The Fed's Inflation Problem Just Got Much Worse

Well, that wasn't supposed to happen.

Core inflation just hit 3.3% year-over-year, crushing market hopes and sending bonds into a tailspin. Not only did inflation accelerate (it was supposed to fall to 3.1%), but the monthly increase of 0.5% marked the biggest jump since August 2023.

Bonds figured it out first - the 10-year Treasury yield surged above 4.60% within minutes. The market now expects exactly one rate cut this year, down from six cuts predicted just weeks ago. Bye-bye, soft landing.

The real kicker? This data doesn't even include the impact of Trump's newly announced tariffs. With planned duties on Canadian and Mexican imports potentially pushing average tariff rates above 20% (highest in 30 years), inflation's path higher has fresh fuel. Check out our deep dive on the Trump tariffs, below.

What should worry the Fed most isn't just the headline numbers - it's the breadth of price increases. Shelter costs remain sticky (+0.6% MoM), used car prices jumped again (+0.4%), and services inflation shows zero signs of returning to target.

Market implications hit quickly. Fed funds futures now price just one rate cut this year - in October, with the next cut not expected until December 2026. Traders who bet their portfolios on rapid monetary easing are getting crushed, while bank stocks surge on prospects of sustained higher rates. Meanwhile, the dollar strengthened against every major currency as rate differentials widen.

Speaking of Tariffs, China Just Pulled Out Their Trump Card

China's not just taking Trump's tariffs lying down. Beijing just revealed their secret weapon: American tech giants' dependence on their market.

The strategy? Build a list of every US tech company that matters, then unleash regulatory burden. Google's already under antitrust investigation (despite barely operating in China), Apple's in the crosshairs, and Broadcom's wondering if their $35 billion acquisition will ever clear Chinese regulators.

Here's the interesting part: China's learning from America's own playbook. Remember when the US blocked Huawei? China created their own "Unreliable Entity List" - a mirror image of the US entity list. Now they're wielding antitrust laws like a scalpel, targeting companies close to Trump's inner circle.

Ask Qualcomm how this works. In 2018, their $44 billion deal to buy NXP collapsed when China simply... didn't approve it. Or look at Broadcom's VM Ware acquisition - it only squeaked through after Biden and Xi had a chat. That's the kind of leverage we're talking about.

Apple's particularly vulnerable. Their stock dropped 3% on Monday as investors did the math: Chinese assembly lines make most of their products, and Chinese consumers buy a lot of iPhones (well, used to - sales are down 10% there). Tim Cook's masterful balancing act between Washington and Beijing just got a lot harder.

The broader message is clear: Modern tech companies aren't really "American" or "Chinese" anymore - they're global organisms that can be squeezed from multiple directions. When Beijing wants to play hardball, they've got plenty of pressure points.

Who’s the winner in all this?

For tech executives, the message couldn't be clearer: make sure you’re on Trump’s good side. Those inauguration donations might just be the best insurance policy in tech.

The real winners are companies that built their moats beyond any single country's reach. Just look at ASML - when you're the only company on Earth that can make the machines powering modern computing, trade wars become someone else's problem.

For a deeper look at how companies like ASML built unassailable positions in critical tech infrastructure, check out our latest deep dive below.

While Apple and Google navigate diplomatic minefields, firms with independent supply chains and true technological monopolies stand apart.

Elon’s $97 Billion Chess Move

Elon Musk just threw a $97 billion wrench into OpenAI's plans to become the most valuable tech company in history. The move comes just as SoftBank was finalizing a massive $40 billion investment at a $300 billion valuation - timing that's anything but coincidental.

The genius here isn't just the size of the bid - it's the strategy. By offering to buy OpenAI's nonprofit entity (which effectively controls the for-profit company), Musk has forced a fascinating legal conundrum. If OpenAI's board even considers transitioning to a for-profit structure, Delaware courts might require them to seriously consider Musk’s offer under the "Revlon rule", where they have a responsibility to maximize shareholder value.

Sam Altman's response? A tweet offering to buy Twitter for $9.74 billion. Cute, but it doesn't solve his fundamental problem.

OpenAI now faces an impossible choice: If they're truly a mission-driven nonprofit, why take billions in investment? If they're a company that can be bought, why instantly reject $97 billion? The board can't have it both ways.

Making things spicier: The consortium backing Musk's bid includes his AI startup xAI (recently valued at $40 billion), Baron Capital, and even Hollywood powerbroker Ari Emanuel. Their lawyer says they'll match or beat any higher offer - a clear signal this isn't just about money.

The market implications are massive. OpenAI was cruising toward a $300 billion valuation in talks with SoftBank. Those negotiations just got infinitely more complicated. How do you price a company when its entire corporate structure might be upended?

For deeper analysis of how we got here, check our latest deep dive on AI infrastructure bottlenecks and the race for computing dominance.

Earnings Season’s Winners And Losers

The latest batch of tech earnings revealed some divergences in the digital economy, with crypto platforms surging while cybersecurity players stumbled. Let's dive into the key stories:

Coinbase (COIN) delivered a massive surprise (+146.3%), with earnings of $4.68 per share crushing expectations of $2.36. Revenue soared 138% year-over-year to $2.27 billion. Beyond the numbers, CEO Brian Armstrong pointed to a key shift: regulatory tailwinds are finally materializing. The company's long-term strategy of regulatory compliance is paying off as crypto gains mainstream acceptance, with structural improvements in order flow and institutional adoption driving growth.

Robinhood (HOOD) also posted strong results (+14.9%), with earnings of $0.54 vs $0.42 expected and revenue up 115% to $1.01 billion. The standout story? Their new active trader platform "Legend" is already generating $50 million in annualized revenue just months after launch. CEO Vlad Tenev revealed their Robinhood Gold premium tier now has over 30% attachment rate for new customers – a telling sign that their push upmarket is working.

Palo Alto Networks (PANW) delivered the quarter's biggest disappointment (-48.7%), with earnings of $0.81 missing estimates of $1.55. While revenue grew 14% to $2.26 billion, the miss sparked concerns about enterprise cybersecurity spending. The company's "platformization" strategy saw progress with 90 new platform deals in Q4, but longer sales cycles and more careful customer spending patterns are creating near-term headwinds.

DraftKings (DKNG) missed expectations (-40.0%) with a loss of $0.28 per share versus -$0.19 expected, though revenue grew 13% to $1.39 billion. The deeper story? Super Bowl Sunday set records with $436 million in handle, and same-game parlay adoption increased 40% year-over-year – suggesting their push into higher-margin bet types is gaining traction.

Airbnb (ABNB) beat estimates (+25.9%) with earnings of $0.73 versus $0.58 expected on revenue of $2.48 billion. The key insight came from CEO Brian Chesky: their tech stack rebuild is finally complete after a six-year effort, setting the stage for faster product innovation. With nights booked accelerating 12% year-over-year in Q4, their highest growth quarter of 2024, the platform appears poised for expansion beyond core rentals.

Other Notable Results:

• Applied Materials (AMAT): Missed by 0.4%, with EPS of $2.38 vs $2.39 expected

• Cisco (CSCO): Missed by 1.1%, with EPS of $0.94 vs $0.95 expected

• Trade Desk (TTD): In-line with expectations (0.0%) at $0.59 EPS, though revenue missed

• Roku (ROKU): Beat expectations (+20.0%) with smaller loss of $0.24 vs -$0.44 expected, revenue up 22%

• HubSpot (HUBS): Beat expectations (+0.4%) with EPS of $2.32 vs $2.20 expected

• AppLovin (APP): Strong beat (+25.4%) with EPS of $1.73 vs $1.28 expected, revenue up 44%

That's all for this edition of Forward Thesis, where we cut through the noise to analyze the tech trends and market shifts that matter.

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Until next time.