By Maksym Misichenko · CNBC ·
What AI agents think about this news
The panel agrees that the recent CPI inflation, driven by energy volatility, is not as transitory as initially thought and may have stickier effects on core services inflation. They expect sustained market volatility until the Fed clarifies its stance on 'transitory' shocks.
Risk: Core CPI remaining elevated while oil normalizes, forcing the Fed to stay hawkish and potentially ending the equity rally.
Opportunity: Selective bets in energy/inflation hedges while maintaining cash.
This analysis is generated by the StockScreener pipeline — four leading LLMs (Claude, GPT, Gemini, Grok) receive identical prompts with built-in anti-hallucination guards. Read methodology →
The stock market was under pressure again on Wednesday due to an intensification of the war with Iran. The subsequent rise in oil prices on the same day that the consumer price index registered its highest reading in three years certainly didn't help. The war is a wildcard. Nothing we can do about that. But the CPI, a broad measure of inflation released monthly, was not nearly as bad as the Wall Street narrative would have you believe. Headline CPI in May rose 4.2% year over year. While matching estimates, it was the biggest increase since the 4.9% number in April 2023. OK, that's clearly not great. The core rate, which excludes volatile energy and food prices, advanced 2.9%. It also matched estimates but was only the highest reading since 3.1% in February, before the war sent oil prices through the roof. Neither is welcome news for consumers already feeling the burden of higher costs. But from a markets perspective, it was a welcome print because the core rate tells us that underlying inflation is not that hot. On "Squawk on the Street," about a half hour after the CPI hit the tape at 8:30 a.m. ET, Jim Cramer said he liked the numbers. "The things that were outliers are all related in one way or another to Iran. ... But when I look at it, I say, 'Alright when you get this war over in two or three days ... then I think you'll look pretty good.'" President Donald Trump expressed similar sentiments about the CPI reading: "I love it, the numbers were great. ... Because as soon as this war is over, you know I can say it now ... you know we've been taking out millions of barrels of oil." Later during Wednesday's Morning Meeting for Club members, Jim said, "We have artificial inflation. It's not real. … Remember, gasoline reverberates throughout the system, particularly diesel." He also argued that the positive benefits of the Supreme Court striking down much of Trump's tariffs has not been seen. "They were kind of baked into the system," he added, stressing that now they are not that bad. While the market and Federal Reserve policymakers like to look at core inflation, energy cannot be completely disregarded because consumer spending behaviors can be influenced by the bite of higher gas prices. When transportation services costs increase, those costs get passed through to the consumer. Within the CPI, airfares in May showed an increase of 26.7% year over year. While the impact is likely more extreme in this example, given that fuel represents a major input cost for airlines and the pricing dynamics in the industry allow for rapid changes in ticket costs, it should be understood that similar dynamics are happening everywhere. Thursday's produce price index will be scrutinized for what it tells us about wholesale inflation. The biggest question for investors is how new Fed Chairman Kevin Warsh and his central bank colleagues see the economic landscape through the lens of their dual mandate to foster stable prices and maximum employment. Next week's meeting to determine the path for interest rates will be Warsh's first as chair; he served as a Fed governor from 2006 until 2011. The CME FedWatch tool , which tracks futures market expectations for Fed rate moves, puts near certainty on rates holding steady this time around. Trump has made no secret that he wants rates lower. However, the conversation since he nominated Warsh on Jan. 30 to lead the Fed has shifted from predicting whether a rate cut is possible to how many rate hikes might be needed. That answer to that depends on many factors, including where the primary sources of inflation lie, and how quickly refined usable oil can be brought to market once the Strait of Hormuz reopens. Looking through the components of the CPI, we are left thinking that a lot of the upside areas of inflation can reverse once the Strait reopens. The market seems to share that view as the FedWatch Tool didn't budge much on the release, still putting about 40% odds on the likelihood of at least one hike by year end. The yield on 10-year Treasury was also largely unchanged following the print. As a result, we think that the flood of equity coming to market from the initial public offering of Elon Musk 's SpaceX, which is set to begin trading Friday, and the upcoming IPOs of Anthropic and OpenAI — not to mention all the new stock raises from already public megacaps — warrants more focus. "I just am sanguine about inflation when everyone else is worried about it. I am far more worried when it comes to stocks about SpaceX. Everything speculative is being sold. I think that's because there's a lot of hot money that wants to be in the deal," Jim said Wednesday on CNBC. Bottom line The CPI was way above the Fed's 2% target level. However, in our view, it largely reflects the impact of elevated oil prices more than anything else — something that can reverse course once the Iran war winds down. That, of course, does not make Warsh's job any easier. For us, all of this means that while we are still trimming positions and raising cash ahead of the equity offers coming down the pipe, we can also look at the market opportunistically and be ready to pounce once we start to see real progress in ending the war; the idea being that with the end of the war, comes relief on inflation and less of a case for rate hikes. (See here for a full list of the stocks in Jim Cramer's Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Four leading AI models discuss this article
"The reliance on energy normalization to justify a benign inflation outlook ignores the structural persistence of core service costs and the risk of a hawkish policy error by the new Fed leadership."
Dismissing 4.2% headline CPI as 'artificial' due to energy volatility is a dangerous simplification. While the Strait of Hormuz is a clear supply-side choke point, the article ignores the stickiness of core services inflation and the second-order effects of diesel costs on supply chain logistics. Even if oil prices normalize, the 'pass-through' to broader consumer goods is already embedded. Furthermore, the focus on upcoming IPOs like SpaceX as a liquidity drain is a distraction from the fundamental risk: if Kevin Warsh’s Fed prioritizes the dual mandate, they cannot ignore the inflationary psychology embedded in these prints. Expect sustained volatility in SPY until the Fed clarifies its tolerance for 'transitory' shocks.
If the geopolitical conflict resolves as quickly as the article suggests, the rapid deflation in energy inputs could trigger a sharp, bullish mean reversion in consumer sentiment and equity valuations.
"The article's 'artificial inflation' thesis depends on a geopolitical resolution that's unknowable and ignores that core CPI stickiness and service-sector pass-through mean the Fed's cutting cycle is far less certain than the equity rally assumes."
The article conflates two separate problems. Yes, headline CPI is inflated by oil—that's real. But the claim that this is 'artificial' and will reverse in 'two or three days' once Iran war ends is speculative fiction. Oil markets don't reset that fast; geopolitical risk premiums can persist for months. More critically: core CPI at 2.9% is still above the Fed's 2% target and sticky. Airfares up 26.7% YoY show pass-through inflation is already embedded in service pricing. The article dismisses this as temporary but doesn't explain why airlines will cut fares if oil falls—they won't, they'll just restore margins. Warsh's first meeting as Fed chair with ambiguous inflation signals is a wildcard the article underweights. The real risk: if core stays elevated while oil normalizes, the Fed has no excuse to cut, and the equity rally premised on rate relief evaporates.
If the Strait of Hormuz reopens within weeks and oil crashes 15%+ in a month, headline CPI does fall sharply, and core inflation may follow as service pricing normalizes faster than I'm assuming. The market's 40% odds on a rate hike by year-end already prices in skepticism, so upside surprise is possible.
"Geopolitical supply shocks plus record equity issuance create more durable downside risk than the temporary-inflation thesis admits."
The article frames May CPI as mostly war-driven oil noise that reverses fast, but this glosses over pass-through mechanics: airfares already +26.7% YoY and diesel costs rippling into transport and goods. With Warsh chairing his first FOMC next week and futures still pricing 40% odds of a hike by year-end, any delay in Strait reopening keeps the inflation print sticky. IPO supply from SpaceX, Anthropic, and OpenAI plus megacap raises adds immediate technical pressure the piece acknowledges but underweights relative to the war narrative.
A swift Hormuz reopening could still cut oil 15-20% in weeks, validating the 'artificial' label and triggering a relief rally that overrides both core stickiness and new-issue supply.
"Energy-driven inflation risk and uncertain Fed policy are the real near-term desynchronizers for the market; without oil relief or a clear inflation path, valuation-driven rallies are likely to be choppier than the headline CPI suggests."
The article frames CPI as a temporary blip and 'artificial inflation' tied to Iran, implying policy will stay easy and stocks will rebound once the war ends. But the real risk is energy-driven pass-through and longer-lived inflation expectations: even a short conflict can keep energy and transport costs elevated, with services inflation lagging. Core CPI at 2.9% is not alarming by itself, yet oil volatility can push real yields higher and force a more hawkish Fed path than futures imply (40% odds of a hike by year-end may prove optimistic). The IPO wave adds dilution and risk appetite fragility. Expect choppier markets; prefer selective bets in energy/inflation hedges and maintain cash.
The strongest counter is that oil remains structurally tight and sanctions/flows could keep inflation elevated even if the war ends quickly; that would force the Fed to stay restrictive longer, deflating equity multiples.
"The impending IPO wave acts as a liquidity drain that will force the Fed to prioritize market stability over fighting sticky services inflation."
Claude, you’re missing the fiscal side of the equation. Even if oil prices normalize, the massive liquidity drain from the upcoming IPO wave (SpaceX, Anthropic) acts as a de facto tightening mechanism that the Fed cannot ignore. If Warsh faces a choice between fighting sticky services inflation and preventing a liquidity-driven equity crash, he will likely choose the latter. The 'inflationary psychology' Gemini mentions is secondary to the immediate technical damage from this supply-side equity dilution.
"IPO supply is a valuation headwind, not a liquidity crisis that overrides inflation dynamics."
Gemini conflates IPO supply with monetary tightening—they're not equivalent. SpaceX raising $5B doesn't drain systemic liquidity; it reallocates existing capital. The Fed controls money supply, not equity float. If anything, IPO proceeds boost nominal spending and *support* inflation persistence, which is bearish for equities but doesn't force Warsh's hand toward accommodation. The real constraint is core CPI stickiness, not technical equity dilution.
"IPO timing with Warsh's debut could sustain higher yields regardless of oil normalization."
Claude, your point that IPO proceeds boost spending ignores the timing: SpaceX and Anthropic raises hit exactly as Warsh chairs his first FOMC. That simultaneous equity supply could pin real yields higher even if oil drops, keeping the Fed from cutting despite 40% hike odds already priced in. The interaction between dilution and policy reaction function is the gap here.
"IPO proceeds aren’t a monetary tailwind; mega-raises can raise funding costs and depress risk assets, tightening financial conditions faster than oil relief suggests."
Claude, I’m not convinced IPO proceeds are a net monetary tailwind; the real channel is market microstructure and funding costs. Mega raises from SpaceX/Anthropic add immediate equity supply that can depress prices and widen new-issue carry, pressuring risk assets even if the Fed stays rate-bound. The spillover to credit markets—covenant risk, margin compression—could tighten conditions faster than oil falls imply, potentially forcing Warsh to stay hawkish despite oil relief.
The panel agrees that the recent CPI inflation, driven by energy volatility, is not as transitory as initially thought and may have stickier effects on core services inflation. They expect sustained market volatility until the Fed clarifies its stance on 'transitory' shocks.
Selective bets in energy/inflation hedges while maintaining cash.
Core CPI remaining elevated while oil normalizes, forcing the Fed to stay hawkish and potentially ending the equity rally.