5 Reasons Why Investors' Optimism (and Recent Higher Stock Prices) May Be Wrong

* Bulls cite about +17% growth in S&P 2026 EPS. However, taking out Micron  (MU)  and Nvidia  (NVDA) , brings aggregate EPS growth to only a high-single-digit increase. Good, but not great and likely not suggestive of a broadening in the recent market advance.

* Since the start of the Iran War the prices of "stuff" have materially risen (while the S&P Index is +1%). As seen in the recent PPI release, pipeline inflation remains robust:

Sulfur: +67%

Jet Fuel: +66%

Urea: +51%

Diesel: +50%

Heating Oil: +40%

WTI Crude Oil: +37%

European Natural Gas: +34%

Gasoline: +32%

Fertilizer: +31%

Brent Crude Oil: +31%

Coal: +14%

Palm Oil: +10%

Iron Ore: +7%

Rice: +4%

* The Federal Reserve's hands are tied. The Fed is not in a position to do much about either inflationary or recessionary pressures. As inflation will likely be higher for longer, the Fed cannot be restrictive (in order to dampen those higher costs/prices). Not only is the Administration putting pressure on the Fed to lower interest rates (and would be vocally resistant to implementation of rate increases) but the staggering U.S. debtload and out-of-control deficit limit the ability to tighten. Meanwhile, if the economy weakens — given the cost of war, lower consumer and business confidence and the likely reemergence of inflation — the Fed is not in a position to loosen in order to stimulate economic growth.

* Improvisational foreign and domestic policy may be destabilizing to confidence and economic growth. Iran took us to a worrisome precipice — will there be more Irans... with more dire consequences?

* The AI malinvestment, the secular threat to software and private credit issues have not yet been resolved.