To The Moon

My wife called this week at an unusual time for her.

What could it be?

Was she in an accident?

Did something happen at work?

Are the kids OK?

None of the above…

It cost $80 to fill the gas tank!

That was the emergency.

This is a very real problem for the economy and the market. Food and gasoline are the two items we buy that we feel almost vividly. And prices seem to be going up and up.

On the jobs front, it isn’t much better. If you’ve known anyone who has had to look for a job recently, you know the job market isn’t great.

No wonder consumer confidence is low.

But more on that in a moment.

The Confusing State of the Market

I watch earnings and economic data on a daily basis, and at times, the data and the market seem to move in opposite directions. This is one of those times.

Consumer Confidence Hits an All-Time Low

The University of Michigan has been running a consumer confidence survey since the 1950s, and it hit the lowest level ever this month.

Joanne Hsu, who runs the survey, said the drop came because of “a surge in concerns about high prices both for personal finances as well as buying conditions for major purchases.“

I’m going to pour a little cold water on this survey before giving it some credence. You can see above that volatility has increased in the past two decades, and the last six years, in particular, were especially volatile. I also get the sense that having a negative sentiment about everything is popular, from social media to water-cooler conversations. Maybe it’s a COVID overhang, maybe it’s negativity gets clicks, but something has changed.

In reality, I put the chances at close to zero that people really feel as bad today as they did in March 2009.

But there’s also something real going on.

Gas prices are up. It is hard to find a job. Wages aren’t keeping up with inflation (real or perceived). Housing is expensive.

It’s understandable why people feel this way.

Gasoline Prices Are WAY Up

This may have something to do with confidence. It’s tough to see the cost of gasoline nearly double and not feel it.

There’s also reason to be concerned that prices will continue to go up. The U.S. has released 172 million barrels from its stockpile, and that’s part of a global plan to release 400 million barrels (about 4 days of necessary supply) to cover the shortage from the Straight of Hormuz disruptions.

That’s a bandaid though. If the war goes on much longer, prices could go much, much higher.

GDP Growth Relies on Consumers

Confidence and gasoline prices are important because the consumer drives economic growth. And for now, the Atlanta Fed’s GDPNow reading shows growth expected to continue in Q2 2026.

That growth is still largely dependent on consumer spending, which may be impacted by higher gasoline prices.

Inflation Could Be a Problem

Then there’s inflation. Remember, the drop in markets in 2022 was driven by higher inflation, which caused the Federal Reserve to increase interest rates. Well, inflation expectations are picking up.

Median inflation expectations increased by 0.2 percentage point to 3.6% at the one-year-ahead horizon. They were unchanged at 3.1% for the three-year-ahead horizon and at 3.0% for the five-year-ahead horizon in April.

New York Fed

And incomes aren’t keeping up. More worrying yet, people are spending more than their income is growing, driving short-term GDP growth and long-term default risk.

• The median expected growth in household income eased slightly from 2.9% to 2.8% in April.

• Median one-year-ahead nominal household spending growth expectations increased by 0.3 percentage point to 5.4%, its highest reading since July 2023. The increase was driven by those with at most a high school education and with annual household incomes below $50,000.

New York Fed

Something doesn’t add up.

The Market Doesn’t Care…For Now

And still, the market doesn’t care because AI is driving demand for chips, memory, energy, and anything even remotely related to building a data center.

$Apple(AAPL)$ $Amazon.com(AMZN)$ $American Tower(AMT)$ $Costco(COST)$ $NVIDIA(NVDA)$ $Alphabet(GOOGL)$ $Broadcom(AVGO)$ $Micron Technology(MU)$ $Intel(INTC)$ $Advanced Micro Devices(AMD)$ $Qualcomm(QCOM)$ $Applied Materials(AMAT)$

In fact, P/E multiples haven’t been higher outside of a bubble or a recession (when the “earnings” part of P/E drops).

I’m not changing anything about how I invest in the Asymmetric Portfolio because my guardrails are to buy once a month and almost never sell. I also don’t hold cash because I’m adding cash every month, allowing me to buy any dip.

But I’m starting to raise cash and sell bubble-y stocks in my personal accounts because a correction may be on the horizon. The problem is, we don’t know how far out on the horizon the correction is.

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