in 6 years. This is why U.S. and global equity markets are at all-time highs.
In the quarters ahead, expect higher S&P 500 prices, driven by higher corporate sales and profits (and record profit margins), plus the fact that unproductive capital is being reallocated to productive investment.

As agentic AI becomes more pervasive and powerful, investors – no doubt aided by AI itself – have identified weaknesses in legacy operational business models, exposing their vulnerabilities. Short-sellers targeted companies whose profit margins are, and should be, threatened by AI. They then initiated massive liquidations with methodical and lethal determination. Simply put, last week’s down trade was a value-destruction trade.
The destruction of vulnerable business models is not new, but as the technology behind it becomes more powerful and those wielding it become better at identifying and eliminating the weakest, losses are piling up.

The S&P 500 index broke above 7000 for the first time this morning. In the process, the index posted its 8th. all-time new high of 2026. Expect more.
The message for investors in 2026 is: Keep it simple.
Investors should remain overweight risk assets – as long as money supply and the Fed’s balance sheet are expanding, which they are. In fact, both metrics have risen more quickly over the past few months than at any time since the post-pandemic expansion.
Additionally, the administration will continue to apply maximum economic stimulus through the summer to improve its odds of maintaining congressional power in the midterm elections.

This is a generational – and global – bull market, but you wouldn’t know it by following the Main Stream Media (MSM). If anyone made investment decisions this year based on this inaccurate, fraudulent, dishonest narrative, they lost money. Moral of the story? Don’t do that. Ignorance of veracity, legitimacy, and authenticity guarantees failure.

The earth moves beneath our feet.
Tectonic disruption is upon us.
We face revolution.
Let’s hope that principle triumphs over corruption, and that we can discard the losers and identify the winners.
Investment decisions are divided into three categories: Tactical, strategic, and thematic. Tactical trades are high-conviction, short-term distortion-capture trades; strategic trades are value trades; and thematic trades are trend decisions. All are useful at different times.

History shows that every transformative technology—from automobiles to the internet—creates waves of speculation. The existence of a bubble does not mean the underlying technology is not revolutionary; it simply means early enthusiasm sweeps up both future winners and inevitable losers.

• Monetary Policy (FED) and Fiscal Policy (Treasury) are providing the economy with massive stimulus. Expect that to continue up to the midterm elections.
• The U.S. economy is strong and accelerating. Q3 GDP +4.1%, Q4 GDP higher. Q1/26 GDP – higher still.
• The budget and trade deficits are shrinking; Goods inflation is falling. Services inflation will fall in 2026.
• The bull market is intact and supported by earnings, liquidity, and investment. Expect higher highs through 2026.
• Global investment capital flows into the U.S are unprecedented.
• The AI Industrial Revolution is in the very early stages of a multi-trillion-dollar transformation.

The U.S. equity market is hypersensitive to headline news – partially because there is no economic data reported from the government, which remains closed; the market doesn’t care. It’s also because valuations are high and profit-taking is obvious after another great year for investors.
The Fed is stimulative. This is obvious for several reasons: 1. Powell cut the Fed Funds rate (-25bps) to an upper bound level of 4.00%. 2. The Fed’s balance sheet was shrinking. No longer. Proceeds from maturing bonds that were not reinvested will start being reinvested next month. That means the Fed is a buyer of about $35b bonds a month. 3. The Chicago Fed’s Financial Conditions Report reflects systemic liquidity is as high now as it was during the pre-pandemic stimulus period. 4. Official money supply is rising at a rate of 10% per year.
Mr. Powell seems confused. He says the Fed is restrictive—it’s not —and that he feels like he is driving in a fog. So, what’s new? He also said that future rate cuts are not “a foregone conclusion.” Once again, the market does not care; he’ll be gone in May, and his replacement will be named in about a month. (My bet for Chairman is Waller.)

Negative narratives dominate the media, but investors continue to focus on fundamentals—and those remain robust.

Corporate earnings calls have consistently exceeded expectations across revenue, margins, and forward guidance. Nearly every S&P sector report reflects improving economic momentum.

Next week brings earnings from five of the Magnificent Seven: GOOG, AMZN, AAPL, MSFT, and META—a key barometer for market leadership.

Trump’s upcoming meeting with Xi in Korea could meaningfully influence trade and inflation expectations—provided the rare-earth issue doesn’t derail progress.

Market Overview
The S&P 500 rose 1.8% last week to 6,664, closing less than 1% below its all-time high of 6,764. This strength reflects
several powerful forces:
1. Easing geopolitical tensions
2. Exceptional corporate earnings and forward guidance across a widening range of industrial sectors
3. Robust consumer spending is driving sustained economic growth
4. The early stages of the AI-driven industrial revolution
Perry Capital remains fully invested in U.S. equities, maintaining an overweight in technology and defense, where we
see the strongest return potential. We remain underweight in health care and real estate, where we believe additional
fraud and mispricing remain to be uncovered.
Meanwhile, both the budget and trade deficits have declined by nearly $350 billion each, helping to push interest rates
lower and the dollar higher. Markets expect both trends to persist — and so do we. The AI buildout continues to benefit
from widespread deregulation, amplifying productivity and investment tailwinds.
Our view: Stay the course.

One of my favorite statistics is that, according to an internal analysis of one of the Big-cap Hyper-scalers, businesses spent $1.7t on AI investments for their companies in 2024. That is over 5% of GDP. And, according to their five-year plans, businesses are expected to invest up to 25% of US GDP, which equates to $7t-$8t.
No revenues? Think again. Consumers will be trickier, but the math for growth is compelling. As of this August, OpenAI counted roughly 700 million people—9% of the world’s population—as weekly users of ChatGPT, up from 500 million in March, and its revenue is on track to triple that of 2024.

If the Fed cuts interest rates on Wednesday, Perry Capital will buy more Gold and allocate more capital to big-cap tech stocks. Gold is the best hedge for government profligacy. We have plenty of it, and it appears more stimulus is coming.
Risk assets are rallying and will very likely continue to do so. There are many small reasons for this – and one big one!

The risk to all of the bullish developments is that excessive debt and deficits remain. Sure, the growth trajectory has leveled off, but I wish the Tax/Budget Bill provisions for spending cuts were more of a priority. Spending will continue to be cut in the years ahead, leading to growth. That is what the market likes.

Perry Capital is forecasting a stronger economy than most expect, supported by robust corporate profitability resulting from lower taxes, deregulation, reduced government spending, improved trade balances, and enhanced national security. Corporate, small business, and household confidence surveys reflect the same rising optimism.
These government initiatives, along with strong consumer spending and robust business investment in the AI buildout, will be supportive of a strong dollar, lower inflation, and strong economic growth. We are positioned for more record highs in the stock market, a stronger dollar, and the technology and industrial sectors of the economy continuing to outperform.

• The “Big Beautiful Bill” became law on Friday, Independence Day.
• The key provisions are as follows:
o The 2017 Tax cuts will be extended and made permanent.
o Medicaid costs, which more than doubled over the last four years, from about $450b to $980b, are expected to be reduced to pre-pandemic levels, mainly through the elimination of fraud.
o Taxes will be cut for the middle class.
o Spending will be prioritized away from decarbonization initiatives and towards incentives for domestic industrialization and national security.

Q2 is dead. Long live Q3.

This just in! Today, the first day of Q3, the Senate passed the Budget Bill. This is very bullish. The Dow rose 400 points on the news.

Why?

U.S. Stocks ended the quarter at record levels.

Why?

The S&P 500 and the Nasdaq are both 6% higher for the year. The Dow is up 4%.

The reasons are obvious:

At this juncture, with global equity markets near or at new all-time highs, it is clear that an upside breakout will require new positive information. What the markets are waiting for is spending cuts. Price changes are all about “The Delta”– the rate of change: if the trajectory of excessive indebtedness slows, the market will like it.

The central tenet of the America-First policy is a five-point plan of action, which includes: lower taxes, deregulation, budget deficit reduction, trade deficit reduction, and enhanced national security. Toothless government spending reductions are a big problem; spending cuts, already meager at best, are being offset by tax cuts, which, on a net basis, will massively increase the National Debt. This is a serious mistake and must be rectified in the Senate. Investors should remain focused on the administration’s efforts to reduce government spending. Federal Spending as a percentage of GDP has doubled over the past 75 years. The cold, hard truth is that if spending cuts do not materialize by July, markets will revolt.

The current administration was elected to address and reverse the destructive trends of excessive indebtedness, as well as the exploding budget and trade deficits. We must eliminate waste, fraud, and excessive spending, and we must compel trading partners to enter into fair trade relationships. Collectively, these financial calamities are slowing the U.S. economy and inflating it. The status Quo is untenable; a realignment is required. Investors recognize this and are allocating more capital to the U.S equity market.

The primary objectives of the U.S Government are:
• Lower taxes
• De-regulation
• Reduced government spending (and the disappearance of the budget deficit)
• Fair trade (and the disappearance of the trade deficit)
• Enhanced national security, which includes a strong and logical immigration policy, a strong, safe, and logical supply chain, and a strong and logical economic relationship with China, which will require a significant reset.
The market is beginning to realize that these objectives are achievable and rallying because of it.

Investors want to understand Trump’s policies and the state of the U.S. economy – especially its markets – in the months ahead. Because they currently do not, uncertainty (the enemy of decision-making) has risen. As a result, volatility is up, and so is risk premium.

It’s a great time to be a trader. Markets are volatile, and the prevailing narrative is emotionally charged.

Take the S&P 500, for example: In the 100 trading days since November 1 (the lead-up to the election), over half the sessions saw moves of at least 1%—31 down days and 25 up. Nearly 20% of those days featured swings greater than 2% (7 down, 10 up). That’s serious turbulence.

The U.S. economy has never dipped into recession with financial liquidity this strong, central banks stimulating, the labor market expanding, wages and spending on the rise, and corporate and household balance sheets this solid. Plus, corporate profits are expected to rise by 10% in Q1.
It is also presumptive to assume there will be inflationary tariff wars. Current trade imbalances will be stabilized with bilateral reciprocal and non-inflationary trade agreements. Our closest allies – Mexico, the Commonwealth countries, and Europe will join us in establishing a bulkhead against unfair and economically destabilizing Chinese government-subsidized imports. China will be forced to cut prices even further; it will continue to subsidize the labor force and suffer slower growth and domestic mistrust just to keep its economy from collapsing.

Most of the mainstream media and much of the financial services sector commentaries are now forecasting what may become known as the “Trump recession”, which, of course, will include a new wave of inflation. As Professor Bloom opined in the quote above, there is a fear we will enter an inflationary recession scenario due to policy turbulence and a tariff war.
While growth may hit a soft patch, it is far from recessionary. Despite policy uncertainty hurting sentiment, an inflationary recession is a very low probability outcome. The bond market gets it.

Optimal portfolio performance requires brutal honesty—devoid of emotion—to make proper decisions based solely on the outcomes of dynamic geopolitical, economic, and market factors.
The President of the United States clearly stated his objectives and was elected to achieve them.
Those objectives are balanced trade, a balanced budget, lower taxes, and deregulation. Achieving these goals will require rolling back the exorbitant government fiscal spending and excessive indebtedness that has exploded over the last four years. The budget deficit has quadrupled since 2019 (From $500b to $2t), and the national debt has risen by $14 trillion (from $22t to $36t). This is economically unsustainable; this level of debt and the amount of deficit spending is increasing inflationary pressure, which risks destroying the U.S. economy and markets worldwide.

Perry Capital presented its market forecast at our Q1 Investor Forum last week in Miami Beach.

I understand that not everyone will agree with my views. However, my work has always been independent, objective, and unbiased. It is solely focused on economic and financial matters—strictly and deliberately non-political.
We presented our view of the eight main themes that we believe will drive investor returns for the first quarter, first half, and full year of 2025. Those themes are:
1. Peace in the Middle East
2. Peace in Ukraine
3. Reduction of the Chinese threat to U.S. National Security
4. Immigration reform
5. Reduction of the trade deficit
6. Reduction of the budget deficit
7. Reduction in government spending
8. The Promise of the AI Industrial Revolution.

With the news coming fast and furious, every investor must have access to independent, objective, and truthful facts. This is the foundational philosophy of Perry Capital. Stay vigilant, skeptical and be brutally honest with yourself in your decision-making process; successful investing demands it.
Never lose sight of the fact that markets are driven by narrative. Narratives always have bias. Behind every bias is an agenda funded by those who benefit from the widespread adoption of said narrative. Know who pays the messenger and you will understand why untruthful narratives abound.

Government policy remains stimulative, and aggregate demand is rising. High T-Bill rates with no duration risk remain a gift—no reason to own long-maturity bonds.
The economy is growing slowly and inflating quickly, which presents significant challenges for the government, economy, and markets.
Heightened uncertainty and rising volatility exert tremendous stress on risk assets. Something is going to break.

Markets continue to reflect extreme volatility as the Fed attempts to grapple with slowing growth, rising inflation, excessive indebtedness, and surging deficit spending.
Economic data last week underscored the dominant and simple truth that, in the aggregate, economic growth is stagnant and inflating- due largely to a rise in aggregate demand initiated by $11t in government stimulus the economy didn’t need.

U.S. economic growth is being supported by an extraordinary amount of excessive indebtedness and deficit spending. I have argued that we are witnessing a regime change wherein investors will demand higher yields for investment in government bonds as the mathematical certainty of the inability to ever pay back our debts is becoming so strained that the only way out for the government is to embrace inflation. This is a historic repeating pattern when countries lurch into debt crises of their own making.

In a slow-growth inflationary environment, much can and will go wrong. This is especially true in the context of rising and volatile geopolitical risk.
Heightened uncertainty and rising volatility exert tremendous stress on governments, economies, and markets. Armed conflict makes it worse. Errors in judgment by countries and misguided decisions on the part of those in power compound mistakes that are extremely dangerous.
War exacerbates risk. Investors should remain defensive. War is also disruptive and inflationary. Prices are rising.
Politicians and business people are playing defense. Investors should, too, as markets are not priced for these rising geopolitical risks.
Perry Capital has anticipated both rising inflation and rising risk and is positioned for more.