Newsletter · · Ashutosh Agarwal

The Great Rotation Arrives as PCE Runs Hot - US Macro Recap - June 30, 2026

May PCE hit a three-year high and Warsh's dots took cuts off the table, yet the two-year fell while the 493 outran the Mag7 by 18%. Our US Macro Recap synthesis for June 30, 2026.

US Macro Recap

June 30, 2026: The Great Rotation Arrives as PCE Runs Hot

The Great Rotation Arrives as PCE Runs Hot

US Macro Recap, Tuesday, June 30, 2026

Two weeks of "is the Fed panic fading?" got an answer this week, and it wasn't the one the bond bears wanted. May PCE printed at a three-year high, Kevin Warsh's first set of projections told us rate cuts are off the table, and yet the two-year fell. The real action moved out of the rates pit and onto the equity tape, where the Magnificent Seven are quietly coming apart and almost everything else is ripping. Jobs Week lands Thursday into a holiday-shortened tape.

TL;DR

  • The 493 just outperformed the Mag7 by 18% over 27 days, the widest since 2018, with regional banks and industrials leading as Microsoft makes relative lows.
  • May PCE hit 4.1% headline / 3.4% core (a 3-year high); Warsh's dots moved to 3.75% and cuts are "off the table," yet the 2-year fell to ~4.08% as oil round-tripped under $70.
  • 90-day delinquencies on cards, autos and student loans sit at GFC peaks even as top-of-K cash nears $12T, the K is widening, not closing.

What's New

1. The Mag7 is breaking down, and the desks call it bullish. On The Compound and Friends (June 26), Josh Brown, Michael Batnick and Carson's Ryan Detrick and Sonu Varghese, all running real money, flagged that "over the last 27 days, the 493 are outperforming the MAG7 by 18%... the most that we've seen since 2018. And the market is basically at an all-time high." Brown: "I cannot possibly think of a more bullish development that the MAG7 are absolutely breaking down. Microsoft looks like death... industrials ripping... regional banks ripping." Regional and community banks are "the hottest trade in the market right now" aside from memory, and "when these stocks are breaking out, it's very hard to make a macro doom case." The Compound and Friends

2. PCE ran hot, and Warsh owns a one-sided mandate. (operators) May headline PCE hit 4.1% y/y (a three-year high) and core 3.4%, Kai Ryssdal on Marketplace (June 25): "4.1%... is faster than April inflation... most of it thanks to energy and the president's war." On Key Wealth Matters (June 26), KeyBank's Rajiv Sharma and George Mateyo unpacked Warsh's debut: the projections revised 2026 inflation to 3.6% from 2.7%, the median dot up to 3.75%, inflation "above target for 63 consecutive months," and a committee "unambiguous and unanimous" on bringing it down, markets now price a hike "as early as October... the conversation of rate cuts is completely off the table." PGIM's Rob Sockin, on Bloomberg Surveillance (June 25), called it an "overheating economy" with nominal GDP near 6% and "a Fed with a one-sided mandate... price stability," guiding to "three [hikes] this year." Marketplace · Key Wealth Matters · Bloomberg Surveillance

3. AI capex is now 2.2% of GDP, and it's juicing an earnings bubble. (pundit) On Excess Returns (June 24), GMO's James Montier sized data-center spend at "$700 billion... like 2.2% of US GDP... a little bit bigger than the fiber optic spend in the late 1990s," and warned the bigger risk is an earnings bubble: because half-built data centers haven't "started depreciating yet at all," it's "a very good time for corporate profits... probably an unsustainably good time." His capital-cycle read: the memory names "will look really cheap on a trailing PE basis, but turn out to be lousy investments." Excess Returns

4. K-shaped stress is at GFC levels, and it's in the credit-bureau data, not just anecdotes. (pundit + insider data) On The Pomp Podcast (June 25), 42 Macro's Darius Dale said 90-day-plus delinquencies on "credit cards, autos, student loans are either exceeding or right near the peak rates we saw... at the height of the global financial crisis," while top-of-K cash has swelled to "just shy of $12 trillion from a starting point of $3.5 trillion just prior to COVID," pulling the savings rate to ~3.5%. Equifax corroborates from the inside: on Market Pulse (June 25), Tom and Jesse pegged their Market Pulse Index at 60.9, with the top-10% "thrivers" up "over 30%" while the middle "shrunk by 6% over 18 months," and thrivers now drive "upwards of 50 percent of all spend." The Pomp Podcast · Market Pulse

5. Jobs Week into a holiday tape, and a sub-100k whisper. (mixed) Payrolls land Thursday (the July 4 holiday pulls the print forward), with consensus looking for "pretty solid jobs gains" and unemployment unchanged at 4.3%, per NAB Morning Call (June 28), behind JOLTS, ADP, Conference Board and ISM. The contrarian read came from Andreas Steno on Macro Mondays (Real Vision, June 29), who runs real money, expecting payrolls "below 100K, which is below consensus," arguing last month's strength was World Cup hiring "very difficult to adjust away," with tax indicators decelerating into June. NAB Morning Call · Real Vision: Finance & Investing

The Debate

Both camps had the mic this week, and the fault line wasn't soft-landing vs. recession, it was run-it-hot vs. sticky-reflation-forces-a-hawkish-Fed.

Run it hot (operators, mostly). On The Compound (June 26), Sonu Varghese conceded "the Fed has an inflation problem," with core services ex-housing "running at 4% annualized," but "I don't think they're going to hike... policy is actually getting easier. They're basically going to run it hard," fine for stocks so long as the Fed doesn't go 50-then-75 in a hurry. Treasury Secretary Scott Bessent, on Squawk Pod (June 24), made the supply-side case: tariffs have been "de minimis" because "you don't import the services" and "many of the Chinese... companies reduce[d] their prices by more than 50%," and AI "could up productivity and be disinflationary."

Sticky reflation (a mix). PGIM's Sockin (Bloomberg Surveillance) said "the risks are heavily skewed to the upside... PPI, surveys of supply-chain strain... all those things still look quite firm." On At Any Rate (June 26), JPMorgan's James warned core PPI has "gone from a 3-handle to a 5-handle in the space of 6 months," and that a labor-market re-acceleration, not oil, is what would force Warsh's hand. GMO's Montier supplies the bearish bookend: capital cycles this size "historically... haven't worked out well."

The genuine stall-speed voice is the minority, carried by the K-shaped consumer data above and Marketplace's reminder that Q1 GDP's upward revision to 2.1% came with a downward revision to consumer spending and lower imports, "a much weaker picture of the American consumer."

The Trades in Play

Plenty of instrument-level expression, clustered around the rotation and a two-trades-in-one rates view:

  • Rotation (operators): RenMac's Neil Dutta and Jeff DeGraaf (RenMac Off-Script, June 26) framed it as a real-yields story, Meta, Netflix, Palantir and Microsoft at "52-week... relative strength lows," money broadening into "the Russell 2000... value versus growth," banks and transports. RenMac
  • Rates (operators): On Forward Guidance (June 29), Lighthouse's Bob Sheehan is positioned for "two trades," a near-term bear flattener (short end leading) then a longer-term steepener as "term premium is going to matter to the long end again," overweight defensive/short-duration (healthcare, staples) over long-duration tech. Brent Donnelly (The Macro Trading Floor, June 26) is already long 2-year Treasuries, calling July hike odds at 30% "insane." Forward Guidance · The Macro Trading Floor
  • Dollar & gold, "the rebasement trade" (operators): On the same Macro Trading Floor, Macro Compass's Alfonso Peccatiello flipped the debasement story: with the market pricing Warsh as a "Bank of Brazil"-style inflation-squasher, gold prints "the lowest reading that I have ever seen" on his euphoria index, he's waiting to buy it and short the dollar on a catalyst, with Donnelly "bush camping" for the same. Marc Chandler (The KE Report, June 29) noted the 2-year fell from ~4.25% to ~4.08% as oil unwound the hawkish hold, while the dollar made new yearly highs against 6-7 G10 currencies. The KE Report
  • AI power (trader): Patrick Ceresna (Macro Voices, June 25) is long natural gas via December 2026 bull call spreads on the data-center electricity bottleneck. Macro Voices

Read-throughs

  • Private credit is the crack to watch. RenMac flagged "17 percent redemptions" at an Apollo fund; IG and BBB-vs-Treasury spreads are "still in a good spot," but "the forest fires always start from somewhere."
  • Regional banks are the anti-recession tell. With community and regional banks breaking out, businesses doing "home equity lines of credit... credit cards... auto loans... the lifeblood of the economy," the rotation argues against an imminent downturn even as the bottom of the K frays.
  • A coming supply shock. Montier warns the SpaceX/OpenAI/Anthropic IPO pipeline could add "5 or 6 percent of aggregate U.S. market cap" in supply over twelve months, and historically "a 1 percent increase in supply is associated with a 7.5 percent worse return over the subsequent year," a structural headwind just as the Mag7 bid fades.

What Changed

A week ago the story was rates, "is the Fed panic fading," oil's round-trip, easing hike odds. This week it moved to equity internals. The hawkish read on Warsh became consensus (3.6% inflation projection, 3.75% dots, October on the table), yet the two-year actually fell to ~4.08%, and the desks' energy went into the Mag7's breakdown and the 493's 18% sprint, the widest since 2018. The debasement trade became, in Peccatiello's words, "the rebasement trade."