Thoughts from Themes: Shifting Gears Mid-Race

The Market Shifts Gears Mid-Race

Last week’s economic data unfolded like a technical Formula 1 course: moments of acceleration offset by sharp curves and shifting conditions. Consumer confidence surged ahead of expectations, signaling surprising overall optimism. But durable goods orders, jobless claims, and housing data revealed underlying drag, suggesting parts of the economic engine are still under strain. Adding to the noise, Trump’s very public fallout with Elon Musk over foreign manufacturing and political loyalties underscored the tension between populist economic messaging and the realities of global business. It’s a reminder that personalities still move markets — or at least shape the narratives around them.

Meanwhile, a court ruling put legal brakes on Trump’s tariff tactics, but the broader trade strategy — rooted in reciprocity and realignment — remains on track. For investors, this is less about rerouting and more about adjusting to a new racing line. Gold continues to gain ground as a hedge in volatile terrain, and semiconductor stocks are mounting a recovery lap, driven by AI demand and strategic realignment in global supply chains. In this environment, thematic investing favors precision: identifying sectors with staying power and torque through the turns.

Here’s a look at the key data and developments from the past week, and what it may be signaling as we move into the second half of 2025.

Last Week in Review

We’ve seen several notable economic developments in the U.S. over the last week, reflecting a mixed economic landscape. Durable goods orders for April dropped sharply by 6.3%, slightly better than the forecasted 7.8% decline, signaling weakness in manufacturing amid global trade tensions. However, excluding transportation, orders rose 0.2%, indicating some resilience in core sectors. Consumer confidence surged to 98 in May, up from 85.7, far exceeding the median forecast of 86, suggesting households remained optimistic despite broader uncertainties. Initial jobless claims rose to 240,000, above the expected 230,000, hinting at labor market softening. The first revision of Q1 GDP showed a slight improvement to -0.2% from -0.3%, though still negative, underscoring economic contraction. Pending home sales fell 6.3% in April, well below the anticipated 1% drop, reflecting housing market struggles amid high interest rates and affordability issues.

Friday, May 30, brought critical inflation data: the PCE index rose 0.1% in April, with the year-over-year rate at 2.1%, slightly below the expected 2.2%. Core PCE, the Fed’s preferred gauge, also increased 0.1%, with its yearly rate at 2.5%, under the forecasted 2.6%. Personal income grew 0.8%, surpassing the 0.3% prediction, but consumer spending slowed to 0.2%. The Chicago PMI dropped to 40.5 in May, signaling manufacturing contraction. Overall, the week highlighted a slowing economy with pockets of resilience, as markets awaited further Fed guidance.

Trump vs. Musk

The feud between Donald Trump and Elon Musk, has seemed to cool down a bit over the weekend, hopefully with some kind of reconciliation in the near future. Last week, the two billionaires mirrored a heated spat between two middle schoolers on a playground, each lobbing insults to assert dominance while their friends and enemies watched in glee and dismay. What began as a policy disagreement spiraled into a public spectacle, with both men showcasing their egos and influence in a way that captivated onlookers but embarrassed their allies.

The conflict ignited when Musk, fresh from resigning as head of Trump’s Department of Government Efficiency (DOGE), criticized Trump’s “Big Beautiful Bill,” a tax and spending package. Musk argued it would balloon the national debt, strip millions of healthcare, and favor the wealthy, even predicting Trump’s trade policies would spark a recession. Trump, stung by the critique from a former ally, expressed disappointment, claiming Musk knew the bill’s inner workings and should have supported it. Like a kid whose dodgeball strategy was mocked, Trump took it personally, and the stage was set for escalation.

Musk struck very low, reposting claims on X that Trump appeared in sealed Jeffrey Epstein files, implying this was why they remained unreleased—a bombshell without evidence. He also boasted that Trump wouldn’t have won in 2024 without his $288 million campaign support, positioning himself as the bigger player. Trump fired back, calling Musk “crazy” and saying he’d “lost his mind.” He claimed he’d fired Musk from DOGE and threatened to slash Musk’s government contracts, like a kid threatening to take his ball and go home. Musk’s deleted posts, including one endorsing a call for Trump’s impeachment, added fuel, while Trump’s Truth Social rants painted Musk as ungrateful.

Like middle schoolers the fight drew a crowd, and some split their support. MAGA figures like Laura Loomer backed Trump, while Charlie Kirk praised Musk’s free-speech contributions but stayed neutral. Jake Paul, a Trump supporter, called the feud an embarrassment to the GOP, akin to a classmate groaning at the drama. Republicans like Sen. Chuck Grassley urged reconciliation, fearing prolonged damage to the party, much like teachers trying to break up a scuffle. Meanwhile, late-night hosts like Jimmy Kimmel and Seth Meyers reveled in the chaos, comparing it to a “Godzilla vs. King Kong” showdown.

By Friday, both seemed to cool off. Musk endorsed a post suggesting they’re “stronger together,” and aides held quiet talks, though Trump dismissed a rumored peace call, saying he wasn’t thinking about Musk. Some, like Florida’s Jimmy Patronis, predicted they’d reconcile soon, likening it to “playground pals” making up after a tiff. Yet conspiracy theorists on X claimed the feud was “staged” for political gain, a bit like kids whispering that the fight was all for show.

Both men, thrive on attention and alpha status. Musk’s Epstein jab and Trump’s “crazy” retort are akin to one kid calling another “weird” and getting “loser” in return—petty, personal, and performative. Their public platforms (X and Truth Social) are the playground megaphone, amplifying taunts to a global audience. Supporters egging them on or begging them to stop mirror classmates picking sides or pleading for peace. The feud’s economic ripples, like Tesla’s $100 billion plus market drop (it has since recovered), add real stakes, but the core dynamic—two oversized egos clashing over who’s boss—feels straight out of recess.

In the end, this feud is less about policy and more about two larger-than-life figures refusing to back down, much like kids on a playground who’d rather trade barbs than admit fault. Whether they reconcile or keep swinging, the spectacle has left their peers—Republicans, supporters, and the public—watching with a mix of awe and secondhand embarrassment.

The Latest on Tariffs

Recent court rulings undermining the Trump administration’s negotiating leverage in trade talks is just "more noise". This is a battle of "policy vs procedure" -as The U.S. Court of International Trade ruled on May 28 that Trump’s use of the International Emergency Economic Powers Act (IEEPA) to impose tariffs—10% globally, 25% on Canada and Mexico, and up to 145% on China—was illegal, as IEEPA does not authorize such actions. We know what the intended policy is and it’s just a matter of time, energy and effort to find the right procedure so that this administration can re-set trade with the world. Investors and executive alike must take the noise into consideration, but should plan for new trade agreements, in line with Trump’s philosophy, reciprocity, and in direct conflict with China. Volatility in the market, until things are clarified, may be used as a buy point for high conviction investment themes and sectors.

This Week’s Economic Events

Monday, June 9

10:00 AM Wholesale inventories

Tuesday, June 10

6:00 AM NFIB optimism index

Wednesday, June 11

8:30 AM consumer price index

8:30 AM CPI year over year

8:30 AM Core CPI

8:30 AM Core CPI year over year

2:00 PM Monthly US federal budget

Thursday, June 12

8:30 AM Initial jobless claims

8:30 AM Producer price index

8:30 AM Core PPI

8:30 AM PPI year over year

8:30 PM Core PPI year over year

Friday, June 13

10:00 AM Consumer sentiment (prelim)

Investment Themes

Gold prices are back on the upswing due to several interconnected factors. Global economic uncertainty, fueled by escalating U.S.-China trade tensions and President Trump’s tariff policies, hung up by the courts, has driven investors to seek safe-haven assets. Gold, historically viewed as a hedge against inflation and geopolitical instability, benefits from this fear trade, as seen in its surge above $3,400 per ounce in this year. Central banks, particularly in emerging markets, are also increasing gold reserves to diversify away from the U.S. dollar, which has weakened amid trade disputes. This demand, coupled with a 40% price rise since late 2023, reflects gold’s role as a store of value during turbulent times. Additionally, despite high real interest rates, gold’s traditional inverse relationship with rates has shifted due to overriding geopolitical concerns and consistent central bank buying.

Gold miners are poised to outperform the metal itself because of operational leverage. As gold prices climb, miners’ profit margins expand significantly since production costs remain relatively fixed. Posts on X highlight that miners are “printing money” with increased margins, especially as oil prices fall, reducing operational expenses. Moreover, miners were undervalued relative to gold earlier in 2025, creating a “double discount” scenario compared to equities. This undervaluation, combined with strong cash flows, positions miners for outsized gains, potentially attracting M&A activity as companies seek to capitalize on the favorable market conditions.

Chip stocks, critical to AI infrastructure, have staged a notable comeback after earlier setbacks. In early 2025, stocks like Nvidia, Broadcom, and Taiwan Semiconductor Manufacturing Company (TSMC) faced a sell-off, losing $1.16 trillion in market cap due to fears of tariffs on Taiwanese imports and competition from innovations like China’s DeepSeek AI models. However, by June 2025, these stocks have rebounded. Nvidia reported a 69% quarterly sales increase, driven by demand for its AI chips, despite U.S.-China tech conflicts. TSMC, benefiting from a 60%+ market share in semiconductor fabrication, has seen renewed investor confidence after expanding U.S. production with a $100 billion investment to mitigate geopolitical risks. This recovery underscores the resilience of chipmakers as AI demand continues to surge, with the semiconductor industry projected to generate $717 billion in revenue in 2025, up double digits from the prior year.

Disclosures

All data sourced from Bloomberg as of June 6, 2025 unless otherwise cited.

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