Inflation falls, stocks rise, and startups (should) rejoice
Inflation falls, stocks rise, and startups (should) rejoice
Update: When I wrote this for you earlier today, stocks were on the rise due to the inflation news discussed below. Since then, several major indices have fallen. At first, I thought that we were seeing a weird response to the new data. After a bit more digging, it turns out that capital is flowing out of major tech shares and into smaller technology concerns. So, I think that the below thesis holds, even if your index fund holdings may take a hit today.
Welcome to Cautious Optimism. Today is July 11th, 2024. This morning we have a big coming IPO, an AI round I keep thinking about, and big news on inflation. Let’s have some fun! — Alex
The Rundown
📈 Trending Up: The S&P500, which set a new record yesterday … ex-military VCs … dark patterns … anger in Houston after Hurricane Beryl … fake journalists pumping AI pink slime … Space VC …
📉 Trending Down: The need for human labor in electronics production … animal spirits in China … Redbox … media jobs … press freedom in Saudi Arabia … one Apple-EU beef … inflation (more below)
📊 Deal Watch:
Reliance could list Jio at a valuation of $112 billion, making India’s stock market critical to watch next year.
Fireworks AI’s recent $52 million round pushed its valuation to over $550 million. The startup raised $25 million back in 2022, Ron Miller wrote for TechCrunch. Fireworks stresses:
“Compound AI systems [that can] tackle tasks using various interacting parts, such as multiple models, modalities, retrievers, external tools, data, and knowledge. Similar to microservices, agents in a compound AI system use LLMs to complete individual tasks and collectively solve complex problems.” Very cool.
🤔 What Else? Will new AI features bolster sales of Apple’s next smartphone? The company appears to be expecting a 10% lift in sales. Given the scale of Apple’s iPhone business — $46.0 billion in its most recent quarter, down from $51.3 billion year-over-year — the rebound could be worth in the realm of $5 billion in quarterly sales.
Inflation falls in June, and everyone is super excited
This morning US inflation data for June came in under expectations.
While the median forecast from Wall Street called for a 0.07% gain in the headline consumer price index (CPI) and 3.1% inflation year-over-year, consumer prices instead fell “0.1 percent on a seasonally adjusted basis,” according to the Bureau of Labor Statistics (BLS). It was the first monthly decline since 2020, Yahoo Finance reports. In the last twelve months, the CPI rose 3%.
Core CPI — CPI less volatile food and energy prices — rose 3.3% in June, which the BLS reports was “the smallest 12-month increase in that index since April 2021.”
Better-than-expected inflation data, coupled with last Friday’s tame-to-weak jobs report, mean that the Fed has new, solid reasons to begin cutting interest rates.
Earlier this week, some Fed officials warned that “reducing policy restraint too late or too little could unduly weaken economic activity and employment.” We’re there now. It will take a little time for new rate-cut expectations—timing, scale, frequency—to bubble up, but with inflation reversing course, we’re probably in the final chapters of our current interest rate climate.
Which is gosh-darn amazing news for startups and their backers. Higher interest rates are pretty hard on the startup-venture capital ecosystem for a number of reasons: