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GM. This is Milk Road Macro, the newsletter that knows that Elon Musk made more in a single trading day than Warren Buffett did in his entire career and there are some people who are still saying this isn’t a bubble.
SpaceX is melting faces, the Strait of Hormuz is about to open, and the Federal Reserve is holding their FOMC meeting this week. Trump is in France for the G7 meeting. Everything seems to be tilting bullish, but we’re not quite there yet.
And before we get going, while we're on the subject of where finance is headed…
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CPI COOLED, IRAN CALMED → WE GO LONG? 📈
The Milk Road Macro Index (MRMI) jumped from -0.06 to +0.25 this week. This puts out our indicator exactly at the LONG threshold, but still in CAUTION at 75% exposure.
This move provides a direct answer to last week's central question: equities were more right than the bond market.
May CPI's soft core print came in at +0.2% month-over-month. This defused the rate-repricing thesis, and the U.S.-Iran ceasefire then removed the energy supply shock driving the hot headline number. It looks like this deal might actually hold up, but it’s only a sixty-day deal. We’ll see what happens after that.
This sent Brent crude down more than 5% and made the +4.2% year-over-year print seem like a backward-looking data point, not a sign of things to come. This could change, but for now, the outlook has improved.
Bullish!
That geopolitical relief did most of the work on the market side. Our Market Momentum Index moved from +0.25 to +0.59 as financial conditions recovered +0.73 and breadth surged +0.74 on the broad rally.
This kind of nearly universal sector participation that tells the model the move has width, not just noise. This is a good sign too!
On the other side, the economy pillar barely shifted. The macro buffer slipped from +0.44 to +0.41 and stress rose to +1.86, still firmly Calm.
What's underneath is more two-sided than before. Growth is recovering. The Real Economy Score moved up from -0.98 to -0.46, and GDPNow is back to 3.3%.
The inflation direction axis warmed from +0.04 to +0.30, meaning the backdrop is stabilizing rather than cleanly improving. The inflation concerns are still there, but not running away yet.
So, as we said at the beginning, The Milk Rod Macro Index is parked at the exact number separating CAUTION from LONG.
What would tilt us to go full on bullish?
Well the FOMC decision and Chair Warsh's debut could do it. A balanced hold with unchanged projections lets the financial conditions recovery consolidate and gives the lagging growth impulse index time to catch up. That would likely tip our MRMI into LONG.
A harder neutral signal could reprice bond volatility fast, partially unwind the market momentum gains we’ve seen, and push the MRMI back toward mid-CAUTION.
Beyond the Fed’s FOMC meeting on the 17th, the thing to watch is the inflation direction reading. Reminder it came it at +0.30 and is drifting warmer. Two more months of tariff pass-through showing up in core goods would start eroding the macro buffer and that's the scenario where MRMI's path to a sustained LONG narrows even if equity markets stay calm.
Okay, so to sum things up.
We’re tilting bullish. If the Fed tilts dovish and inflation doesn’t blow up, then we will probably lean back into full on LONG territory soon.
For now, it pays to pay attention.
Stay safe, stay educated, and stay bullish!
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