Tariffs & Tacos, AI at Work, and Crypto’s Moment - May Markets
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Of Tariffs and TACOs
If May felt a little backwards for investors and market-watchers, it was for a very good reason: In markets, as in life, order is supposed to come after chaos.
And it certainly felt like some order and clarity were making their way into financial markets as May kicked off. Despite relentless tariff talk and discussions surrounding all things big and beautiful, investors felt they were getting a slightly less opaque picture of what both the U.S. and global economy and financial markets might be shaping up to look like.
Never to shun the opportunity to embrace a new acronym, “TACO” - short for ‘Trump Always Chickens Out,’ jumped up the Google and Chat GPT search-term list towards the end of the month. The simple premise: that tariff talk, among other economic policies, is just bluster.
That may be why the rejection of Trump’s ability to impose tariffs by one court - and the decision by another court the very next day to allow him to keep them in play while it’s determined whether or not a U.S. President can actually do that carte blanche - didn’t really rattle markets.
Indeed, The S&P 500 (GSPC) posted its best May in 35 years, propelled by a reprieve from President Trump’s tariff offensive. In May, the S&P 500 rose more than 6%, while the Dow Jones Industrial Average (DJI) added 4%. Meanwhile, the Nasdaq Composite (IXIC) led the gains, rising nearly 10%.
Typically, tariffs are imposed using targeted authority delegated to the President by Congress, but Trump’s team has so far relied on little-used emergency powers to impose the bulk of his wide-ranging second-term tariffs quickly.
The real question is whether it’s all just TACO talk or if there’s more uncertainty and potential economic fallout on the horizon. June’s headliner economic reports, including last Friday’s monthly jobs report as well as numbers of inflation and growth, will give investors more to chew on.
AI at work
In January, it was about artificial intelligence being all hype and no substance. In February, it was about how hyped up and ridiculous it was to write off AI as just hype. In March, it was back to AI and AI agent pessimism. In April… you get the idea.
May seemed to hold a slightly different tone, however. Despite a comeback for the “Magnificent Seven” whose collective 27.7% year-over-year earnings growth gave renewed faith in the likes of Apple (AAPL), Alphabet (GOOGL, GOOG), Microsoft (MSFT), Amazon (AMZN), Meta (META), Tesla (TSLA), and Nvidia (NVDA), AI in general seemed to suddenly develop a bunch of so-called use cases: real-life applications that investors could get their imaginations around.
One of the biggest confirmations of that narrative came from OpenAI, which revealed that Sir Jony Ive, the hugely influential British designer responsible for the look of Apple's most iconic and successful products, is joining the company. Suddenly, the idea that the future of humanity may not rely on a rectangular screen that only works with your hands seemed to resonate.
CCS Insight Chief Analyst Ben Wood told BBC News that it would be "foolish to bet against Jony Ive, given his remarkable track record of delivering products that disrupt a market."
"There is no question that OpenAI would love to have a direct relationship with its customers rather than delivering services via devices made by or powered by Apple, Google, or others," he said.
Sky’s the limit on what that might look like, but one thing is for sure: the race to get people away from glowing screens and to produce a device that will in turn make AI more useful, intuitive and interactive than just summaries of searches and weird videos, is on.
Crypto’s Moment (for real this time)
Crypto is back, baby.
At least that’s what it looked and sounded like in Toronto last month at CoinDesk’s 10th annual Consensus conference, which brought some 15,000 bitcoin, ether, solana, DeFi, TradFi, blockchain, Web3, stablecoin, altcoin, and digital asset enthusiasts together under one very optimistic roof.
Bitcoin hitting $111,000, crypto laws in the U.S. blazing ahead, and Coinbase Global (COIN) joining the S&P 500 all lent a hand in marking this year’s event as the seeming turning point in what has otherwise been a long and tough road for crypto.
On May 22, “Bitcoin Pizza Day,” the market capitalization of Bitcoin crossed $2.2 trillion, overtaking the market cap of e-commerce giant Amazon.
The three-day conference and the numerous glitzy parties and events happening around it appeared to solidify crypto’s return to the mainstream, where despite ongoing questions about its value, safety and applicability appears to be re-entering the investment mainstream.
A reduction in bitcoin volatility may partly be behind the renewed enthusiasm and acceptance. Bitcoin's realized volatility on a three-month rolling basis has averaged less than 50% during its most recent bull cycle, which began in 2023, significantly lower than the 80% to 100% observed during previous bull runs, according to data tracked by Glassnode and reported by CoinDesk.
The stability likely stems from bitcoin's ever-growing market capitalization, which inadvertently fosters stability and increased institutional participation through ETFs and derivatives.
Meanwhile, a new generation of crypto ETFs that allow investors to earn yield — not just bet on prices — also are giving crypto more general credibility.
Bloomberg News on Friday reported that REX Financial and Osprey Funds received a so-called effective registration from the U.S. Securities and Exchange Commission for two new exchange-traded funds tied to Ethereum and Solana. These products offer so-called staking, which allows investors to earn rewards by pledging Ether tokens to help operate the blockchain.
Unlike traditional crypto ETFs that simply track coin prices, the REX-Osprey Eth + Staking ETF (ESK) and REX-Osprey Sol + Staking ETF (SSK) aim to give investors a share of the rewards that crypto traditionalists have long collected. An effective registered statement means an ETF can be listed anytime.
