To The Moon

Markets: S&P 500 Fairly Valued – Now What?

• Based on historical valuation bands (14x–20x forward earnings) and modest earnings growth expectations, the $S&P 500(.SPX)$ is now fairly valued.

• To be bullish from here, investors must believe:

  The U.S. economy is recession-resistant.

  Financial markets now influence (if not dictate) policy.

  Generative AI will supercharge labor productivity, reversing decades of sluggish growth.

• Up: AI (Nvidia, Palantir, $SUPER MICRO COMPUTER INC(SMCI)$ ), Small Caps, Housing-related equities

• Down: UnitedHealth (-18% on CEO shuffle and outlook withdrawal), dragging the Dow

Data: Small Caps Ready to Outperform?

• The Morning Briefing and Community Plus reports argue US small caps may soon outperform large caps, citing relative valuation and a turn in the economic cycle.

• Separately, declining U.S. home price inflation is now more impactful to the CPI than imported goods potentially facing new tariffs.

• The U.S. small-cap IPO market is surging, led by Chinese firms rushing to list before rule changes.

• Of 83 IPOs over the last two quarters, 53 were Chinese, mostly on Nasdaq.

Disruption: AI Productivity Correlation Confirmed

• A St. Louis Fed study links AI adoption to higher productivity at the industry level, a major endorsement for Gen AI. $NVIDIA(NVDA)$ $Palantir Technologies Inc.(PLTR)$

• Recall: The 2010s saw the worst productivity growth in 60+ years. The 2020s have been better, but still inconsistent.

Inflation Cools: CPI and Core CPI Both at +0.2% MoM

• Headline CPI rose just 0.2% MoM, bringing the YoY rate down to 2.3%, the lowest since Feb 2021.

Inflation

• Core CPI (ex food & energy) also slowed to 2.8% YoY.

Microsoft Layoffs vs. Strong Earnings

• Despite $25.8B in net income, Microsoft announced ~6,000 job cuts (3% of staff).

• Cost-cutting continues, even in mega-cap tech, suggesting managements are focused on profitability, not just top-line growth.

Trade Reset & U.S.-China Thaw

• Beijing has reopened to Boeing and cut tariffs on U.S. goods amid a 90-day truce.

• AI-related U.S.-Saudi deals ($600B+) are also helping calm geopolitical concerns.

The détente is fragile. Trump has warned tariffs could return “substantially higher” if talks break down.

Looking Ahead

• Wednesday: Retail sales, business inventories.

• Friday: University of Michigan sentiment + inflation expectations.

• May 19: Coinbase joins S&P 500

• Late May–June: Tax reconciliation in House + potential market volatility from stalled negotiations

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This summary is for informational purposes only and does not constitute financial advice. Investors should conduct their own research before making investment decisions.