May 30th, 2025: Weekly Market Review

1. The Federal Reserve’s current federal funds rate, as of May 2025, stands at 4.25% to 4.50%, and the neutral rate is estimated to be around 2.9% to 3.5% based on economic projections. 

To reach this neutral zone, the Fed would need to implement at least four 25-basis-point (bps) cuts, totaling a 100-bps reduction, to bring the rate to approximately 3.25% to 3.50%. While the current economic environment suggests further cuts are likely, no historical period matches the exact scenario where the Fed was certain to deliver precisely four 25-bps cuts to reach a neutral zone of 2.5% to 3.5%.  There was one time when the Fed executed a series of measured rate cuts.  One relevant period is the 2001–2002 rate-cutting cycle, particularly from May to November 2001, when the Fed cut rates in response to the dot-com bust and economic slowdown, exacerbated by the September 11 attacks. During this period, the federal funds rate was reduced from 4.0% to 2.0% through a series of cuts. Chart below shows the market currently only sees 43 bps of rate cuts this year.  REF: DailyShot

2. OpenAI’s Sora, introduced on February 15, 2024, marked a major leap in AI video generation, offering promising yet still-developing results that sparked global excitement about the future of media creation. 

While Sora impressed with its realism and ability to interpret complex prompts, the quality was seen as a steppingstone. Now, Google’s Veo 3 has taken that vision further.  The rapid advancements in AI video generation, as showcased in Ari Kuschnir’s Veo 3 AI experiment, signal a transformative era for visual storytelling. The video demonstrates AI’s ability to produce hyper-realistic visuals that are nearly indistinguishable from real-world footage, blurring the lines between reality and artificial creation. This technological leap has profound implications for filmmaking, as it drastically reduces the barriers to entry for storytellers. By leveraging AI tools like Veo 3, creators can generate high-quality visuals without the need for expensive equipment, large crews, or access to high-profile actors. This democratization empowers independent filmmakers, particularly those from underrepresented or resource-constrained communities, to bring their visions to life, fostering a new wave of diverse narratives and innovative storytelling.

Moreover, AI-driven video production liberates creators from traditional constraints, such as the logistical and financial challenges of working with celebrities or securing expansive sets. With AI, storytellers can craft custom characters, environments, and scenarios tailored to their unique visions, unbound by the limitations of physical production. This shift not only lowers costs but also amplifies creative freedom, enabling bold, experimental, and unconventional stories that might otherwise remain untold. As AI video technology continues to evolve, it promises to reshape the filmmaking landscape, making it more inclusive and accessible while challenging audiences to question the authenticity of what they see, ultimately redefining the art and craft of cinema.  Click onto picture below to access video generated using Veo3.  REF: GeminiVeo3, GeminiVeoWebsite

As a follow up, what are some of the consequences of such an evolution of movie making?  There are significant consequences, below are several key impacts.  Click onto the reference link for additional information.  REF: Veo3-FollowUp

• Displacement of Physical Production Set Workers…
• Reduced Demand for High-Profile Talent…
• Erosion of Trust in Visual Media…
• Oversaturation of Content…
• Ethical and Legal Challenges…
• Shift in Skill Requirements…
• Homogenization of Creativity…

3. Recent studies (from UBS, Citi, and CNBC) highlight a shift in family office investment strategies, with public equities gaining traction due to market volatility and the need for liquidity. 

According to the UBS Global Family Office Report cited by Frank, public equities accounted for 26% of family office portfolios in 2024, up from 24% in 2023, with plans to increase to 29% in 2025 as families capitalize on opportunities in AI and healthcare. This reflects a response to rising interest rates and private equity’s illiquidity, with 43% of family offices boosting stock allocations in 2024 for faster returns. Meanwhile, private markets remain significant, but the pivot to public equities offers flexibility amid economic uncertainties, including those affecting university funding.

This trend, as Frank notes, aligns with family offices’ $6 trillion asset base seeking stability in developed market stocks, particularly in the U.S., where 86% of American family office portfolios are concentrated. The move supports diversification while addressing risks from private market lockups. However, private equity still holds a strong 18–22% allocation, balancing long-term growth with liquid investments. As universities face funding challenges, family offices’ shift to public equities—driven by market depth and quicker opportunities—signals a broader trend toward agile strategies. This approach mitigates volatility while maintaining exposure to innovative sectors, though regulatory scrutiny over market dominance could pose future challenges.  Click onto picture below to access video. REF: CNBC

With the current macro-economic backdrop, below are areas we currently favor:

• Fixed Income – Short-term Corporates (Low-Beta)
• Fixed Income – Corporates High Yield as Opportunistic Allocation (Low-Beta)
• Businesses that contribute to and benefit from AI & Automation (Market-Risk)
• Cyber-Security & Software (Market-Risk)
• Biotechnology (Market-Risk)
• Financials (Market-Risk)
• Digital Asset – Bitcoin (Market-Risk/Hedge)
• Cloud Computing (Market-Risk)

4. World Watch

4A. ​ Severe downturn in China’s economy revealed by Don Xiang, spotlighting a dramatic 1-trillion-yuan drop in small and micro enterprise loan balances in April, driven by commercial banks’ refusal to lend to private export firms amid the U.S.-China tariff conflict. 

Banks, prioritizing risk management, have demanded early loan repayments, ignoring the People’s Bank of China’s (PBOC) policy to support private businesses, exposing its limited authority. Social financing collapsed, with new RMB loans falling to just 88.4 billion yuan, indicating a near standstill in financial activity. The investment multiplier dropped to 0.9, showing that new debt generates less investment than its value, with the deficit used to service unpayable debts. This reliance on government borrowing signals an economy on the verge of breakdown.

Xiang warns of a “mini-Latin Americanization,” a slow, controlled economic decline rather than a sudden collapse. Despite official claims of stable growth, policies prioritizing superficial metrics over reform are eroding vitality. Government-driven consumption boosts, like trade-in programs, and local borrowing for infrastructure mirror the 1980s’ failed policies, creating a false growth narrative. Xi Jinping’s approach, steering toward a disguised planned economy with state-controlled investments, stifles innovation and private sector dynamism. Xiang predicts two decades of stagnation, with zombie financing platforms and a market dominated by state entities, masking underlying dysfunction through manipulated data.  Click onto picture below to access video.  REF: DonXiang

4B. OpenAI acquired io, a startup founded by Sam Altman and Jony Ive, for $6.5 billion in equity, marking its largest acquisition to date. 

This all-stock deal integrates io’s 55-person team, led by Ive’s design firm LoveFrom, to develop innovative AI-driven hardware, with the first device expected in 2026. Unlike traditional phones or wearables, this device aims to be “fully aware of its environment,” promising a new paradigm in user interaction through a native AI operating system. The acquisition aligns with OpenAI’s shift to a for-profit public benefit corporation, reflecting its ambition to expand beyond software into hardware, leveraging Ive’s design expertise—known for iconic Apple products—to create user-friendly, AI-native devices. This move positions OpenAI to compete directly with tech giants like Apple, Google, and Microsoft, who are also integrating AI across their ecosystems.

The merger significantly impacts the AI product landscape by accelerating the convergence of software and hardware innovation. OpenAI’s acquisition of io, with its focus on AI-driven devices, challenges existing players like xAI, which recently merged with X to enhance its AI capabilities through social media data. This could intensify competition, as OpenAI’s hardware ambitions may redefine user experiences, potentially outpacing xAI’s Grok, which relies on X’s data for real-time training. The entry of a design-centric AI hardware player could pressure companies like Google and Microsoft to innovate faster in their AI-integrated products, such as Google’s Pixel or Microsoft’s Azure-backed services. However, regulatory scrutiny over data privacy and market dominance, especially in the EU, may pose challenges. With OpenAI’s estimated 800 million ChatGPT users, this acquisition could set a new standard for AI ecosystems, blending seamless hardware-software integration and potentially reshaping consumer expectations for intelligent devices. Click onto picture below to access video.  REF: OpenAI

4C. An updated snapshot of the current global state of economy

Below, according to TradingEconomics as of 5/27/2025.  REF: TradingEconomics

• The People’s Bank of China (PBoC) cut key lending rates to record lows at the May fixing, in line with market expectations and marking the first reduction since October. 
• The German economy expanded by 0.4% quarter-on-quarter in the Q1 2025, revised upward from an initial estimate of a 0.2% rise, and rebounding from a 0.2% contraction in the previous period.
• The annual inflation rate in the UK jumped to 3.5% in April 2025, the highest since January 2024, from 2.6% in March and above forecasts of 3.3%.
• France’s annual inflation rate unexpectedly eased to 0.7% in May 2025, the lowest level since February 2021, down from 0.8% in both March and April, and below expectations of 0.9%, according to preliminary estimates.

5. Quant & Technical Corner – a selection of quantitative & technical data we monitor on a regular basis to help gauge the overall financial market conditions and the investment environment.

5A. Most recent read on the Fear & Greed Index with data as of 5/27/2025 – 7:59PM-ET is 65 (Greed).  Last week’s data was 68 (Greed) (1-100).  CNNMoney’s Fear & Greed index looks at 7 indicators (Stock Price Momentum, Stock Price Strength, Stock Price Breadth, Put and Call Options, Junk Bond Demand, Market Volatility, and Safe Haven Demand).  Keep in mind this is a contrarian indicator!  REF: Fear&Greed via CNNMoney

5B. St. Louis Fed Financial Stress Index’s (STLFSI4) most recent read is at –0.9036 as of May 22, 2025.  Previous week’s data was -0.4793.  A big spike up from previous readings reflecting the turmoil in the banking sector back in 2023.  This weekly index is not seasonally adjusted.  The STLFSI4 measures the degree of financial stress in the markets and is constructed from 18 weekly data series: seven interest rate series, six yield spreads and five other indicators. Each of these variables captures some aspect of financial stress. Accordingly, as the level of financial stress in the economy changes, the data series are likely to move together.  REF: St. Louis Fed

5C. University of Michigan, University of Michigan: Consumer Sentiment for February [UMCSENT] at 57, retrieved from FRED, Federal Reserve Bank of St. Louis, April 25, 2025.  Back in June 2022, Consumer Sentiment hit a low point going back to April 1980.  REF: UofM

5D. The Chicago Fed National Activity Index (CFNAI) decreased to –0.25 in April from +0.03 in March. Three of the four broad categories of indicators used to construct the index decreased from March, and three categories made negative contributions in April. The index’s three-month moving average, CFNAI-MA3, was unchanged at +0.05 in April. REF: ChicagoFed, April’s Report

5E. (5/19/2025) The Conference Board Leading Economic Index (LEI) for the US fell sharply by 1.0% in April 2025 to 99.4 (2016=100), after declining by 0.8% in March (revised downward from the –0.7% originally reported). The LEI declined by 2.0% in the six-month period ending April 2025, the same rate of decline as over the previous six months (April–October 2024). The composite economic indexes are the key elements in an analytic system designed to signal peaks and troughs in the business cycle. The indexes are constructed to summarize and reveal common turning points in the economy in a clearer and more convincing manner than any individual component. The CEI is highly correlated with real GDP. The LEI is a predictive variable that anticipates (or “leads”) turning points in the business cycle by around 7 months. Shaded areas denote recession periods or economic contractions. The dates above the shaded areas show the chronology of peaks and troughs in the business cycle. The ten components of The Conference Board Leading Economic Index® for the U.S. include: Average weekly hours in manufacturing; Average weekly initial claims for unemployment insurance; Manufacturers’ new orders for consumer goods and materials; ISM® Index of New Orders; Manufacturers’ new orders for nondefense capital goods excluding aircraft orders; Building permits for new private housing units; S&P 500® Index of Stock Prices; Leading Credit Index™; Interest rate spread (10-year Treasury bonds less federal funds rate); Average consumer expectations for business conditions.  REF: ConferenceBoard, LEI Report for March  (Released on 4/27/2025)

We have experienced a “rolling recession” since June 2022 and are only now emerging from it. However, authorities are not labeling it a recession due to high employment data.

5F. Probability of U.S. falling into Recession within 3 to 4 months is currently at 74.4% (with data as of 05/19/2025 – Next Report 06/02/2025) according to RecessionAlert Research.  Last release’s data was at 75.4%.  This report is updated every two weeks. REF: RecessionAlertResearch

5G. Yield Curve as of 5/27/2025 is showing Normal.  Spread on the 10-yr Treasury Yield (4.47%) minus yield on the 2-yr Treasury Yield (3.98%) is currently at 49bps.  REF: Stockcharts   The yield curve—specifically, the spread between the interest rates on the ten-year Treasury note and the three-month Treasury bill—is a valuable forecasting tool. It is simple to use and significantly outperforms other financial and macroeconomic indicators in predicting recessions two to six quarters ahead.  REF: NYFED

5H. Recent Yields in 10-Year Government Bonds.  REF: Source is from Bloomberg.com, dated 5/27/2025, rates shown below are as of 5/27/2025, subject to change.

The 10-Year US Treasury Yield… The 10-Year Yield is indirectly related to inflation. I expect the 10-Year Yield to drop further as dis-inflation kicks in.  REF: StockCharts1, StockCharts2

10-Year Real Interest Rate at 1.66756% as of 5/13/25.  Last month’s data was 1.66841%.  REF: REAINTRATREARAT10Y

ICE BofA US High Yield Index Option-Adjusted Spread (BAMLH0A0HYM2) currently at 3.40 as of May 27, 2025.  This is a key indicator of market sentiment, particularly regarding risk and economic health.  At its core, the spread reflects the extra return investors demand to hold riskier corporate debt over safer government securities. High-yield bonds are issued by companies with lower credit ratings (below investment grade, like BB or lower), meaning they carry a higher chance of default. The spread compensates for this risk. When the spread is narrow—say, around 2.5% to 3%, as seen recently—it suggests investors are confident, willing to accept less extra yield because they perceive lower default risk or a strong economy. Narrow spreads often align with bullish markets, where cash is flowing, growth is steady, and fear is low.   REF: FRED-BAMLH0A0HYM2

5I. (5/19/2025) Today’s National Average 30-Year Fixed Mortgage Rate is 6.97% (All Time High was 8.03% on 10/19/23).   Last week’s data was 6.92%.  This rate is the average 30-year fixed mortgage rates from several different surveys including Mortgage News Daily (daily index), Freddie Mac (weekly survey), Mortgage Bankers Association (weekly survey) and FHFA (monthly survey).  REF: MortgageNewsDaily, Today’s Average Rate

The recent spike in the 30-year fixed-rate jumbo mortgage to 6.97%, compared to Freddie Mac’s rate at 6.86% and the Mortgage Bankers Association (MBA) rate at 6.92%, highlights key differences in the mortgage market. Jumbo mortgages, which exceed the conforming loan limits set by government agencies like Freddie Mac, typically carry higher interest rates because they are riskier for lenders. These loans are not backed by government entities, which increases the risk for lenders and, consequently, leads to higher rates. In contrast, Freddie Mac and MBA provide averages for conforming loans, which meet federal guidelines and have lower risk due to government backing, keeping their rates lower.

(5/13/25) Housing Affordability Index for Mar = 103.2 // Feb = 102.2 // Jan = 100.7 // Dec = 100.7 // Nov = 99 // Oct = 102.3. Data provided by Yardeni Research.  REF: Yardeni

5J. Velocity of M2 Money Stock (M2V) with current read at 1.383 as of (Q1-2025 updated 4/30/2025).   Previous quarter’s data was 1.387.  The velocity of money is the frequency at which one unit of currency is used to purchase domestically- produced goods and services within a given time period. In other words, it is the number of times one dollar is spent to buy goods and services per unit of time. If the velocity of money is increasing, then more transactions are occurring between individuals in an economy.  Current Money Stock (M2) report can be viewed in the reference link.   REF: St.LouisFed-M2V

M2 consists of M1 plus (1) small-denomination time deposits (time deposits in amounts of less than $100,000) less IRA and Keogh balances at depository institutions; and (2) balances in retail MMFs less IRA and Keogh balances at MMFs. Seasonally adjusted M2 is constructed by summing savings deposits (before May 2020), small-denomination time deposits, and retail MMFs, each seasonally adjusted separately, and adding this result to seasonally adjusted M1. Board of Governors of the Federal Reserve System (US), M2 [M2SL], retrieved from FRED, Federal Reserve Bank of St. Louis; Updated on April 22, 2025.  REF: St.LouisFed-M2

Money Supply M0 in the United States increased to 5,775,200 USD Million in March from 5,613,800 USD Million in February of 2025. Money Supply M0 in the United States averaged 1,183,266.29 USD Million from 1959 until 2025, reaching an all-time high of 6,413,100.00 USD Million in December of 2021 and a record low of 48,400.00 USD Million in February of 1961.   REF: TradingEconomics, M0

5K. In April, the Consumer Price Index for All Urban Consumers rose 0.2 percent, seasonally adjusted, and rose 2.3 percent over the last 12 months, not seasonally adjusted. The index for all items less food and energy increased 0.2 percent in April (SA); up 2.8 percent over the year (NSA). May 2025 CPI data are scheduled to be released on June 11, 2025, at 8:30AM-ET.  REF: BLS, BLS.GOV

 5L. Technical Analysis of the S&P500 Index.  Click onto reference links below for images.

• Short-term Chart: Trend Bearish to Bullish on 5/27/2025 – REF: Short-term S&P500 Chart by Marc Slavin (Click Here to Access Chart)

• Medium-term Chart: Trend Bearish to Rising on 5/27/2025 – REF: Medium-term S&P500 Chart by Marc Slavin (Click Here to Access Chart)

• Market Timing Indicators – S&P500 Index as of 5/27/2025 – REF: S&P500 Charts (7 of them) by Joanne Klein’s Top 7 (Click Here to Access Updated Charts)

• A well-defined uptrend channel shown in green with S&P500 broke away from the uptrend.  REF: Stockcharts

• S&P500 and CBOE Volatility Index (VIX) as of 5/27/2025.  REF: FRED, Today’s Print

5M. Most recent read on the Crypto Fear & Greed Index with data as of 5/27/2025 is 68 (Greed).  Last week’s data was 69 (Greed) (1-100).  Fear & Greed Index – A Contrarian Data.  The crypto market behavior is very emotional. People tend to get greedy when the market is rising which results in FOMO (Fear of missing out). Also, people often sell their coins in irrational reaction of seeing red numbers. With the Crypto Fear and Greed Index, the data try to help save investors from their own emotional overreactions. There are two simple assumptions:

• Extreme fear can be a sign that investors are too worried. That could be a buying opportunity.
• When Investors are getting too greedy, that means the market is due for a correction.

Therefore, the program for this index analyzes the current sentiment of the Bitcoin market and crunch the numbers into a simple meter from 0 to 100. Zero means “Extreme Fear”, while 100 means “Extreme Greed”.  REF: Coinmarketcap.com, Today’sReading

Bitcoin – 10-Year & 2-Year Charts. REF: Stockcharts10Y, Stockcharts2Y