Holding the Book as PCE Runs Hot and the Court Keeps Cook

This Week in Context

Two things moved the week: an inflation report and a court ruling.

On Friday June 26 the May reading of the Personal Consumption Expenditures (PCE) price index, the inflation gauge the Federal Reserve watches most closely, came in at 4.1% over the past year, the hottest in three years. The May PCE report put core inflation, which leaves out food and energy, at 3.4%, the highest since late 2023. A war-driven jump in oil and gasoline is a big part of it, with drivers paying the most for fuel in three years.

Then on Monday the Supreme Court ruled that Federal Reserve Governor Lisa Cook keeps her seat, rejecting the effort to remove her. That settled a question that had hung over the market for weeks: whether a sitting governor could be pushed out, and what that would mean for the central bank's independence. Stocks took the ruling as good news, and the Dow Jones Industrial Average closed above 52,000 for the first time, helped by Alphabet joining the index that day.

The book did not move. It is built for exactly this mix of hot inflation and a central bank in no hurry to help.

Macro Landscape

Hot inflation and a central bank that has stopped promising cuts point the same way for our positions.

Short-term yields stayed high. The 10-year Treasury yield sat near 4.48% and the two-year held firm as traders priced out rate cuts for the rest of the year. That is good for the cash sleeve. Short-dated Treasury bills keep paying close to 3.6% with no damage from rising long-term rates.

The other effect is a firm dollar, which touched a one-year high this month and leans on gold, silver, and emerging-market stocks. Yet emerging markets held up better than that headwind would suggest, with our sleeve sitting near a 52-week high.

This is the trade-off we accepted when we built the book. The 40% cash position does its best work when a central bank is in no hurry to ease and inflation is still above target. We own no long-duration government bonds, which take the most damage when yields rise. That stays the right call.

Sector Spotlight: A Preferred Gauge Runs Hot

The May inflation report is the number that matters most right now.

At 4.1% headline and 3.4% core, the Federal Reserve's preferred gauge is running roughly twice its 2% goal. The committee's own June projections already saw inflation staying high into year-end, and this report does nothing to soften that.

the fed stopped promising cuts in june for cuts to come back, the data has to cooperate a three-year high on its preferred inflation gauge is not that

Markets now put the odds of a rate hike by September near 62% and see no cut this year. The next test is the June jobs report, due Thursday July 2, pulled forward a day ahead of the Independence Day holiday. A hot jobs number on top of hot inflation would harden the hike case. A soft one would not undo a three-year high on prices, but it would take some pressure off.

Crypto Corner

Bitcoin slid back under $60,000, down from about $64,000 a week earlier.

The weakness is about demand, not a broken thesis. Spot Bitcoin exchange-traded funds (ETFs) saw their steepest monthly outflows of the year as institutional buyers stepped back, and a supply overhang from holders selling into thin demand has capped every bounce. Spot now trades below the roughly $65,000 level several analysts call fair value.

the long-horizon case for bitcoin has not changed weak demand and a supply overhang are not the setup that reclaims 76k so we hold the 7 percent, and we wait

Our plan is unchanged. The $76,000 line we have flagged for over a month is still broken, and our rule is to see a clean move back above it before adding. We hold, we do not chase.

Looking Ahead

Two things to watch.

First, Thursday's jobs report. With the Federal Reserve leaning toward a hike, every inflation and jobs print carries more weight than usual. A strong number would push hike odds higher and keep the cash sleeve earning its place.

Second, the dollar and oil. The Iran ceasefire is holding, with tankers moving through the Strait of Hormuz and crude near $80 a barrel. But the May inflation jump shows how much the earlier oil spike is still working through prices. If the dollar keeps climbing, it adds pressure on gold and emerging markets even with oil calmer.

The book is unchanged: 27% VOO, 8% VWO, 13% GLD, 5% SLV, 7% BTC, 40% BIL. Cash pays while we wait for the data to force a change. This week, it did not.