Inflation Is Rising, Stocks Keep Rallying — How Long Can This Last?

0:00Ladies and gentlemen, I got very bad news for you. Month over month, U.S. PPI inflation, it rose 1.5 % in April. That is no good. It is hot, hot, hot out there. This is the biggest monthly jump in inflation since March of 2022, according to Adam Kobese. Now, Zero Hedge points out that a lot of this inflation is coming from imports. The U.S. is importing inflation. The U.S. import price index is now higher than the CPI metric. The last time that happened, the Fed hiked interest rates up over 5%. Now, treasurybonds.com shows us that U.S. inflation today is tracking very closely to the 1970s inflation cycle.

0:37There was a big burst of inflation. It came down and then it reared its ugly head a second time. They say the current CPI trends have closely mirrored the path from 1966 to 1982 with a reported correlation of 0.93. That ain't good news. I don't want to hear that and neither do you, because that would mean that inflation is going to come flying back. Now let's go to my preferred inflation metric, which is Truflation. They're now showing inflation over 2%. This chart, in my opinion, shows the rotation from deflationary risks, when you see it draw down there earlier this year, to now it is rotating to inflationary risk, which is the first five months of the year.

1:15We're now back to higher inflation. Inflation would not have been a concern in my mind if the Iran war was short-lived, but we may be past the point of no return now. And I am starting to get worried that inflation may be more sticky and more persistent than we want. And a big reason is because we have not ended the war in Iran. If you don't end the war, then you can't get rid of all of that inflation. Now, Lizanne Saunders, she shows the results from the most recent weekly economist poll. It shows that six in 10 American adults, they believe the country's economy is getting worse. That's not good.

1:47It's the highest share since July 2022, and the results show a very clear deterioration in Americans' perception of economy since the last year. Now, in my mind, I'm always careful of polls. People say one thing, but they do another. And so you got to be very careful, but still that's headed in the wrong direction. So how do we get a solution? What is going to bring inflation down? Well, Scott Besson, the Treasury Secretary, he went on CNBC today. You know, he's the guy who's there to But whoo sigh, everyone relax. It's basically what he said. He said he believes crude's going to come down quickly and inflation will also come down very quickly as well.

2:22Take a listen to what Scott had to say. Do you still believe that the surge we've seen in gas prices and in inflation in general, had some hot numbers, PPI yesterday, CPI earlier, they're hot. Do you view that as something that'll be reversed quickly if the straight is reopened? And I guess I'd go on to say, do you think the president will accept no rate cuts right off the bat from from the new Fed chief, Kevin Warsh? Well, let's unpack there, Joe. So let's let's do it one by one. I think in terms of what we're seeing, I think in terms of what we're seeing here, we can see that crude, West Texas crude, six, nine months out is substantially lower.

3:09The curve is in substantial backwardation. That's when the front month is much higher than the back month. So I believe the crude will come down quickly. We've seen the UAE come out of OPEC. So the market's going to be very, very well supplied. I think all the other energy producers, having not gotten oil out for a long time, are going to pump like crazy. And as I said earlier, the U.S., we're at record production. We're an energy superpower and we're just going to we're going to keep pumping. So I think there's a potential for energy, crude, gasoline to come trundling back very quickly, which will mean that the look through to inflation will also come down very quickly.

3:55Now, one of the things about Besson's comments is that if he's right and crude does come down, then inflation will likely come down as well. But at the same time that we're worried about consumers and the negative impacts of inflation on their personal finances, investors, they're throwing a party like it's 1999 all over again. Bloomberg's Eric Valchunas shows American dominance in the stock market. He says that U.S. stocks are now beating international stocks in every single time frame. Three months, year to date, six months, one year, two year, three year, and of course, five and ten year. The U.S.

4:28is winning, baby, when it comes to the stock market. and the rest of the world, they're playing catch up. But now we can just zoom in on the month of May because this is probably one of the most interesting data points I've seen. For just the seventh time since 1950, the S &P 500 has made six all-time highs in the month of May. There's only been nine trading days. So six of the nine trading days, we've hit all-time highs. In prior cases with six or more new highs in May, the rest of the year saw a 10 % median gain and there was no drawdown worse than 10%. That suggests that investors are gonna do well through the rest of this year.

5:01Now, of course, in investment research, the S &P 500, they say, has been on a six-week winning streak. Winning, baby. It's gaining more than 16 % in the last six weeks and it's the second best such streak ever. Looking at the nine prior instances in which stocks were up at least 10 % over six weeks, stocks were higher a year later, 88 % of the time, and the average return a year later, 17%. Investors are poised to keep winning. Now, there's lots of people who are worried that the stock market is overvalued. There's some big crash on the horizon, or there might be some destruction in people's investment portfolio.

5:36Daniel Newman, he says, pump the brakes there, bad boys. The 1999 internet bubble versus the 2026 AI revolution. He keeps sharing these because he says these are silly comparisons. Just look at the valuation differences. Stocks right now are relatively cheap compared to the 1999 crazy.com bubble. So everyone, again, woo sigh, relax. tax. Charlie Belolo over at Creative Planning, he says the S &P 500 is at an all-time high, while consumer sentiment's at an all-time low. We know that. It's been this way. He says that the gap has never been this wide between Wall Street and Main Street. Again, I'm very suspicious of the consumer sentiment surveys, but one thing I do know is people are not excited right now.

6:16They're very worried if they're not looking at their investment portfolio because they're wanting to understand, are grocery prices going to go down? Are home prices going to go down? Am I going to have to pay less at the pump in the next couple of months? All of that stuff is top of mind for the American consumer. Mike Zaccardi shows, though, even though there's concerns, retail sales aren't slowing down. Retail sales rose for the seventh straight month in April. And according to CNBC, total sales climbed 5 % year over year. He says, despite the inflation concerns, the consumer spending remains solid in almost every category.

6:48And it's being led by clothing and health. And so that begs the question, have we seen the peak of inflation? Is this the worst that it's going to be and everyone needs to relax and not freak out? Well, BlackRock's Jeff Rosenberg, that's what he thinks, he went on CNBC this morning and he made the case that we might actually be at peak inflation now. Take a listen to what he has got to say. Look inside the data today. It was actually a little bit better in the details when people updated the more important inflation number, which is core PCE. You saw some of those numbers come down. That's why you didn't see a big reaction in the bond market.

7:20CPI yesterday was the bigger news. But again, that was a little bit overstated because of the shutdown and the impact that it had on shelter. So there's a lot of things we in the bond market are looking through here. And there's a lot of potential. Actually, this could be the peak in terms of inflation and inflation could be coming down. Now, that's an if. But what Susan Collins and others are saying is we don't really know what the path of inflation is going to be. We don't have a great track record in predicting it. But to the extent that you don't have these kind of increases that the headlines are pointing to, the underlying core measures are looking a little bit better.

7:51Tariff inflation is coming off. The big uncertainty is the pass through from the headline in oil. We don't know that. But if you're at the peak, then the Fed's not going to be cutting rates, but they don't necessarily have to hike. And that's why you see such a little percentage. So Jeff is pointing out here that the core numbers are quietly improving. Tariff inflation is cooling off and the bond market may not be freaking out the way that all the headlines suggest. That tends to make sense. This tweet is a perfect example of calling this out. Now, should the Fed hike rates or should they not?

8:18Well, they've kind of just been kicking the can down the road. And the reason why they're doing that is because they don't know what to do. No one's got a crystal ball. And it all comes down to, is inflation going to be sticky and persistent? Well, my thought is that's all tied to the energy market. And we don't know what's going to happen in the energy market. We don't know when this war in Iran is going to end. And so if you want to understand what's likely to happen in the U.S. economy over the next 12 months, you got to look right to Iran. End the war. Let's get energy prices back down and let's get inflation under control once again.

8:49The Trump administration already killed inflation once. Now they're going to have to do it a second time. And if they don't do it, they're going to lose in November and there's going to be a field day for Democrats. If they do get inflation under control and they can actually say to the American people that they've got the cost of living actually headed in the right direction, maybe a different story. But at the end of the day, if you're an investor, regardless of what happens to the cost of living, what every single data point that I'm looking at keeps telling us is that stocks are cheap and all of the momentum that we're seeing in the market is likely to carry asset prices higher.

9:23And so I think it's going to be a great end of the year for stock investors and for Bitcoin investors to see what happens. That's it for today's show. Thank you guys so much for watching. Please subscribe on YouTube. My goal is to get to 1 million YouTube subscribers. We're not there yet. And until we are, I will keep asking. So please hit the subscribe button and I'll see all of you live from the desk of Anthony Pompliano tomorrow.