The non-farm payroll numbers for May, announced on Friday, were met with dismay by the market. The consensus forecast was for a gain of 89,000 jobs. Instead, the Bureau of Labor Statistics announced 172,000 and revised the last two months of jobs data upward. Together, that amounted to the strongest three-month stretch of job growth in two years.

 

You might think the stock market would celebrate such good news, but all three averages declined more than one percent on the news. This was a classic case of what is good news for Main Street may not be the same for Wall Street.

 

It comes down to interest rate expectations. Investors had already reduced their expectations for any interest rate cuts this year. This is despite a new Fed president whom many believe is beholden to the president's easy-money demands. The reasons are obvious.

 

Inflation continues to climb, helped by oil prices that hover above $90 a barrel. On June 10th, another Consumer Price Index reading will be released. Readers already know I expect that number to show inflation climbing even higher. And now, the last hope of interest rate bulls has been dashed with the jobs report.

 

The Fed's mandate is to keep employment buoyant and inflation at 2 percent. Stronger labor gains leave the Fed on the sidelines, but it is worried about rising inflation. Some members of the FOMC committee, which meets June 16-17, are already contemplating a possible rate hike sometime in the future. That is not good news for stocks, bonds, commodities, and much else.

 

In the meantime, the financial media has been hyping SpaceX's pending IPO all week. Evidently, the price has been set at $135 a share, which values the company at $1.77 trillion. It would make the rocket/AI/Bitcoin firm the seventh-largest company in the U.S. Pricing the offering prior to the scheduled launch date was unorthodox and "not how it's done," according to the traditional underwriting community. However, given that Elon Musk is in charge, one should expect some unorthodoxy.

 

As for the market's pullback this week, it should come as no surprise. It was about time. Nine straight weeks of gains had to come to an end at some point. Profit-taking began midweek and continued through Friday. Most of it was centered on the technology area.

 

Broadcom, one of the largest semiconductor companies, disappointed investors earlier this week when its AI chip forecast fell short of expectations. That seems to be the straw that broke the market's back. That may be so, but I believe traders were looking for any excuse to take profits.

 

As for the ongoing embarrassment in the Middle East, even Trump's congress seems to have had enough. The Republican-controlled House passed a continuing resolution this week directing Trump to end the war in Iran. The extended ceasefire continues to play out and oil remains above $90 a barrel.

 

I expect we will continue to see selling next week as markets work off their overbought and extended condition. Is this simply another buying opportunity, or is it the beginning of something more serious? I wish I knew.

 

 At this juncture, I'm betting on a quick 5 percent pullback. That's something we see three or four times a year. The decline has been largely led by semiconductor and AI stocks. That makes sense given those are the areas that have seen the greatest price appreciation. Who knows, the pullback may set us up for next Friday's SpaceX IPO and reinvigorate the tech trade.

 

The U.S.-Mexico-Canada Agreement (USMCA) is up for review on July 1, 2026. If all three countries agree, the present deal could be extended for another 16 years. If not, the agreement can continue or not.

 

The amount of trade involved is significant. Last year, because of the agreement, Mexico became the U.S.'s top trading partner, with total bilateral trade totaling $873 billion (15.6 percent of all goods exported and imported by the U.S.). Canada comes in second place with $719 billion worth of trade (12.8 percent of goods).

 

Both countries have surpassed China, which fell to third place. Both countries are America's largest sources of imports and account for one-third of U.S. goods exports. The USMCA is the world's most integrated manufacturing bloc.

 

Old timers may remember the North American Free Trade Agreement, which went into effect on Jan. 1, 1994. Prior to that, Canada and the U.S. had hammered out a free trade agreement in 1988. Things appeared to be going quite well until Donald Trump hit the scene. During the 2016 presidential campaign, Trump blamed NAFTA for the country's trade deficit with Mexico and for the loss of American jobs.

 

As was his way, Trump demanded NAFTA be renegotiated, or he would walk away from the pact. Negotiation began in August 2017 and took more than a year before all parties agreed to a deal. It was less an overhaul of NAFTA than a modest adjustment despite the president's demands and later claims. The name was changed to the United States-Mexico-Canada Agreement and was ratified on July 1, 2020.

 

The required review of the pact was expected to be a formality and, at worst, a technical review, but nothing that has to do with trade under Trump's second term is anything but. This time, it is Canada, not Mexico, that is at loggerheads with American officials. Readers may recall that when Trump launched his global trade war last year, many economists had predicted enormous damage.

 

It didn't happen for one important reason — USMCA. Much of American trade is protected under the trade pact. Autos, natural gas, crude oil, lumber, and much of the manufacturing base were sheltered thanks to the extended supply chains that encompass North America. This pipeline of goods required time, effort, and enormous investments that required decades to build.

 

Trump's tariff wars have ignited deep tensions between all three countries. Trump has blamed America's fentanyl addiction on both countries. Tariffs on both trading partners on steel, aluminum, autos, lumber, and more have been met by retaliation. Prime Minister Mark Carney has said these tariffs violate their trade agreement. Canadian provinces agree. As a result, they have banned U.S. wine and liquor imports. Canadians, in general, are more than irritated with Trump's policies and trashing of their country in comments and on social media. Many have crossed off the U.S. for vacation rentals and second homes as a result.

 

A major sticking point is the back-door policies of China and other foreign countries to use both Mexico and Canada to avoid tariffs by funneling goods into the North American market under the free trade agreement. That does not sit well with Canada, which has recently established new trade agreements with China.

 

Recently, United Auto Workers' President Shawn Fain spoke out against the renewal of USMCA unless big changes were negotiated. The head of the 400,000-member union, like Trump before him, blames the trade agreement and NAFTA before it for the loss of millions of American auto manufacturing jobs.

 

He wants to set a North American minimum wage that would guarantee Mexican auto workers would receive equal pay with their American counterparts. He would also like to see tougher penalties for violations of workers' rights and quotas requiring more vehicles to be manufactured in the countries where they are sold.

 

Fain is one of the few voices in the auto industry that supports higher tariffs on autos. In reply, auto company executives argue that Fain's recommendations would only increase car prices at a time when few Americans can afford them, while destroying a supply chain system that took decades to build.

 

Negotiations on the pact have thus far only included Mexico. The UAW's recent stance may complicate negotiations with Mexican officials. As for Canada, Carney has told U.S. officials that Canada is not interested in making further concessions to join the discussions. However, this week, Dominic LeBlanc, Canada's Minister of Trade, and Janice Charette, the country's chief trade negotiator, met with U.S. Trade Representative Jamieson Greer.

 

Canada presented specific, detailed trade proposals, though the meeting did not mark the start of formal negotiations. LeBlanc admitted that "This trip has not been without some turbulence." The delay in starting discussions, with a deadline less than a month away, led some to believe that there is a possibility that two separate trade agreements may be required, one for the south and another for the north.

 

Foreign car companies have threatened to pull their cheapest models out of the U.S. market if the three-country trade deal isn't renewed or if it is renegotiated along the lines of the UAW's wishes. Nissan, Hyundai, and Toyota are part of only a handful of car manufacturers offering small, more affordable cars for U.S. consumers.

 

Given what is at stake, the odds of the trade pact surviving July are high. Looking at past treaties, negotiations always took longer than the allotted time before a deal was struck. In this case, if no agreement is reached by the deadline, the deal continues under Article 34.7 of the USMCA but shifts to annual reviews rather than the 16-year period ending in 2042. If that were the case, investment in supply chains, the broadening of cooperation to include areas such as digital trade, IP, and regulatory cooperation would likely erode due to the uncertainty involved in annual reviews versus a 16-year time horizon.

 

Momentum traders can't get enough of all things AI. The entire technology sector is on fire. Other areas of the market are struggling. Concentration risk is rising, but that's nothing new, and most traders are optimistic.

 

That doesn't mean all is well. On the geopolitical front, the U.S. and Iran are still not playing nice. This week, missiles were exchanged. The present arrangement is almost comical. The definition of ceasefire is a "temporary halt to active fighting between opposing forces in an armed conflict." That is not what is happening, but the Trump White House and evidently the majority in Congress insist that this fictional ceasefire is in place.

 

Amidst these tensions, some well-placed cabinet members, such as Treasury Secretary Scott Bessent, are claiming that a 60-day ceasefire is in the works. But he hedged his bets, claiming the president must agree to it, and it may not hold in any case. Supposedly, it's an agreement to allow Iranian oil to ship in exchange for the opening of the Straits. Iran's non-existent navy would also remove the mines they planted.

 

But what about the nuclear issue? Oh, that both sides agree to negotiate over the next 60 days and come to a solution. Of course, Iran has already said that it is not up for discussion, but what the heck, the administration gets more time and hopefully a little lower oil prices in exchange for Iran's ability to profit from its oil sales.

 

Building on last week's discussion, remember I explained that we were approaching a critical line in the sand in the next few weeks on global oil supplies. A 60-day ceasefire kicks the can down the road for two more months. In any case, oil prices have subsided, trading around $88.37 a barrel on Friday, which is an improvement of sorts. It is enough to relieve investors' fears that we are on the brink of oil Armageddon.

 

With that reprieve in oil markets, investors can turn their attention to other things, like the knock-your-socks-off results of first-quarter earnings. Analysts entered the season predicting an average earnings growth rate of 13 percent. That was more than respectable, but that is not what happened. Instead, companies' earnings results doubled that estimate, chalking up 28.4 percent overall.

 

I had to look back to the second quarter of 2021 to find a comparable period where earnings were as good. More than 84 percent of companies beat Wall Street's earnings projections — and not by a little. The usual quarterly beat rate is about 7 percent. This time, the average beat was by 18 percent!

 

Some analysts are questioning whether, in some cases, these earnings were inflated by the AI boom. Meta, Alphabet, and Amazon were the largest contributors to the S&P 500's surging earnings growth. All three reported unusually large contributions from outside their core business. Their private equity investments in Anthropic, for example, threw off billions in profit for the quarter.

 

While sales were higher than expected, 9.7 percent gains versus 8.2 percent forecasted, it was profit margins that astounded the equity market. They came in at 14.8 percent. This has never happened before and was the highest in history. Given these results, is it any wonder that analysts are now projecting 18 percent earnings growth for the S&P 500 for the full year?

 

Meanwhile, the Fed's preferred inflation gauge, the PCE for April, came in at 3.8 percent, almost double the Fed's 2 percent inflation target. First-quarter GDP was also revised downward to 1.6 percent due to weaker investment and lower consumer spending. You can forget about an interest rate cut this year, in my opinion.

 

Looking at market movement in May, all the worries about how long it would take companies to begin showing profits from AI spending have fallen by the wayside. Tech was up 13.25 percent, led by semiconductors. Beyond tech, consumer discretionary gained 5 percent, and everything else gained by less than that, with materials and energy. Financials and utilities are down.

 

As I wrote last week, inflation remains a problem for the economy. As a result, investors are seeking stocks and sectors where price appreciation keeps pace with, or even beats, inflation. Obviously, tech was where investors flocked to in this kind of environment.

 

The euphoria over the upcoming IPOs of three mega tech companies — SpaceX, OpenAI, and Anthropic — is feeding market participants' animal spirits and helping drive stocks higher. That said, markets remain overbought and are due for a pullback. Exactly when that happens is anyone's guess. My guess is that sometime after the SpaceX offering in two weeks, we might see some profit-taking.

 

A year ago, Colossal Biosciences introduced to the world their version of the dire wolf, an animal extinct for over 12,500 years. The company's scientists are hoping to bring back the woolly mammoth by 2028. On the list for resurrection are the blueback, extinct for two centuries, the giant moa, and the beloved dodo, among others.

 

Before you ask, Velociraptors, the highly intelligent, deadly predators of "Jurassic Park," are not on the list of extinct species being studied, nor are any other dinosaurs. The company is headquartered in Dallas, Texas (not Isla Nublar). It was co-founded in 2021 by CEO Ben Lamm and Harvard University geneticist George Church, with initial support from venture capitalists totaling $15 million.

 

Since then, Lamm, who originally made his money in gaming and AI startups, has used his Silicon Valley know-how and entrepreneurial drive to raise more than $10 billion in funding. While the company remains private, some of its notable investors now include Paris Hilton, filmmaker Peter Jackson, and NFL quarterback Tom Brady.

 

The world has already bestowed a name on Colossal Bioscience's ambitions — De-extinction. De-extinction is the process of reviving extinct species using advanced scientific techniques. It is a growing field that represents the meeting point of several scientific pursuits, including biotechnology (the use of living systems or organisms to develop products), ancient genomics (the study of DNA from extinct organisms), cloning (creating genetically identical organisms), and genome editing (precisely altering the genetic material of an organism).

 

The idea of de-extinction was first popularized back in 1979 by the Piers Anthony book "The Source of Magic" and Michael Crichton's 1990 sci-fi novel "Jurassic Park." The authors raised the possibility back then that long-extinct organisms could be cloned from preserved DNA.

 

Fast forward to 2024, when company scientists worked secretly for months in their Dallas labs growing grey wolf blood cells and extracting DNA from them. They made 20 edits in the animals' genomes — changing specific DNA sequences — and injected the altered DNA into egg cells from a domestic dog to create clones. These cloned embryos were placed into the wombs of surrogate dogs, eventually resulting in the birth of three pups. In April of that year, the company announced that "the first de-extinct animals are here."

 

The pups were described as dire wolves, a large-bodied wolf species of the North American Ice Age, 11,500 years ago. You may remember the Stark kids' dire wolves from "Game of Thrones." The two males, Romulus and Remus, were born in October 2024, while the female, Khaleesi, was born in January.

 

The news triggered a worldwide media sensation but also sparked an ongoing battle between the company's team and other scientists over exactly what constitutes a de-extinction event.

 

Some scientists argue that the company's dire wolves are not authentic but are simply genetically engineered dogs with wolf-like characteristics. They worried the hype around the company's work on extinct species is exaggerated and can mislead the public about what de-extinction can achieve.

 

Taking their lead from Jeff Goldblum's Dr. Ian Malcolm, the chaos theorist who warned the Jurassic scientists about the dangers of dinosaurs, other critics fret about the ecological risks of letting loose in the wild predators like these new dire wolves, or the damage giant woolly mammals may do roaming the countryside.

 

Colossal Bioscience frames its work as part of the global effort to reverse biodiversity loss. The company and its shareholders believe in conservation; though modern conservation efforts, they add, are being outpaced by climate change and the rapid eradication of species after species. At the same time, many of the dwindling populations of endangered species have become dangerously inbred. By introducing lost genes from museum specimens, Colossal Bioscience hopes to reintroduce genetic diversity.

 

In May, the company announced it had cloned four critically endangered red wolves. This species is on the brink of extinction. The red wolf once roamed the Eastern and Southern U.S. By the 1970s, systematic hunting and habitat loss reduced their numbers to fewer than 20. The company's long-term goal is to reintroduce red wolves into the ecosystem with the help and guidance of government agencies.

 

Worldwide, the United Arab Emirates has funded a research lab at the Museum of the Future in Dubai. An accompanying biovault — a secure facility designed to safely preserve genetic material — will store a wide range of DNA from many species for preservation and de-extinction. The UAE is also interested in saving the Arabian leopard, the smallest and rarest of big cats, which is locally extinct.

 

In New Zealand, $100 million was raised to launch the giant moa project. The flightless bird, extinct for several hundred years, is the country's national symbol. "Lord of the Rings" director Peter Jackson, as well as M?ori groups and scientists, are backing Colossal Bioscience's efforts on that project.

 

The bottom line, for me, is this: Anything or anyone that captures people's interest and imagination in conservation is vital. Do I care if this dire wolf, woolly mammoth, Tasmanian tiger, dodo, or Moa is an exact replica of an extinct species? Not at all — nor will it matter to kids, adults, my readers, or the world at large. If it excites us or convinces us to join efforts to preserve and reverse threats to our ecosystem, I am all for it. Are you?

 

The clock is ticking. The red line in the sand on oil prices indicates July as the date when oil could do real damage to the economy and the stock market if it remains above $100 a barrel.

 

Why July? For one, that's peak seasonal gas demand in the U.S. At the same time, global oil inventories are projected to be scraping the bottom of the barrel by then. Structural supply constraints — shale production flat, OPEC production down, and seasonal demand due to record heat in the Middle East — will also be a factor. 

 

These restraints will result in a delicate balancing act worldwide where even a small disruption in supply could trigger exponential price spikes. Unless there is an end to the war before then, this perfect storm of conflict, supply, and inventory depletion will descend upon us all. It could become a global race to the bottom in oil supply.

 

With that background, are bulls whistling past the graveyard in the equity markets? As I wrote last week, stock investors seem to be the last man standing in the financial markets. The prices have plummeted worldwide again this week. Recall that I warned readers that 4.5 percent on the benchmark 10-year U.S. Treasury bond was the level where equity investors should start paying attention to yields. We are now at 455 percent.

 

Inflation fueled by higher oil prices continues to climb. The last FOMC meeting minutes of the Fed indicated a more hawkish stance on interest rates would be warranted if inflation continued to rise. It has. Precious metals are no help. Higher bond yields are like kryptonite to that area. Crypto is not helping much either.

 

So why equities? The gains revolve around artificial intelligence and little else. SpaceX, for example, is scheduled to be the single largest IPO in history with the first day of trading on June 12. This first tranche of Elon Musk's rocket company will raise $75 billion, valuing the entire company at $1.75 trillion. This is a company that is losing $5 billion a year and whose founder controls 85 percent of the voting stock.

 

And yet, Wall Street is salivating in anticipation. SpaceX combines rockets, satellites, connectivity, AI infrastructure, and social distribution. Most consumers would recognize the company's Starlink. The successful subscriber service generated $11 billion, doubling the subscriber base to 10 million. So why the loss? It is all about AI. The company spent more than $20 billion in capital expenditures, more on the buildout of artificial intelligence than on rockets and connectivity combined.

 

No, never mind, say the bulls. It's Elon, it's Starlink, it's Mars and beyond, AI dominance, orbital data centers, and the largest potential addressable market in history! Get some! And speaking of AI, Nvidia reported gangbuster earnings this week, and the stock fell. When a company does that, it is time to look at why. I detect a shift afoot, away from the handful of darlings spending trillions on AI buildout and toward those that make AI work.

 

These are companies that provide the data center buildouts, power management, optical connectivity, servers, memory, networking, etc. That doesn't mean that the big spenders are toast, just that the bloom may be off the rose and there are more fertile fields around.

 

So here the markets sit, watching the clock tick. The social media posts that promise a whole lot but deliver nothing have left investors largely immune to what comes out of the White House. Consumer sentiment is cratering as pump prices climb.

 

In any event, most analysts now expect oil prices to remain higher for several more months, even after an actual agreement is signed, the Straits of Hormuz are reopened, and both parties finally declare the war over.

 

Let's hope we get some good news on that front over this Memorial Day weekend. Vague statements from the Trump team have given markets hope over the last few days. But remember, hope is not an investment strategy. Stay invested but keep an eye on yields and oil prices.