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When this week’s inflation numbers dropped, I used two words to describe them in a Special Market Podcast I sent to my followers.
A disaster.
And Kevin Warsh is walking right into the middle of it. Warsh was confirmed as the new Federal Reserve Chair in a 54-45 Senate vote earlier this week, and I hope he packed a lunch – because he has his work cut out for him.
But there’s something about these stories that most people are missing right now…
In this piece, I want to break down what the latest inflation reports are really telling us and what Warsh’s confirmation actually means for markets.
I’ll also explain why – despite all the noise – I believe we are entering one of the rarest and potentially most lucrative market windows I’ve seen in decades. I explain all the details in my event – so be sure and catch it if you haven’t already.
Let’s dive in.
Inflation Pressures Are Still Building
Let’s start with the Consumer Price Index (CPI).
April’s headline number came in at 3.8% year-over-year – the highest level in nearly three years.
A big driver was energy. Energy prices jumped 17.9% from a year ago, while gasoline prices surged 28.4%. Electricity prices climbed 6.1%.
Here’s the detail worth paying attention to. Core prices – which strip out food and energy – rose 0.4% in April. That’s nearly double the 0.2% pace reported in both February and March.
We need energy for everything. And when core prices start accelerating like that, it means energy inflation isn’t contained anymore. It’s spilling over into the broader economy.
Then came the Producer Price Index (PPI) – and that was the one I was talking about when I said it was “a disaster.”
The PPI is now up 6% over the past 12 months. Six percent!
Remember, the PPI tells us what “producers” are paying. You think they’ll eat those costs?
Not on your life. They’re going to pass them on to you, me and your cousin in Albuquerque.
That’s why the PPI is considered a leading indicator of consumer inflation.
Looking deeper, wholesale inflation jumped 1.4% in April. Wholesale goods costs rose 2%. Wholesale service costs rose 1.2%.
This tells me inflation is increasingly embedded at the wholesale level – and that means it will likely persist for a while.
The bottom line: Treasury yields are moving higher. The yield curve is flattening. And all hope for near-term rate cuts is off the table.
But wait, there’s still a glimmer of hope, folks.
Warsh Isn’t Operating Alone
Here’s the key: Kevin Warsh isn’t operating alone. And this is where the story gets really interesting.
Many investors are treating Warsh like a traditional inflation hawk, but they’re missing the bigger picture.
This is someone who served on the Fed’s Board of Governors during the 2008 financial crisis. He worked directly alongside Ben Bernanke during one of the most chaotic periods in modern financial history.
He knows what the system looks like when it’s under stress. And he knows how to respond.
More importantly, Warsh appears to understand that AI-driven productivity gains are helping grow the economy without creating the same inflationary pressures we’ve seen in past cycles.
And that gives the Fed a lot more flexibility.
Just as notable, Warsh has an ally in Treasury Secretary Scott Bessent.
These two guys know each other from the private sector. Bessent built his career on identifying big market shifts before Wall Street figured them out. He helped George Soros make a billion bucks by breaking the Bank of England.
Warsh later partnered with Stanley Druckenmiller, the man who executed that trade. The point is, these are not career bureaucrats or academics who live in an ivory tower. These are seasoned, market-tested professionals who’ll be trying to steer policy in the same direction.
That direction?
- Stabilize the Treasury market without choking off growth.
- Fix the broken housing market – homes are too expensive, borrowing rates are too high and young people can’t afford to buy.
- Harness the AI revolution to unleash a new era of American prosperity.
- Get a handle on America’s growing debt burden.
Now, Bessent has publicly called for 150 basis points in rate cuts. Of course, Warsh still has to build consensus within the Fed, and rising energy prices tied to Middle East tensions could slow the timeline.
Now, I still believe rate cuts later this year remain very possible.
But even if I’m wrong, here’s what you need to understand…
What Most People Are Missing
Yes, inflation was worse than investors hoped. I’m not dismissing that.
But let’s take a step back for a moment.
The S&P 500 is on track for nearly 20% earnings growth this quarter. Earnings are forecasted to remain strong for the remainder of the year.
And here’s something else worth remembering: Stocks are a great inflation hedge. The same forces that are rattling investors at the headline level are showing up as pricing power and profit growth inside the companies we own.
The reality is we are in a very good environment. One of the best I’ve seen in nearly five decades in this business, in fact.
Despite the noise, the underlying fundamentals are strong.
And when rate cuts do come – and I believe they will – it will be like pouring gasoline on the fire.
The companies that stand to benefit the most are not the mega-cap names everyone already owns. They are the sort of smaller, domestically focused companies that are the most sensitive to borrowing costs and most leveraged to U.S. economic growth.
Small caps are already starting to wake up. The Russell 2000, which tracks smaller companies, is up 38% over the past year.
The other thing about small-cap stocks? When they move, they move big – and fast.
Last week, I told my readers how we found a 1,100% gain with Bloom Energy Corp. (BE) over at Breakthrough Stocks, my premium small-cap advisory.
Right now, if you take a look at our Buy List, you’ll see gains of:
- 640% in 21 months.
- 557% in 10 months.
- 508% in 13 months.
- 407% in 11 months.
And more…
Again, I believe this is just the beginning.
One of the Rarest Windows I’ve Seen in Decades
Here’s what I want you to understand about this moment.
The Fed has already begun cutting rates under Jerome Powell.
If I am right and the Fed does cut rates later this year, then that means we are entering one of the rarest and potentially most lucrative market setups I’ve seen in nearly 50 years.
I’m talking about a window of consistent, sustained key interest rate cuts.
I’ve only seen this a handful of times in my career: 1995, 2001, 2008 and 2020. Each time, a specific group of smaller stocks went on to deliver extraordinary gains – before the crowd figured out what was happening.
I believe we are at the beginning of window number five.
I already have my eye on 53 stocks that my Stock Grader system is flagging right now. Each one is showing the same early signals I’ve tracked before every major bull run of my career: strong fundamentals and institutional money beginning to move in quietly ahead of the headlines.
And at Wednesday’s event, I gave away one of them for free.
If you haven’t watched the replay yet, I’d strongly encourage you to do it today. Because opportunities like this don’t stay hidden forever. The investors who are positioned before the crowd figure out what’s happening are the ones who capture the biggest gains.
Sincerely,
91抖阴
Editor, Market 360
The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:
Bloom Energy Corp. (BE)
