The clock is ticking. The red line in the sand on oil prices indicates July as the date when oil could do real damage to the economy and the stock market if it remains above $100 a barrel.

 

Why July? For one, that's peak seasonal gas demand in the U.S. At the same time, global oil inventories are projected to be scraping the bottom of the barrel by then. Structural supply constraints — shale production flat, OPEC production down, and seasonal demand due to record heat in the Middle East — will also be a factor. 

 

These restraints will result in a delicate balancing act worldwide where even a small disruption in supply could trigger exponential price spikes. Unless there is an end to the war before then, this perfect storm of conflict, supply, and inventory depletion will descend upon us all. It could become a global race to the bottom in oil supply.

 

With that background, are bulls whistling past the graveyard in the equity markets? As I wrote last week, stock investors seem to be the last man standing in the financial markets. The prices have plummeted worldwide again this week. Recall that I warned readers that 4.5 percent on the benchmark 10-year U.S. Treasury bond was the level where equity investors should start paying attention to yields. We are now at 455 percent.

 

Inflation fueled by higher oil prices continues to climb. The last FOMC meeting minutes of the Fed indicated a more hawkish stance on interest rates would be warranted if inflation continued to rise. It has. Precious metals are no help. Higher bond yields are like kryptonite to that area. Crypto is not helping much either.

 

So why equities? The gains revolve around artificial intelligence and little else. SpaceX, for example, is scheduled to be the single largest IPO in history with the first day of trading on June 12. This first tranche of Elon Musk's rocket company will raise $75 billion, valuing the entire company at $1.75 trillion. This is a company that is losing $5 billion a year and whose founder controls 85 percent of the voting stock.

 

And yet, Wall Street is salivating in anticipation. SpaceX combines rockets, satellites, connectivity, AI infrastructure, and social distribution. Most consumers would recognize the company's Starlink. The successful subscriber service generated $11 billion, doubling the subscriber base to 10 million. So why the loss? It is all about AI. The company spent more than $20 billion in capital expenditures, more on the buildout of artificial intelligence than on rockets and connectivity combined.

 

No, never mind, say the bulls. It's Elon, it's Starlink, it's Mars and beyond, AI dominance, orbital data centers, and the largest potential addressable market in history! Get some! And speaking of AI, Nvidia reported gangbuster earnings this week, and the stock fell. When a company does that, it is time to look at why. I detect a shift afoot, away from the handful of darlings spending trillions on AI buildout and toward those that make AI work.

 

These are companies that provide the data center buildouts, power management, optical connectivity, servers, memory, networking, etc. That doesn't mean that the big spenders are toast, just that the bloom may be off the rose and there are more fertile fields around.

 

So here the markets sit, watching the clock tick. The social media posts that promise a whole lot but deliver nothing have left investors largely immune to what comes out of the White House. Consumer sentiment is cratering as pump prices climb.

 

In any event, most analysts now expect oil prices to remain higher for several more months, even after an actual agreement is signed, the Straits of Hormuz are reopened, and both parties finally declare the war over.

 

Let's hope we get some good news on that front over this Memorial Day weekend. Vague statements from the Trump team have given markets hope over the last few days. But remember, hope is not an investment strategy. Stay invested but keep an eye on yields and oil prices.

 

There is a brave new world out there for crypto miners, brokers, and blockchain entities. The same process that allows cryptocurrencies to trade and settle in the blink of an eye is now being applied to other assets. The hope is that this new technology can help some companies escape another long, crypto winter.

 

It is called asset tokenization. And whether we are talking about stocks, bonds, real estate, or anything else that trades in the real or digital world, all these areas can be tokenized. The first question many ask is what is a digital token?

 

It is a programmable digital asset, just like any crypto currency, issued on an existing blockchain such as Ethereum. But unlike cryptocurrencies such as Bitcoin, which have their own blockchain, tokens can be issued on just about anything, including asset ownership of things (paintings, properties, dollars), access rights, voting power, identity, predictions etc.

 

A stock, for example, which trades on a digital market (and most of them do), can now be converted into a digital token on a blockchain. This allows for fractional ownership, faster transactions, and broader market access. While tokens can be applied to anything, they have an obvious use in expanding financial infrastructure where settlement of money is extremely important.

 

One way to think about this technological trend is as a new way to handle the flow of financial assets that trade globally, 24 hours a day. Money changes hands constantly and the expression ‘time is money' takes on real meaning when trillions of dollars are involved. Tokens act as a new kind of plumbing that allows money, instead of water, to flow faster, with fewer cracks, leaks or clogs, and therefore greater predictability. In past columns, I have written about stablecoins, which also use blockchain technology to effect fast, secure, and borderless transactions in the currency world. This is simply another use for this technology.

 

Crypto companies have embraced digital tokenization with open arms. Bullish, a crypto exchange run by the former head of the New York Stock Exchange, acquired a tokenized equity company, Equiniti, for $4.25 billion in a stock transaction a week ago. Recently, Centrifuge, which specializes in tokenizing exchange-traded funds and credit products, announced a deal with Coinbase, a leading cryptocurrency company.

 

Robinhood, the broker, is also interested in the area but has yet to ink a deal. CEO Vlad Tenev did say that "our strategy is to take crypto infrastructure and apply it to assets that have real-world utility. That's why we care so much about tokenization."

 

Crypto companies hope tokenization will allow them to expand beyond simple cryptocurrency trading. As readers know, crypto currencies can be notoriously volatile and have been subject to periods of massive underperformance. Over the years, the crypto companies have had to weather periodic "crypto winters," which can last for years. If tokenization catches on, it could allow the industry to diversify away from volatile crypto trading toward a more stable and predictable business model.

 

But tokenization is in its infancy. As it stands, there are only about $27 billion in tokenized real-world assets on the blockchain. That's a drop in the bucket when one considers the $200 trillion plus in global digital equities alone.

 

However, the settlement arms of Nasdaq and the Depository Trust and Clearing Corp. (DTCC), which do the lion's share of equity settlements, are now engaged in pilot programs studying both blockchain-based settlement and tokenized securities. Larry Fink, the CEO of BlackRock, the mega-billion-dollar asset management company, believes tokenization could transform finance. He may be right. One thing is for certain: blockchain technology is here to stay, and its uses will continue to multiply.

 

There is a widening gap between how players in the financial markets perceive the future. Momentum traders in the equity market continue to push technology stocks to new highs while bond traders are becoming more bearish. Can both be right?

 

In the short run, yes, in the medium term, not so much. Friday, markets pulled back amid pressure on bond prices, which sent yields higher. Bond yields on the U.S. 30-year Treasury bond surpassed 5 percent this week. The benchmark ten-year U.S. Treasury bond hit 4.57 percent. Both are usually warning signs for the stock market.

 

Here's what you need to know. The higher the yields go, the more expensive it becomes to borrow. The more it costs to borrow, the less likely new investments are to be made down the road. Fewer investments lead to weaker earnings, which in turn lead to lower stock prices. Capisce?

 

The issue that has the bond market in such a dour mood is inflation. I have been warning readers for months that inflation is rising. The Iran war has made it worse. This week, the Consumer Price Index (CPI) and Producer Price Index (PPI) for April removed any doubt that inflation is making a big comeback. The PPI numbers were up 1 percent from the prior month. That's the highest since March 2022. The CPI was also hotter than expected and will be much higher when the May numbers are announced in a month's time.

 

That should come as no surprise to you, since you are paying north of $4.50 per gallon at the pump for gasoline, while diesel is above $6. You may have noticed your credit card bills are also higher (and you're spending less), as are your weekly grocery tabs. It is an inflationary spiral that will continue.

 

As inflation rises, bondholders will insist on a higher real rate of return — meaning returns after inflation. Consequently, as inflation increases, investors demand higher yields to compensate. This cause-and-effect relationship suggests bond investors see significant risk, so why is the stock market at record highs?

 

The rate of return has something to do with that. Market participants can't seem to get enough of anything and everything related to artificial intelligence. More than a trillion dollars a year is being poured into this area, with more expected next year. Ask any of the mega companies making these investments, and they will tell you that the rate of return they expect will be stupendous sometime in the future.

 

How much? Well, no one really knows but "a lot." Certainly, a "lot" more than whatever the inflation rate is right now and "a lot" more than whatever a measly old bond is yielding. That is the name of the game. Momentum traders are having a field day. There is a buying frenzy underway to protect one's capital. It will work until it doesn't.

 

Trump's tariffs, the continued closure of the Straits of Hormuz, the resulting rise in oil prices, the fiscal spending spree underway, the skyrocketing deficit and national debt — it's all inflationary. Buying stocks that can outperform inflation and bond yields both now and in the future is how it's done. Is that working? Just look at the returns of the semiconductor sector so far this year or technology overall.

 

In the meantime, Kevin Warsh has taken over as the central bank's head. Given the rise in inflation, it seems almost impossible for him to acquiesce to the president's desire to see interest rates lower. In reality, the betting markets are starting to price in the possibility of interest rate hikes by the end of the year.

 

As for the president's visit to China, it appears to have been mostly pomp with little in the way of circumstance. Disappointed by the lack of major trade announcements or other economic breakthroughs, investors sold off Southeast Asian markets, including China, as well as markets in Europe and the U.S.

 

The breadth of U.S. stock markets has been shrinking as indexes climbed. Fewer and fewer stocks, mostly large-cap tech stocks, have been largely responsible for the market's gains over the last few weeks. We are overdue for a bout of profit-taking in this "V" shaped recovery since March 31st. I would like to see a few percentage points shaved off this market. It would pave the way for further gains over the summer.

 

In his State of the Union speech in February, the president floated the idea of a new retirement savings vehicle for lower-income Americans without workplace plans. Last week, the president signed an executive order making good on his promise.

 

His executive order aims to establish an annual $1,000 match for individuals earning less than $35,000 per year who contribute to an Individual Retirement Account (IRA). The only caveat is that they cannot have an employer-sponsored 401(K) type plan at their job.

 

Say what you will, Donald Trump is trying to do something about Americans' subpar retirement savings rate. He knows (as we all do) that Social Security is in trouble and probably won’t be around for much longer. This new effort follows another incentive called the Trump Accounts, which are new custodial-style traditional IRAs for kids.

 

This new executive action will launch a website called TrumpIRA.gov, where workers can research, compare, and enroll in private-sector retirement plans. The hope is that the website will serve as a conduit between workers and plan sponsors, with the government acting as the broker.

 

More than 56 million Americans lack access to an employer-sponsored retirement plan at their place of employment, according to research by the Pew Charitable Trusts, an independent public policy nonprofit organization. And yet, nothing prevents any American worker from setting up an IRA and making tax-deductible contributions right now. So why don’t they do it?

 

Many workers say they cannot save for retirement, especially as inflation reduces their paychecks. Others find the application process too complicated or paperwork heavy. Some do not bother because they already have employer retirement plans. For many, retirement seems unreachable due to their background and income.

 

In 2015, Barack Obama launched a $70 million program allowing workers to make automatic payroll contributions to a government-backed retirement account. It closed 17 months later, after only 30,000 workers enrolled and contributed $34 million. It hasn't improved since.

 

The facts are that since 2020, as the financial markets roared higher, participation by lower-income workers in employer-sponsored retirement plans declined, even as their access to plans increased. The number of workers who opened accounts decreased by 8 percent. For many, the myth that Social Security will still be there in the future to take care of them persists, although confidence in that assumption has declined from 43 percent to 36 percent, according to AARP.

 

Truth be told, the president is simply hitching his wagon to a Biden-era plan called the Saver's Match, a provision from the 2022 legislation known as Secure 2.0. Under that legislation, single taxpayers with a modified adjusted gross income of up to $20,500 (joint filers, up to $41,000) qualify for a government match of up to $2,000 on a qualified retirement account contribution. The saver would receive a $1,000 match per year.

 

Single filers with annual incomes of between $20,500 and $35,500 (joint filers up to $71,000) would qualify, but for a reduced matching contribution. Trump would like to up the qualifying salary range. I suspect he is also hoping that the name "Trump" on this new website might attract more lower-income workers to at least consider saving.

 

His plan to increase the cap to $35,000 would require congressional approval. "To take it to the next level, we need congressional approval, which should be very easy to get. It should be bipartisan," Trump said. He is probably correct, since there is bipartisan support for persuading more low- to moderate-income people to open employee-sponsored plans.

 

There are already several proposals in Congress, such as the Retirement Savings for Americans Act and the Automatic IRA Act, that confront this issue. Readers know I've analyzed these measures in previous columns. The hope is that by sweetening the incentives to save, more Americans will become committed to saving for retirement. Given the grim state of Social Security, we'd better hope so, or future generations of retirees may erupt in protest.

 

The "Sell in May and go away" slogan of yesteryear should stay there. In the last decade, following that advice in the stock market would have lost you money. This year, you would have really been disappointed.

 

Stocks continue to climb despite the conflict in the Middle East, oil prices, and inflation worries. The old Wall Street adage about May hasn't held true at all over the last decade, with the average gain topping 7 percent for the May through October period.

 

This year, the gains have been much better than average for the first week in May, and most analysts believe markets are set to continue their bull run. This is despite the latest results from the University of Michigan's Consumer Sentiment Index, which dropped to a record low of 48.2 in early May. One-third of those polled cited higher gasoline prices, and another 30 percent mentioned tariffs as reasons for their dour outlook.

 

And speaking of those two concerns, this week the Court of International Trade ruled that Trump couldn't use the 1974 Trade Act to impose his 10 percent tariffs. These levies were put in place in February after the Supreme Court struck down his "Liberation Day" tariffs. But consumers should not expect refunds for the extra costs they have incurred due to these tariffs over the last few months. The government and businesses will pocket any refunds.

 

Gas prices, however, continue to climb higher as Trump's War remains bogged down in mistruths, exaggerations, and ineptitude. The administration is claiming that the ‘ceasefire (which isn't) marked the end of the war (now called an "excursion"). His secretary of war, Peter Hegseth, testified before the Senate Armed Services Committee that the ceasefire stopped the clock on the eve of the 60-day mark of the war.

 

That avoided a major statutory deadline for the president to withdraw forces or seek approval from Congress to continue the fight. Since then, despite both countries trading missile fire, the supposed ceasefire is still in effect. In any case, the Straits of Hormuz are still closed despite last weekend's two-day Operation Freedom scheme to escort boats through the disputed straits.

 

Trump's go-to reliance on his own interpretation of events: "Attack, Deny, and claim Victory," is wearing thin. A new acronym, NACHO — "Not a Chance Hormuz Opens" — is making the rounds of an increasingly cynical Wall Street. However, financial markets are looking beyond this debacle.

 

First-quarter earnings were stellar, with more than 84 percent of companies beating estimates. In addition, their guidance seemed to reflect a more upbeat future than present circumstances might dictate. Technology companies in the artificial intelligence space are the most positive, which is one reason both large-cap technology and AI names are leading markets higher.

 

Next week, we should see the entrance of the new Fed chief, Kevin Warsh, although I do not expect any moves in either interest rates or monetary policy in the immediate future. In addition, President Trump, along with a gaggle of U.S. CEOs, is scheduled to visit China before the end of the month. Investors are hoping that the two sides will play nice and may even come to an agreement on how to end the "non-war" with Iran.

 

Bulls evidently want to push stocks higher. Momentum traders keep buying on every little pullback. The war has become old news. Only some concrete turn of events, rather than this continued war of words, would put it back on the front burner. Inflation, while still a risk, is still some time further into the future. In the meantime, May seems to be destined for further gains.