- Macro Notes
- Posts
- The Stagflation Trade Wall Street Stopped Believing In Just Came Back
The Stagflation Trade Wall Street Stopped Believing In Just Came Back
If you spent January positioning for a smooth 2026 easing cycle, the last few weeks have probably hurt.
The ECB has pivoted hawkish, the Fed is stuck, and the bond market is sending a louder signal than equities want to hear. Here's the playbook for what's coming next.
A-Rated Tech (Sponsored)
Elon Musk may be turning SpaceX into an AI infrastructure giant.
Louis Navellier says this could accelerate a massive megatrend he calls “Project Apex.”
But the bigger opportunity may not be SpaceX.
Louis found a little-known tech company with over 30,000 patents tied to Elon’s AI vision — and his system just gave it an A-rating.
The Stagflation Trade Wall Street Stopped Believing In Just Came Back
Forget the soft-landing fairytale. With Brent reportedly back above $90, gold deep into record territory, and the ECB pivoting toward hikes rather than cuts, the macro setup has flipped on its head. The Fed is stuck, energy is stuck high, and inflation refuses to roll over. If you're still positioned for a 2025-style easing cycle, you're fighting the last war.
The Energy Shock Nobody Wants to Call Stagflation
Here's the setup the market keeps dancing around: oil in the low $90s, sticky 3%-plus inflation, central banks pivoting from doves to hawks, and equities still grinding to record highs. That isn't a clean bull market. That's a stagflation impulse hiding under AI euphoria.
Hard assets are doing the talking. Crude, gold, silver, and copper have all rallied in lockstep over recent weeks. When every hard asset rallies at once while the 10-year hovers near multi-year highs, you're being told something. The bond and commodity markets are pricing inflation that the index level still refuses to acknowledge.
For you, that means the biggest risk in your portfolio isn't a growth scare. It's getting caught long duration and long disinflation trades when the regime has clearly shifted.
Poll: Which economic indicator do you trust least as a predictor of market direction? |
AI Shift (Sponsored)
Elon Musk could take SpaceX public in 2026, at an estimated $1.75 trillion valuation.
The IPO would include Elon's AI model, Grok.
But according to Louis Navellier, a radical new AI model will launch this year… over 1,000 times more powerful than Elon's.
And the company behind it could outperform SpaceX in the process.
*This ad is sent on behalf of InvestorPlace Media at 1125 N. Charles Street, Baltimore, Maryland 21201. If you're not interested in this opportunity, please click here.
How a Regional Conflict Became a Global Macro Event
The origin point is the Middle East. What started as a contained regional flare-up around Iran has metastasized into a global energy shock. Iranian oil exports recently fell to their lowest level in six years. Strait of Hormuz risk is real. Oman's Mina al Fahal terminal had a loading scare last week.
The European Commission is now warning the EU could lose 1.3 million jobs from the energy price surge. Eurozone inflation jumped to 3.2% in May per Eurostat the highest since September 2023, with energy contributing over 10%. That's why the ECB is now expected to deliver a 25bp hike at its next meeting, not a cut.
The driver isn't going away. More than 10% of global oil production remains offline, refining capacity has declined, and US-Iran talks have stalled again. This is no longer a one-off supply scare. It's an ongoing risk regime.
Tech Edge (Sponsored)
First users could have already grown their money dramatically every single year this AI has been running, based on the average winning trades it uncovers – WITHOUT following market news, WITHOUT watching central banks, and WITHOUT the stress most traders deal with daily.
For a limited time, you can try this AI yourself, completely free – no email, no credit card needed.
Why This Theme Has Legs
Central bank policy divergence: The Fed is on hold deep into 2026 per most strategists, the ECB is leaning hawkish, the BoJ is set to hike, and EM cuts have slowed. Diverging policy means more dispersion, more volatility, and a strange dollar tape.
Sticky services inflation: Per Schwab's mid-year outlook, core PCE services ex-housing has settled into a range above 3%, with April hitting 3.5% year-over-year. That's not normalization, that's entrenchment.
AI capex feeding into prices: AI buildout is now an inflation contributor, not just a productivity story. Chips, power, cooling, real estate. All feeding into the CPI basket.
Hormuz headline risk: Every Iran headline moves oil 2-3%. That keeps a permanent risk premium embedded in crude.
Fiscal stimulus on top of full employment: Tax rebates landing while the unemployment rate sits near 4.5% pours fuel on an already-warm economy.
What Happens Next
Three things to prepare for.
First, the Fed stays restrictive longer than the futures curve currently implies. The next FOMC is a real pressure point, and any hawkish surprise crushes long-duration tech.
Second, the long end of the curve grinds higher. With the 10-year already elevated and the curve steepening, if oil stays north of $90 and the ECB confirms hikes, the long end could test 4.75%-5.00% by Q3. That's a body blow to richly valued growth names.
Third, market leadership rotates. The Nasdaq's YTD gain has been driven almost entirely by AI mega-caps. As real rates stay elevated and energy inflation persists, capital should rotate toward energy, materials, defense, and gold miners. The index level is masking how narrow this rally really is.
How to Play It
Add real-asset exposure. Energy producers, gold and silver miners, copper names. They are the cleanest hedge against sticky inflation and a weaker dollar.
Buy duration only on weakness. With the long end under pressure and the ECB hiking, fighting the long end is fighting the market. Wait for the 10-year to clear 4.75% before you nibble on TLT or long Treasuries.
Trim crowded AI longs. Not exit, trim. Take profits in mega-caps and recycle into laggards with real cash flow that benefit from higher energy prices and fiscal spending.
Hold a cash buffer. VIX in the mid-teens is quiet. Use the calm to raise dry powder for the volatility you should expect into the next FOMC and CPI print.
Top Picks
Exxon Mobil (NYSE: XOM) |
Newmont (NYSE: NEM) |
Cheniere Energy (NYSE: LNG) |
Lockheed Martin (NYSE: LMT) |
The Final Read
The macro regime quietly flipped from disinflationary easing to sticky-inflation hawkishness, and most portfolios haven't repositioned. Energy shock plus hawkish central banks plus AI capex inflation equals stagflation lite, and that environment rewards real assets and punishes long duration. Tilt toward energy, gold miners, LNG, and defense. Trim the most stretched AI names into strength.
Setup Scorecard
Entry Zone: Stagger into XOM, NEM, LNG, LMT on any 3-5% pullback over the next two weeks. Don't chase green days.
Target: Analyst consensus on NEM alone points to roughly 32% upside from current levels, and the broader basket looks well-positioned for meaningful gains over a 6-9 month horizon if the stagflation thesis plays out.
Stop Loss: A confirmed close in WTI below $75 invalidates the energy leg. A Middle East ceasefire plus a dovish ECB pivot invalidates the gold leg.
Catalyst Timeline: Next FOMC and CPI print, the next ECB decision, and Iran headline flow through summer.
Confidence Level: Moderate to high on the regime call. Moderate on the timing. The setup is right, but the path is choppy.
That’s it for today’s edition—thanks for reading! Reply to this email with any feedback or let me know which macro trends or markets you’d like me to cover next.
Best Regards,
—Noah Zelvis
Macro Notes