Market Momentum: Analyzing Inflation, Tariffs, and NVIDIA’s AI Surge

US markets opening higher on this Tuesday morning on the heels of the latest consumer price inflation figures and in video rallying by 3.5% as it says it's resuming sales of its H20 GPU chips to China and launching a new model that's built just for that market.

Meanwhile, Trump is moving full speed ahead with his tariff agenda, releasing a new round of letters to world leaders laying out plans for tariffs on imported goods starting.

In August, meanwhile, Bitcoin earlier breaking new records earlier this week above 123,000 while the S&P 500 up over 6.5% year to today.

Well joining me this morning at the New York Stock Exchange is Jose Torres, senior economist at Interactive Brokers.

Jose, so great to have you back.

Thanks for joining me.

Absolutely great to be here.

I mean, great day for the market.

Oh, absolutely.

Well, there are a lot of moving parts here with tariffs as well as.

And we had that Nvidia announcement, not to mention Trump is going to be in Pennsylvania later today to talk about the AI data center investment.

So what do you make of this morning's earnings data and everything that's moving the market?

Well, the earnings were quite buoyant.

I thought the CPI was terrific.

I told folks yesterday at around 3 o'clock that the bar was particularly high for CPI.

Everyone's waiting for the tariffs to fuel price pressures, but we keep getting these readings that are well.

Below expectations.

There's a lot of moving parts here, but part of it is the productivity advancements that we're having so far this year have been quite strong.

That's been helping limited limiting inflationary pressures.

Also look at gasoline prices.

Gasoline prices in today's report actually served as an inflationary tailwind, but from January to the present, generally speaking, gasoline has been great.

All crude oil prices have been lower.

Shelter also came in, came in softer.

Used cars, new cars.

You'd expect to see the tariff influence there again a decline.

Used cars are down roughly 4 months in a row.

So really great CPI report as far as tariffs.

Still expecting between 10 and 20%.

No one really believes that the 30% and the 40%.

Tariffs will be really implemented in a wide scale because unfortunately, Rey, if that were the case then you know equity valuations would have to get trimmed, economic growth would have to come in.

So right now, final point here, I think we have a really buoyant outlook, you know, reduced taxation, robust capital expenditures, milder regulations, onshoring.

Progress subdued energy costs market goes higher.

Well, Jose, while we're on the topic of the US economy, of course we're paying attention to what's happening with inflation, but also let's look at the labor market.

So we got that in all farm payrolls print for the latest month, better than expected, and unemployment also satisfactory here.

But what does this all mean for the Federal Reserve?

Well, you know, I think the Fed is too tight.

You know, inflation is at 2.7% CPI, which actually CPI tends to be a lot higher than their preferred measure, which is the PCE, right?

So why is the Fed in an upper end range of 4.5 and the CPI and the inflation rather overall in the mid 2 somewhat, right?

Why is the Fed in the upper range of 4.5%?

I think it's too high.

I've been telling folks to buy treasuries.

10 years shouldn't be near 450.

Of course today it's coming in a lot lower.

These are good trades because inflationary pressures are subdued term premiums, so which reflects the level of concern that folks have over fiscal debt issues.

Those have been through the roof, those also have space to come down, but then also growth.

Been strong and that's also leading to higher interest rates in our forecast contract market, Remy, we're seeing a lot of these bullish bets, and that's really seen through yes contract buying in retail sales in GDP, in non-farm payrolls.

And why are folks gravitating to our new forecast contract market?

Well, 4 main reasons, 4 reasons that they can come in, and it's really investing, it's speculating, it's hedging, and it's arbitrage so they can invest in these longer term themes.

They can hedge a portfolio with a new asset class forecast contracts that's not correlated to the traditional moves and yields or in equities.

They can come in and also they can speculate if they're an expert.

Economists or analysts and they really have a knack on what the number is going to come out, whether it's going to be too hot or too low, and they can assign probabilities on those releases and final point, the arbitrage we have competitors in the prediction market.

Sometimes we list the same contracts, but our odds are different than theirs, so experienced traders can come in and take advantage of those discrepancies.

Yeah, and while we're Looking at the major equity averages, there are a lot of moving parts, as you mentioned, whether we're talking about macro or policy, whether we're talking about monetary policy, fiscal or economic.

But of course when it comes down to sector breakdown, I do want to get your take on Nvidia and this AI play.

So does this mean we see new record highs again for Nvidia?

And what about the long term play here?

Yeah, you know what it is, Rey, for a long time since really the great financial crisis, technology has been that consistent driver of equity gains in the US, you know, from a spider sector perspective, technology and communication services and really that's where all the innovation is, that's where the technology is, that's where the strong balance sheets are.

That's where the resilient profitability is, despite where the economic cycle is.

I mean, even in Years where we saw the Fed raising 2022 was not a good year for markets.

We didn't expect the Fed to go up to 5 and change on Fed funds, but tech, you know, did trim down.

But then after the Fed started coming in and animal spirits regained, and we got those AI advancements in late 2023, you know, it's been off to the races.

So and then final point from a global perspective, there are no other technology large cap companies that can compete.

With the magnificent seven firms that we have here and that really, you know, in the beginning of the year we talked a lot about international folks, you know, going away from US equities due to political reasons as well as valuations, but now, you know, I mean who could resist $6300 on the S&P 500 folks.

Well, finally, before I let you go, I understand that you're doing a Reddit AMA later this afternoon.

So while we're on the topic of forecasts, I know that when it comes to politics, the New York City mayoral race has been gaining national headlines.

So tell us what you're seeing.

Yeah, so we're seeing, you know, that's one of the most popular things we're seeing in forecast contract trading is the election wagering, right?

Last year we saw President Trump.

President Vice President Harris, it was a very, very tight race initially and the odds were moving and President Trump was in the lead, then Vice President Harris was in the lead.

Now we're seeing a lot of excitement with the New York City election right now.

Mamdani is in the lead with around 70%.

Mayor Eric Adams around 25%, and the rest minority is to former Governor Andrew Cuomo.

And that's been driving a lot of our volume.

Last I checked over 1 million contracts traded also.

Driving a lot of our volumes.

Nasdaq 100 forecast contracts, S&P 500, Dow Jones Industrial Average, and also Bitcoin and Bitcoin new record highs.

Yeah, Bitcoin new record highs also available.

IBTR forecast contracts.

We're seeing folks, you know, starting to dabble in there.

So overall, yeah, really positive and really happy to talk to everybody about all the things that we have going on in the markets.

OK, Jose, as always great to have you here.

Thank you so much for joining us.

Thank you.

My pleasure, Ray.