Nvidia's market cap reached new heights, surpassing Microsoft and Apple and driving the S&P 500 to new records. The author questions whether this rally can be sustained and compares it to the Bitcoin hype of 2021/2022.

Last week, the Federal Reserve hinted at just one rate cut by year-end, likely in November or December, as inflation slows but stays above 3%. Despite mixed economic data, the S&P 500 and Nasdaq hit new highs, driven by optimism around AI and solid earnings.

With school out and families gearing up for slower times this summer, it looks like they are going to have some company. The economy may be looking to get some time off and is cooling pretty quickly as well. And consumers are finally beginning to buckle under the weight of interest rates and inflation. After the summer is done and the bills come due, the party may start coming to an end.

Last week's focus was on economic weakness, evident in two key areas: the revised first-quarter gross domestic product (GDP) figures and several bond auctions. Additionally, elevated inflation has persisted for over three years, with the last reading below 3% occurring in April 2021 (2.6%). While 3% may not seem significant, we experienced an annual inflation rate between 7% and 9.1% from December 2021 through November 2022, peaking at 9.1% in June 2022.

Markets started the week quietly before turmoil hit midweek due to strong jobs and manufacturing data, coupled with Fed minutes hinting at prolonged high rates, causing the Dow's worst day this year. Despite a modest recovery on Friday, uncertainty looms with upcoming PCE data potentially adding volatility and the 10-year Treasury yield stuck at 4.5%.

This week's market commentary highlights the contrasting forces at play. While stock markets hit new highs on hopes of inflation subsiding and potential rate cuts, inflation data remains stubbornly high. The Federal Reserve's response to inflation will be key in determining the market's future trajectory.