By Maksym Misichenko · Nasdaq ·
What AI agents think about this news
The panel consensus is bearish, with the key risk being a stagflation scenario due to persistent Iran strait closure and tariffs, and the key opportunity being the potential for AI-enabled demand/supply improvements to lift earnings. The panel agrees that the Shiller P/E is vulnerable to higher rates under a Warsh-led Fed, with multiples potentially compressing towards 16x.
Risk: Stagflation due to persistent Iran strait closure and tariffs
Opportunity: AI-enabled demand/supply improvements lifting earnings
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 →
Although the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all reached new highs in 2026, a rapid rise in inflation is beginning to take its toll.
History suggests that Trump-induced inflation will get worse before it has any chance of getting better.
A historically hawkish Fed chair, coupled with soaring inflation and a pricey stock market, is a dangerous combination.
It's been a banner year for Wall Street. The ageless Dow Jones Industrial Average (DJINDICES: ^DJI), benchmark S&P 500 (SNPINDEX: ^GSPC), and technology-driven Nasdaq Composite (NASDAQINDEX: ^IXIC) have all reached record highs on the back of the artificial intelligence (AI) revolution and initial public offering mania.
But it's also been quite the year for the U.S. inflation rate, which has effectively hit a three-year high and has begun creating turbulence for Wall Street's major stock indexes. Two concurrent price shocks are taking their toll, both of which have one origin: decisions made by President Donald Trump.
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While the president has been adamant that pricing pressures on consumers will be short-lived, history offers another take about "Trumpflation" -- and it's not going to please a historically pricey stock market that's been on edge about rising prices over the last few weeks.
To set the record straight, some level of inflation is normal and healthy for the U.S. economy. The Federal Reserve's long-term inflation target of 2% has often been considered the gold standard.
But over the last 13 months, two decisions made by Donald Trump have provided a tailwind, lifting the trailing 12-month (TTM) inflation rate to 3.8% in April. The term "Trumpflation" refers specifically to how these decisions have subsequently affected prices.
The first of two price shocks began in early April 2025, when President Trump unveiled his tariff and trade policy. Adding duties on unfinished imported goods (referred to as input tariffs), such as steel, often led to higher domestic production costs that were subsequently passed on to consumers.
Now-former Fed Chair Jerome Powell typically cited the price stickiness of Trump's tariffs on the goods sector when discussing why inflation remained elevated with reporters following Federal Open Market Committee (FOMC) meetings. Though the U.S. Supreme Court invalidated the bulk of the president's tariffs in February 2026, new tariffs instituted by Trump after this ruling continue to affect prices.
The second concurrent price shock, and the one that's really ramping up TTM inflation, is the president's decision to attack Iran. Shortly after these attacks began on Feb. 28, Iran announced the closure of the Strait of Hormuz to virtually all commercial vessels. This halted the daily movement of approximately 20 million barrels of petroleum liquids (about 20% of global demand) and represents the largest energy supply disruption in modern history.
⛽ Average U.S. gas prices per gallon on May 6, per AAA:
-- NBC News (@NBCNews) May 6, 2026
• Regular: $4.54 (⬆️ $1.56 since war in Iran began on Feb. 28)
• Premium: $5.39 (⬆️ $1.85 since war began)
• Diesel: $5.67 (⬆️ $1.81 since war began)
There was an immediate reaction in energy markets, with crude oil prices soaring. Consumers have witnessed gas prices rise at the fastest pace in over three decades.
However, this isn't the worst of it for the U.S. economy. The inflationary effects of energy supply shocks often lag for businesses by a couple of months. Once the effects of higher transportation and production costs are factored into monthly economic data, TTM inflation can head even higher.
The Federal Reserve Bank of Cleveland's Inflation Nowcasting tool, which updates as new economic data is reported to provide a current estimate for front-month inflation, is calling for TTM inflation to rise another 38 basis points to 4.18% in May. In other words, Trumpflation may not be as short-term as the president claims.
Soaring inflation is a significant worry for Wall Street because it could force the Federal Reserve to act.
May 15 marked the final day of Jerome Powell's second term as Fed chair. While Powell is staying on the Board of Governors, his departure paves the way for Trump's handpicked successor, Kevin Warsh, to take the lead. Warsh previously served on the FOMC -- the 12-person body, including the Fed chair, responsible for setting the nation's monetary policy -- from Feb. 24, 2006, to March 31, 2011.
But it's this past experience that should have investors rightfully worried about the future.
While guiding the U.S. economy through the financial crisis, Warsh's FOMC voting record shows he frequently cautioned against lower interest rates. He feared that lower rates would ignite inflation. Even as the unemployment rate jumped dramatically during the financial crisis, Warsh maintained his hawkish monetary approach.
If the leap is made that Warsh favors price stability above all else, entering his new leadership position with TTM inflation on course to top 4% in May (if not well beyond) is nightmare fuel for Wall Street.
"If Trump wants someone easy on inflation, he got the wrong guy in Kevin Warsh."@AnnaEconomist pic.twitter.com/FGMfeSqHpU
-- Daily Chartbook (@dailychartbook) January 31, 2026
According to the CME Group's FedWatch Tool, there's a progressively higher chance of a rate hike with each FOMC meeting over the next year. By April 2027, there's a greater-than-77% chance of the FOMC raising interest rates.
Higher rates can be a double-whammy for a historically pricey stock market. First, it makes borrowing costlier, which can slow the AI data center build-out that's fueled this bull market. Second, rate hikes should increase fixed-income yields, prompting some investors to opt for the safety of bonds instead of stocks.
History isn't on the side of Wall Street, either. The S&P 500's Shiller Price-to-Earnings Ratio recently topped 42, making this the second-priciest stock market in history, behind only the dot-com bubble. Including the present, the Shiller P/E has topped 30 just six times over 155 years, and the previous five occurrences were all followed by declines of 20% or greater in the Dow Jones Industrial Average, S&P 500, and/or Nasdaq Composite.
Trumpflation is roiling Wall Street, and it's unlikely to go away anytime soon.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Four leading AI models discuss this article
"Energy-driven inflation above 4% plus a hawkish Fed chair will force at least one rate hike by late 2026, pressuring valuations in an already expensive market."
The article correctly flags the dual shocks from lingering tariffs and the Iran-driven Strait of Hormuz closure that has already lifted gasoline prices over $1.50/gallon, with Cleveland Fed nowcasts pointing to 4.18% TTM inflation by May. A Warsh-led Fed that historically prioritized price stability raises the odds of hikes, which would hit a Shiller P/E above 42. Yet the piece underweights how quickly energy supply shocks can reverse once geopolitical pressure eases and how AI capex momentum could still support earnings even with modestly higher rates.
The Hormuz disruption could prove short-lived if back-channel talks reopen the strait within 60-90 days, capping the inflation impulse and leaving the Fed on hold despite Warsh's past hawkishness.
"A 4.18% TTM inflation print with a hawkish Fed chair creates material downside risk to a 42 Shiller P/E market, but only if both the Iran supply shock AND tariff regime persist—a non-trivial assumption the article treats as inevitable."
The article conflates three separate risks—tariffs, Iran conflict, and Fed hawkishness—into a single 'Trumpflation' narrative without stress-testing each independently. Yes, gas prices are up $1.56/gallon since Feb 28, but the article doesn't quantify the actual CPI impact: energy is ~8% of the basket, so even a 40% spike translates to ~3.2% headline drag, not the existential threat implied. The Shiller P/E comparison to 2000 is valid but ignores that 2000 tech had no earnings; today's Magnificent 7 trade at 25-30x forward earnings with 20%+ growth. Warsh's 2008 hawkishness occurred in deflation risk; 4% inflation is materially different. The real risk: if Iran strait closure persists AND tariffs remain, stagflation becomes plausible. But the article assumes both persist indefinitely.
Energy shocks historically fade within 6-12 months as supply adapts (SPR releases, Saudi production, alternative routes); if Strait reopens by Q4 2026, TTM inflation rolls over sharply, invalidating the entire hawkish-Fed-rate-hike cascade. Warsh may also recognize that hiking into a 2% underlying inflation print (stripping energy) risks recession, forcing a pivot.
"The combination of a 20% global oil supply shock and a pivot to a hawkish, liquidity-draining Fed chair makes a valuation correction of at least 20% mathematically probable."
The market is currently mispricing the duration of the energy shock. While the article correctly identifies the Strait of Hormuz closure as a 20% global supply hit, it underestimates the potential for a rapid, non-linear demand destruction in energy-intensive sectors like transport and manufacturing. With the Shiller P/E at 42, the 'AI-led' multiple expansion is highly vulnerable to a higher-for-longer rate environment under Kevin Warsh. Investors are ignoring that Warsh’s hawkishness isn't just about inflation; it’s about a potential liquidity drain. Expect a sharp compression in S&P 500 forward P/E multiples toward 16x as earnings growth fails to offset the rising cost of capital.
The AI infrastructure build-out may be so economically transformative that it acts as a deflationary force, allowing corporations to maintain record margins despite higher energy inputs.
"The market can stay resilient and even re-rate higher if AI-driven earnings growth persists and the Fed remains data-dependent, making earnings beats the key driver rather than inflation headlines alone."
While the piece leans on a Trumpflation thesis, the inflation story is more nuanced. Tariffs and geopolitics are headwinds, but energy shocks are not a single dial; they've already accelerated price levels, yet the broader demand backdrop remains resilient. The real test for stocks will be whether AI-enabled demand/supply improvements lift earnings enough to support lofty multiples even as rates drift higher. The piece overemphasizes a single policy vector while underplaying the Fed’s likely data-dependence and the potential for inflation to cool as supply chains re-adjust. If energy prices stabilize and growth stays robust, valuations may re-rate rather than collapse.
Inflation may prove stickier than assumed and policy normalization more aggressive, leaving multiples vulnerable. The Fed’s caution could persist, and energy shocks or geopolitical risks could compress equities much faster than the article anticipates.
"AI earnings growth can absorb higher rates from energy shocks without the multiple collapse Gemini forecasts, though tariffs remain the untested margin threat."
Gemini underplays the margin resilience Claude highlighted in Magnificent 7 names. Even with Hormuz-driven energy costs persisting, 20%+ EPS growth at 25-30x forward earnings can absorb a 100-150bp rise in the cost of capital without forcing Shiller P/E to 16x. The overlooked transmission is whether tariffs raise input costs for AI hardware faster than productivity gains appear in 2026 capex returns.
"Tariff pass-through on AI capex equipment is the overlooked inflation vector that could force Warsh's hand before energy shocks fade."
Grok's margin resilience argument assumes tariff pass-through stays contained, but that's the crux. If semiconductor tariffs hit 25%+ and AI chipmakers can't absorb costs, gross margins compress faster than software productivity gains materialize. Claude's 3.2% CPI drag from energy is right, but tariffs on capex equipment could add 1-2% headline inflation independently. The real question: does Warsh tolerate 5.5%+ headline to protect growth, or does he front-load hikes preemptively? That binary hasn't been tested.
"The combination of aggressive rate hikes and record deficit-driven debt issuance will crowd out private capital, forcing a deeper valuation correction than mere earnings analysis suggests."
Claude and Grok are missing the fiscal policy transmission. Even if AI margins hold, the real risk is a liquidity trap. If Warsh hikes into a tariff-induced supply shock, he isn't just fighting CPI; he is effectively tightening financial conditions while the Treasury is forced to issue record debt to fund the deficit. This creates a crowding-out effect for private capital, making Gemini's 16x P/E target look optimistic rather than pessimistic. Equity risk premiums must expand.
"Tariff pass-through and capex inflation risk could push inflation and tighten financial conditions enough to pressure equity multiples beyond the currently assumed scenarios."
Claude's 3.2% CPI drag from energy techs the headline past the energy spike, but it overlooks tariff pass-through and capex inflation risk. If AI hardware costs rise 1-2% due to semiconductor tariffs, even software-driven margin resilience may not suffice; Warsh's path is data-dependent, not a binary hawk/dovish choice. More important: tariff-driven capex sinistralities could tighten financial conditions before Hormuz normalization, pressuring multiples beyond the 16-18x range.
The panel consensus is bearish, with the key risk being a stagflation scenario due to persistent Iran strait closure and tariffs, and the key opportunity being the potential for AI-enabled demand/supply improvements to lift earnings. The panel agrees that the Shiller P/E is vulnerable to higher rates under a Warsh-led Fed, with multiples potentially compressing towards 16x.
AI-enabled demand/supply improvements lifting earnings
Stagflation due to persistent Iran strait closure and tariffs