Hello! Markets tend to behave in ways we don’t expect. Case in point, the S&P 500 snapped a three-day winning streak Wednesday — the same day traders took in good news on cooling inflation and easing US-China trade relations.

Even with the dip, the benchmark index is within 2% of its record high.

Today’s letter is brought to you by Public!

Our partners at Public.com just released a powerful new AI tool that lets you build a unique and specific index, and it’s only limited by your own creativity. 

It’s called Generated Assets.

I used the tool to create an asset that includes 19 overlooked companies across four sectors that are integrating AI. Historical data shows this index would have compounded at 28% annually over the last decade. 

Build your own index with a single sentence today.

What inflation?

Economic data has a way of violating narratives.

Economists, journalists, market pundits and the Federal Reserve itself have been sounding the alarm on resurgent inflation all year on account of President Trump’s tariffs. Those fears have yet to manifest in the hard data.

While the May CPI report on Wednesday was slightly higher than that of April, price growth still came in cooler than consensus expectations at 2.4% year-over-year. 

It’s the fourth month in a row that inflation has clocked in below forecasts.

Notably, the monthly gain for core inflation, which strips food and energy costs, came in at 0.1%, lower than the 0.2% seen in April.

Just two weeks ago, the Fed’s preferred inflation gauge, the personal consumption expenditures price index, also came in cooler than expected for April.

As surprising as the disinflation trend has been to academics and experts, most commentators and market-watchers remain committed to the view that tariffs will indeed result in a broad inflation rebound. 

Strategists at ING, for instance, still forecast headline CPI to head toward 4% in the second half of 2025, according to a note Wednesday.

Researchers from Goldman Sachs, William Blair, Principal Asset Management, and other firms continue to warn of a coming rise in inflation.  

“The jury is still out on the economic effects from tariffs,” said Skyler Weinand, chief investment officer for Regan Capital, a $2.7 billion firm based in Dallas.

“It will take one, maybe two more months for both the initial pull-forward and eventual lag in demand to be crystallized and show up in the economic data.”

The Fed, for its part, has maintained that stance all year.

Policymakers are unlikely to lower interest rates at next week’s Federal Open Market Committee meeting, even as President Trump continues to call for cuts. 

For months, Fed Chair Jerome Powell has pointed to uncertainty around tariffs as reason to hold steady on monetary policy. 

That caution has earned him the unflattering nickname, “Too Late,” from the commander in chief, who in a Wednesday Truth Social post urged Powell to lower rates by “one full point.” 

“Without a spike in inflation,” said eToro equity analyst Bret Kenwell, “the Fed may have trouble defending its stance on interest rates, particularly as other central banks lower rates and as borrowing costs remain high for US businesses and consumers.”

Market snapshot

Elite investors share their best stock picks

The best investors outperform the S&P 500 for a reason. We give our Best Ideas Club members direct access to trades top fund managers are making right now.

Fifteen of the last 19 stocks are positive since the date we published them, with four surging more than 25%.

Unlock our library of high-conviction bets and get a new stock each week.

Elsewhere

🪨 President Trump says China will supply rare earths to US. This will be part of the trade agreement between the two nations: “WE ARE GETTING A TOTAL OF 55% TARIFFS, CHINA IS GETTING 10%.” (CNBC)

📈 Tariffs generated $37.8 billion in revenue for the US in April and May. Duties collected in May accounted for 6% of the government’s income, marking a 42% jump from the month prior. (WSJ)

Rapid-fire

• Treasury Secretary Scott Bessent said reciprocal tariff pause could be extended for some countries (WSJ)

• Bessent, when asked about the Fed Chair job, also said he wants to stay Treasury Secretary (Yahoo Finance)

• US budget deficit hit $316 billion in May, and a total $1.365 trillion year-to-date (CNBC)

• Oil prices surged 4% following a report that the US embassy in Iraq could evacuate due to security threats (Yahoo Finance)

• Bank of America says the world is embracing the US dollar, not ditching it (Barron’s)

• JPMorgan’s Jamie Dimon warned that the US economy could soon deteriorate (CNBC)

• Ondo Finance debuted its $693 million Treasury Token on the XRP Ledger (CoinDesk)

• Voyager stock made its IPO and surged 85% in its debut trading day (Barron’s)

Last thing

About me

📰 I’m Phil Rosen, co-founder and editor-in-chief of Opening Bell Daily. I’ve published books, lived on three continents, and won awards for my journalism, which has appeared in Business Insider, Fortune, Yahoo Finance, Bloomberg and Inc. Magazine.

I write our flagship newsletter to prepare you for each trading day — unpacking markets, economic data and Wall Street with analysis you won’t find anywhere else.

Feedback? Reply to this email, ping me on X @philrosenn, or write me directly at [email protected].