Here We Go Again
Uncertainty reigns and stocks hit new highs... The Fed makes everything worse... What could possibly go wrong?... Rate cuts aren't a panacea and could be a warning sign... Here we go?... The boom rolls on...
Inflation is 'hot' again...
This morning, the Bureau of Labor Statistics' Consumer Price Index ("CPI") data for August came in "hot."
The benchmark measure of prices increased 0.4% month over month and 2.9% year over year. Both of those numbers were in line with Wall Street estimates, but higher than the Cleveland Fed's expectation of 0.3% and 2.8% increases, respectively.
"Core" inflation, which strips out food and energy prices, rose 3.1% – matching expectations. While core CPI wasn't hotter than expected, it was the second straight month of an increase of more than 3%.
In short, the trend in inflation is heading the wrong way...
August's 2.9% year-over-year increase was the fastest pace for inflation since January. And it was the fourth month out of the past five that inflation has accelerated – meaning prices are rising faster, not slower.
That's not what those who care about the value of dollars want to be seeing with interest rates purportedly in "restrictive" territory (by the Federal Reserve's definition).
This should be a worrying sign...
We hate inflation on its own. But when you pair it with the market pricing in a 100% chance of a rate cut at next week's Fed meeting, there are real risks worth considering.
Based solely on the CPI increasing 0.4% last month, the Fed shouldn't be inclined to lower rates. With some simple math, that's nearly a 5% annual pace of inflation.
But the central bank is readying to lower rates – be it because of political pressure or the simple idea that it's better to address the weakening labor market right now.
So we're now talking about rate cuts while inflation is accelerating... What could possibly go wrong? (Or right?)
We've seen this story before... Will inflation take off high(er) once more, like we saw in2021? Time will tell.
In any case, the idea of rate cuts has given comfort to the market right now... The major U.S. stock indexes were up across the board today, and the S&P 500 Index, tech-heavy Nasdaq Composite Index, and Dow Jones Industrial Average closed at new records.
As for the labor market...
Inflation wasn't the only data investors had to look through today. The Department of Labor also released its weekly jobless claims data. In the week ending September 6, first-time unemployment filers grew to 263,000.
That's up 27,000 from the prior week. That may not seem like a big jump, but last week's level was already at its highest since October 2021. When you exclude the COVID-19 pandemic, jobless claims sit at the highest level since September 2017.
This is just the latest in bad labor market data. In the past week alone, we've covered weak job openings, another bad payroll report, and the huge downward revision in job creation over the past 12 months.
Put simply, there are plenty of red flags popping up in the labor market. And the Fed sees it. That's why it's going to cut rates at next week's meeting.
It's starting to look a lot like the dreaded 's-word'...
In short, inflation looks like it's headed higher once again while the labor market is weakening. That means the market may have to grapple with stagflation.
We could see stagflation fears lead to volatility as soon as next week.
You see, alongside the policy decision on Wednesday, the Fed will also release its quarterly Summary of Economic Projections ("SEP"). This is where Fed members give their estimates for economic indicators like inflation, unemployment, and overall economic growth.
These estimates are almost always proven wrong, yet Wall Street likes to make bets based on them. They tend to create more volatility than the actual Fed decisions themselves.
In both of the SEP releases so far in 2025, the Fed has raised its estimate for the unemployment rate for this year. And in June, the Fed raised its expectation for unemployment in both 2026 and 2027.
The story is the same for inflation. As of the June SEP release, the Fed sees core personal consumption expenditures ("PCE") at 3.1% for 2025, up from its estimate of 2.5% last December. That's a big jump in just six months.
If we see the same thing from the September projections, it's a sign that the economy is getting worse.
That will only bring even lower interest rates, which will likely drive higher inflation – devaluing the dollar even more and providing jet fuel for assets like gold, silver, and shares of quality businesses.
Remember, rate cuts are 'not a panacea'...
While the idea of lower interest rates tends to juice stock prices in the short term, they're not an everlasting elixir.
As recent Stansberry Investor Hour guest Jim Carroll, known as the "vixologist" online, wrote in his morning newsletter update today...
That makes this a good time to review the recent history of Fed Funds rate cycles. And before the complaints roll in, I recognize that a three-sample data set is not statistically significant and the future may deviate from the past. The box on the right edge of the chart is incomplete at this point, so I'm not including it as an example. The point here is that rate cuts are not a panacea. If investors sour on the prospects for the stock market, they may get very bearish even as the Fed becomes increasingly accommodative.
Post dot-com bubble, you can see sharp drops in the S&P 500 (the green line) in the chart above during each of the past three major fed-funds rate-cutting cycles (shown via the red line). The black line is the U.S. 10-year yield. We've also already seen a relatively smaller sell-off in the S&P 500 during the current "incomplete" rate cycle that Carroll refers to.
We'll say it one more time: Rate cuts aren't happening because all is well with the economy...
Here we go?...
On paper and in the real world, uncertainty reigns...
First, we must acknowledge the troubling, continued political violence in the U.S.
As we write, authorities are currently searching for 31-year-old conservative activist Charlie Kirk's assassin... on the same day we remember the 9/11 attacks 24 years ago.
There are also plenty of loose ends on interest rates, inflation, and the Fed itself.
For example, President Donald Trump has said Fed Chair Jerome Powell is still "too late" on lowering interest rates. Powell will assuredly be replaced by May, when his term as chair ends.
Meanwhile, Fed Governor Lisa Cook, who is facing allegations of mortgage fraud from the Trump administration, has been told by a judge she can keep her job for now.
And Stephen Miran, coiner of the phrase "Mar-a-Lago Accord" and Trump's pick to replace the resigned Adriana Kugler on the Fed voting board, was approved by the Senate Banking Committee yesterday by a 13-11 vote along party lines. He's up for a confirmation vote next.
Then there's the ongoing war between Russia and Ukraine.
Peace talks evidently haven't gone anywhere since Russian President Vladimir Putin met with Trump in Alaska last month.
Just a few days ago, Russia flew drones over Ukrainian neighbor Poland. The drones were shot down by NATO fighter jets.
"What's with Russia violating Poland's airspace with drones? Here we go!" Trump wrote on Truth Social on Wednesday.
Here we go?
Talk about uncertainty. It's hard to know exactly what Trump meant, but it seems to portend continued and even greater war.
Among other things, war is inherently inflationary.
For now, stocks keep climbing the proverbial 'wall of worry'...
As Stansberry Research senior analyst Brett Eversole wrote in in his weekly "Review of Market Extremes" for True Wealth Systems subscribers...
As the Wall Street saying goes, "Bull markets climb a Wall of Worry."
Investors are always looking for a reason to sell. It doesn't matter how good things are going... As human beings, we're wired to look for the next potential danger.
Bull markets survive in spite of that fact. Investors continue to expect the worst – all the way to the top.
Brett showed that the Wall of Worry is back by looking at one of his favorite indicators, the American Association of Individual Investors ("AAII") Sentiment Survey.
This is a weekly survey that asks regular mom-and-pop investors what they expect going forward. Specifically, it asks if they're bullish, bearish, or neutral on stocks over the next six months.
As Brett showed, there have been more bears than bulls for five straight weeks. You may take this as a concerning sign, but history shows that this pessimism is actually a bullish signal over the longer run. As Brett explained...
There have been 36 other unique instances since the data begins in 1987. That's about once a year. And looking back, these extremes were good opportunities to buy. Here's what happened throughout history...
If the year ended today, we'd be slightly above the typical return for stocks. That's 8.9% a year since 1987. But of course, you can do much better than "typical" in certain instances.
Buying after a setup like today's is one of those times. Similar extremes led to 4% gains in three months, 7% gains in six months, and 13.9% gains over a year.
In all cases, that's impressive outperformance. And stocks were higher a year later 89% of the time.
This is an important lesson about how bull markets work. Our psychology means we're always looking for the next problem... But booms keep going in spite of that.
It looks precisely like what's happening right now.
New 52-week highs (as of 9/10/25): ABB (ABBNY), Alamos Gold (AGI), Altius Minerals (ALS.TO), Arista Networks (ANET), Broadcom (AVGO), Barrick Mining (B), iShares MSCI BIC Fund (BKF), Alpha Architect 1-3 Month Box Fund (BOXX), Ciena (CIEN), iShares MSCI Emerging Markets ex China Fund (EMXC), EnerSys (ENS), Equinox Gold (EQX), Cambria Emerging Shareholder Yield Fund (EYLD), Comfort Systems USA (FIX), Franco-Nevada (FNV), VanEck Gold Miners Fund (GDX), VanEck Junior Gold Miners Fund (GDXJ), SPDR Gold Shares (GLD), Houlihan Lokey (HLI), iShares Convertible Bond Fund (ICVT), Kinross Gold (KGC), Lumentum (LITE), Mueller Industries (MLI), Neuberger Berman Next Generation Connectivity Fund (NBXG), Newmont (NEM), OR Royalties (OR), Pan American Silver (PAAS), Sprott Physical Gold Trust (PHYS), Construction Partners (ROAD), Roivant Sciences (ROIV), ProShares Ultra Technology (ROM), Sandstorm Gold (SAND), Skeena Resources (SKE), SSR Mining (SSRM), Torex Gold Resources (TORXF), Uranium Energy (UEC), ProShares Ultra Gold (UGL), Global X Uranium Fund (URA), ProShares Ultra Semiconductors (USD), and Vanguard S&P 500 Fund (VOO).
In today's mailbag, we reply to a note questioning our grammar and use of the word "eclipse," in yesterday's Digest when discussing Oracle... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.
"The entire Stansberry team seems to love the verb eclipse. You may want to check out the meaning of it. It doesn't really mean to surpass or overwhelm. Your simple readers need simple words." – Subscriber Alain S.
Corey McLaughlin comment: I'm a simpleton and don't often cite the dictionary, but we must in this case. Here is Merriam-Webster on what eclipse means as a verb. Note usage "c"...
All the best,
Corey McLaughlin and Nick Koziol
Baltimore, Maryland
September 11, 2025