What’s the problem?

Five discrete forces are dragging down stocks. They might prove fleeting, or they might stick around for a while. For now, the mood is gloomy. The S&P 500 index was down slightly for the week, and it has fallen 2.5% since June 1.

Here’s what’s weighing on markets.

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You can be excused for missing the news, because President Trump himself buried it. Congress passed the Road To Housing Act on June 23—but Trump never signed it. Trump held out in protest because Congress won’t pass the SAVE America Act, the election bill that would make it harder to vote. Trump called the housing bill a “big yawn,” as if it was too inconsequential for him to bother signing.

But Trump didn’t veto the bill either, and it became law on July 11 without his signature. And housing experts think Trump is completely wrong. Instead of a big yawn, the Road To Housing Act is “the most significant housing legislation in a generation,” according to the Terner Center for Housing Innovation at UC Berkeley.

Anybody trying to buy a home knows that in much of the country, lack of supply has jacked up prices. Home affordability is close to the worst levels since 2005, when the housing bubble temporarily inflated home values.

[How older homeowners have locked up the market]

Affordability is a combination of price levels, income levels, and mortgage rates. Economists consider homes “affordable” if the cost of a mortgage is no more than 30% of income. At the national level, it currently takes 43% of median income to cover the mortgage on a median-priced house. That’s a painful stretch for many.

The home market is now bifurcated between those who bought before the 2020 Covid pandemic and those who bought after, or are trying to. Families who bought before were able to refinance mortgages at record low mortgage rates in 2020 or 2021. That was a gift to homeowners from the Federal Reserve, which slashed rates as a form of monetary stimulus.

[The new stock-market trade worth knowing about]

Rates jumped back up starting in 2022, and they’re now nearly 4 points higher than the record lows of 2021. Owners who locked in lower rates are reluctant to sell, since they permanently lowered their housing costs. Strong demand and a shortage of homes hitting the market have pushed prices about 27% higher than they were at the start of 2020. Many would-be buyers are simply locked out.

Rentals are expensive, too, with rental affordability close to the worst levels in data going back to 2001. The index in the chart below measures median income relative to median rent, assuming rent is 30% of income. A higher number means the typical renter has more income relative to the cost of rent, and vice versa.

The biggest problem in the US housing market is that there’s not enough housing, especially new construction for lower-income workers. Local zoning restrictions make it hard to build in many areas. Builders make more money on expensive homes and are disincentivized to build cheaper units. Trump’s tariffs have raised the cost of building materials, and his immigration crackdown has hollowed out construction crews in some parts of the country.

[The double-haters’ guide to the midterm elections]

The Road to Housing law doesn’t contain any silver bullets, but it does include numerous measures meant to address these problems one-by-one over time.

It eases the requirements for manufactured housing and modular homes, for instance, which should make it easier and cheaper to build some of the most inexpensive structures available. New federal grants will create incentives for municipalities to ease zoning restrictions. Environmental rules will loosen, cutting some red tape for builders.

One provision that got some attention is a new limit on the institutional purchases of homes by investors who rent them out for a profit. That was a politically popular provision because it’s easy to blame fat-cat investors for gobbling up real-estate, cornering the market, and raising rents. In reality, institutional buyers don’t distort pricing all that much, and the new restriction might have a modest impact at best in areas where there’s a relatively large portion of investor-owned homes, such as Phoenix and Dallas.

The bipartisan nature of the law stands out in a political environment characterized by what seems like never-ending warfare between Republicans and Democrats. Key sponsors included progressive Democratic Sen. Elizabeth Warren of Massachusetts and Republican Sen. Tim Scott, a Trump ally. Democrats had to swallow the easing of environmental regulations, anathema to many environmentalists in their ranks. Republicans agreed to new funding for low-income housing even though the White House lobbied to get that removed.

[More Trump tariffs are coming 🙄]

The law relies on the executive branch to implement many provisions, so foot-dragging by the Trump administration could neuter the law. The Urban Institute points out that at least three dozen new programs will have to be run by the Dept. of Housing and Urban Development, which endured deep staff cuts last year as part of Trump’s “DOGE” ransacking of the federal bureaucracy. “Massive staffing cuts have already limited the agency’s functions, and the bill contains no additional money for staffing and operations,” the institute says in an analysis of the law.

Trump’s lack of enthusiasm obviously suggests that his priorities are elsewhere. Trump calls the affordability crisis a “hoax” and pursues policies that push prices up, not down. He’s busy raising tariffs anew, with a fresh round of import taxes that will replace the emergency tariffs the Supreme Court killed earlier this year. The Iran war has sent gasoline prices back above $4 per gallon and pushed many other prices higher.

All this is happening with the midterm elections less than four months away, and Trump’s fellow Republicans fearing a wipeout. Any other president would be taking credit for trying to get housing costs down. If the legislation ever works, maybe he’ll become a believer.

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Most weekly recaps of the stock market tell you what happened in the Dow, the S&P 500, and the NASDAQ indexes. Those represent three broad slices of the market.

You don’t usually hear how the value sector is doing—maybe because it sounds like the opposite of a hot trade. But that’s where the action is at the moment, as the artificial-intelligence boom takes a breather.

Value stocks are broadly defined as shares that seem undervalued relative to the company’s sales and revenue. They include big names. The top five companies in the Russell 3000 value index are Amazon, Apple, Microsoft, Berkshire Hathaway, and JPMorgan Chase.

Value stocks have been the winners in recent weeks, as investors rotate out of growth stocks that have driven most of the market gains during the last year. Semiconductor stocks, for instance, have been in retreat for several weeks.

The white-hot semiconductor trade peaked around June 22, with the Philadelphia semiconductor index down about 16% since then. Semis have been so hot that some cooling was inevitable. The one-year return is 204%, even with the recent selloff.

[The Weekly WTF: President shouts, nobody listens]

As investors take profits on semis and other tech holdings, they’re putting some of it into value funds, which are overperforming. The Russell value index was up 0.5% for the week, while the S&P fell 1.3% and the NASDAQ fell 2.6%. The one-month gain in the Russell value index is 2.3%, compared with a 0.5% gain in the S&P and a 1.9% loss for the NASDAQ.

You can see from this chart that value stocks ran with the pack for most of the year, then took the lead in June.

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But it’s worse elsewhere, as an annual report by the Deutsche Bank Research Institute reminds us. Every year, the bank publishes a global pricing report comparing the cost of rent, food, smartphones, gasoline, internet service, cars, and about 20 other things in nearly 70 cities worldwide. The costs are priced in dollars.

Zurich and Geneva are the world’s most expensive cities, not surprising for a rich country with a historically strong currency. Tel Aviv is third, with New York fourth and San Francisco fifth.

[Check out The Weekly Matterboard: News that’s worth your time]

Tel Aviv has rapidly become one of the world’s most expensive cities for a number of reasons. Israel’s currency, the shekel, has appreciated during recent years. The Israeli economy is generally strong. Energy and other utilities are also very expensive, due in part to Middle East turmoil.

Japan, once one of the world’s costliest countries, is now “extremely cheap” in dollar terms, according to the report. That’s largely because inflation in Japan has been much lower than in the rest of the world in recent years, plus the yen has substantially depreciated. Tourists, take note.

The DB report, available here, has tons of data on how costs and living standards differ by city and country. We decided to map the worldwide costs of four items everybody is familiar with: gasoline, a McDonald’s meal, an iPhone, and a night out with a date. The bottom line for most Americans: It could be worse!

US gas prices, for instance, have climbed back to about $4 per gallon. But a gallon costs around $4.80 in Shanghai, $5.80 in Mexico City, and $8.40 in Paris.

A casual date in Geneva, including dinner, drinks, two movie tickets, and transportation, costs an eye-watering $475. That’s 32% more than in New York and 75% more than in Chicago.

And if you’re peeved at the high cost of a Big Mac, just be glad you’re not ordering it in Israel, where a McDonald’s meal costs nearly $21—61% more than in New York.

Here are the maps, with a cartoon to follow:

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Inflation cooled in June, dropping to 3.5% from 4.2% in May. That’s obviously a welcome development. The biggest improvement was the huge drop in the price of oil and other commodities, as the Iran war simmered down and tanker traffic started moving through the Strait of Hormuz.

That’s almost irrelevant, however, given that the Iran war seems to be back on and oil prices are spiking again. So is inflation a problem, or not?

Both, alas. We track inflation every month in more than two dozen major categories, to isolate where the pain is. Here’s the breakdown:

Gasoline and airfares are up double-digits year-over-year entirely because of the Iran war. But those eye-popping numbers are better than they were last month. Annualized gasoline inflation, for instance, dropped from 40.5% in May to 26.7% in June.

[Check out The Matterboard: News that’s worth your time]

Ground beef and coffee prices are high mainly because of shortages. But those prices are gradually moderating. Grocery prices overall are up by a modest 2.7%. That would probably be lower without the war, because diesel is a big part of producing and transporting food, and the war drove diesel prices up.

Car prices, both new and used, are flat, after several years of runups. And car insurance costs are declining, after rising by double digits for a couple of years.

One new source of inflation in recent months has been electronics, due to the artificial intelligence boom and relentless demand for semiconductors. That has sent prices of those components soaring.

But the few categories where there’s sustained inflation represent a very small portion of consumer spending. The bottom line is that if you take war-related inflation out of the picture, there’s not much to worry about.

[The Weekly WTF: Trump out-gaffes Biden]

Obviously you can’t just pretend the war isn’t there, especially since everybody knows it will probably push the July inflation number higher. The US-Iran ceasefire has broken down, Iran is shooting at tankers periodically, and Trump says the US is reimposing its blockade of Iranian ports.

Oil prices were almost back to pre-war levels at the beginning of July, but they’ve now jumped by about $12 per barrel, to around $83. Gasoline prices will follow oil prices back up, as they always do.

Trump is in a bind because consumers hate inflation and his war has eroded purchasing power. Iran’s leaders knows this, and could keep the war going through the midterm elections in November—their way of punishing Trump and his fellow Republicans, even if more bombs rain down on them.

The inflation spike earlier this year turned real incomes negative, which means inflation was rising faster than wage gains, on average. The June inflation dip has brought both wage growth and inflation to 3.5%. So real wage growth is 0, which is better than a negative number. But that will probably turn negative again in the July data, assuming the inflation rate ticks back up.

The details matter for markets because they affect what the Federal Reserve might do. New Fed chair Kevin Warsh told Congress on July 14 that the central bank has “a resolute commitment to restoring price stability.” That’s Fedspeak for “we will do whatever is necessary to get inflation down.” Normally, that means the Fed will raise interest rates, which is the principal way of cooling the economy, easing demand, and bringing prices down.

But Iran is the wrench in the machine. If the war settles down for good, there might not be much inflation to worry about. And if the war escalates, surging oil prices might drive prices higher no matter what the Fed does.

[Trump mimics the socialist Mamdani]

The Fed’s next rate-setting meeting is at the end of July. The likelihood of a rate hike then is only around 12%, according to the CME’s Fedwatch tool. But markets still think the Fed will hike at some point this year, by one-quarter or one-half a point. That means the outlook in general is for higher inflation.

We’ve pointed out that some economists see a weak economy more in need of rate cuts, as a form of stimulus, than rate hikes to battle war-related inflation. But the Fed is very unlikely to cut rates as long as Hormuz-related pressures are on, and Iran could keep making trouble for months. The fog of war often extends far from the battlefield.

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Markets are normalizing as the US-Iran war morphs into a series of occasional flare-ups and tankers speed through the Strait of Hormuz. Oil prices are almost back to pre-war levels. Inflation is likely to drop. The stock market is once again consumed with the artificial-intelligence buildout, rather than geopolitics.

But interest rates remain curiously high. The 10-year Treasury, which sets the rates on most business and consumer loans, is at around 4.5%, more than half a point higher than it was before the war. Mortgage rates are near 6.5%, also half a point higher than pre-war levels. Unlike oil prices, rates have gone up and stayed up.

What is that telling us?

The bond market is the grown-up of the investing world, rationally processing data amid exuberance or panic in the stock market. It could be sending three different messages.

Read more

What will the Federal Reserve do? Wall Street obsesses over this and if you watch financial news, you’ll see 27 opinions per day on whether the Fed will raise interest rates, lower them, or take other arcane steps to stimulate the economy.

What if the Fed does nothing for a while? There’d be a lot less to talk about, but markets wouldn’t mind and businesses could stop worrying about at least one thing they have no control over. It’s possible that longer-term rates on car loans, mortgages, and personal loans might gradually drift down, with no prodding by any central bank.

This might be exactly what happens for the rest of 2026. There’s been a jarring change in expectations for interest rates this year. In January, investors expected rate cuts, as a mild form of stimulus to guard against a weakening job market. But then the Iran war sent inflation higher and the outlook shifted to rate hikes, since that’s how the Fed fights rising prices.

[The Weekly WTF: Icky presidential bedroom]

Now, it’s starting to look like the Fed won’t change rates at all this year. The biggest factor is the sharp decline in oil prices, as the US-Iran war has morphed into a shaky ceasefire and oil tankers have once again started transiting the Strait of Hormuz.

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Is this a bubble bursting? Nobody knows, and air has leaked out of the AI trade before, only to be followed by robust reflation. But semiconductor stock have been on such a tear—up 311% during the last three years—that it would only make sense if high-flyers such as Nvidia, Broadcom, Micron, and AMD floated back toward Earth at some point.

[Why tech inflation is a sudden concern]

What would that look like? How widespread would a selloff be? Will new public offerings—such as SpaceX’s recent debut, and Anthropic and OpenAI, coming soon— contribute to a bursting bubble? Will ordinary investors who invest in index funds get smoked, or is there someplace to hide?

I recently talked about all this and more with Dave Nadig, president of ETF.com. In a prior post, I outlined some of Nadig’s insights on the SpaceX public offering, which was controversial for a number of reasons you can read about here. Nadig also has thoughts on where AI is heading and how it might affect ordinary investors. Here’s the full interview, with a few bullet points below:

AI price cuts are coming. “I firmly believe by the end of the year, everything you think you’re paying for now will be free,” Nadig says. The competition, including AI offerings from China, will simply be too fierce for AI purveyors to charge a premium, or maybe to charge anything.

[Why Elon Musk is a trillionaire]

Price cuts would cloud the profit picture. If Google, Anthropic, OpenAI, and other AI firms can’t profit on regular retail users, they’ll have to make it up through big contracts with governments and corporations. But there’s already pushback there, too.

There’s likely to be a lot of overbuilding. That’s a key lesson from the dot-com boom and bust of 25 years ago, when companies borrowed heavily to install far more fiber-optic cable than demand at the time required. The modern-day analog could be the frenzy to build data centers.

This year’s big IPOs will cause turbulence, at a minimum. The effect tends to be minor at first, because only a small portion of the company’s shares typically hit the market on the IPO date. But many more shares become available months later, when insiders are allowed to sell, and that gusher of new equity could be destabilizing. “This is volatility-enhancing,” Nadig says. “To say that has a net positive or negative effect on the price of the S&P 500 is very difficult to call.”

But Americans think the job market stinks, and a middling jobs report for June won’t do anything to change their minds.

In the Conference Board’s monthly surveys, for instance, the portion of Americans who think jobs are hard to find is at the highest level since January 2021, when the Covid pandemic was still roiling the economy. The University of Michigan’s sentiment survey is near the lowest levels since it started collecting data in 1952. And President Trump’s approval rating on the economy has collapsed, with the majority of Americans saying the economy is getting worse, not better.

[America 250 isn’t as grim as it seems]

Here’s what the latest employment numbers show. While overall job growth has been positive during Trump’s second term, there’s been a notable slowdown in hiring since the Biden presidency.

Part of that slowdown may be a natural cooling from the stimulus-driven post-Covid boom. But Trump’s policies are probably a factor, too. Higher tariffs on imports raise costs on businesses and add uncertainty, which can depress hiring. And Trump’s aggressive deportations reduce the size of the labor force, which in turn reduces GDP growth and hiring.

Trump’s tariffs are meant to boost the manufacturing sector, because raising the cost of imports, in theory, makes it more cost-effective to build stuff in the United States. But that has done nothing to reverse a long slump in manufacturing employment.

The unemployment rate, at 4.2%, is relatively low. But it’s still higher than during the hiring boom of the Biden years.

It matters where the new jobs are coming from. Most of the new jobs are in health care and social services, where there’s a lot of mandatory spending going toward an aging population. Other sectors dependent on discretionary spending, which better reflect the dynamism of the economy, aren’t doing so well.

The information sector has shed 89,000 jobs during the last year, a sign that tech firms are retrenching and maybe replacing workers with artificial intelligence. Four other major sectors have shed jobs during the last 12 months. Job growth in business services peaked in 2022, with a broad slowdown since then.

[Are you better off than you were one year ago? Only if you own stocks]

Economist David Rosenberg of Rosenberg Research points out that outside of health care, social services, and education, employment declined by 12,000 jobs in June. The number of people in the labor force also declined, which means some unemployed people stopped looking for work. Had labor force participation stayed the same, the unemployment rate would have jumped from to 4.6% instead of falling by a tenth to 4.2%.

Perhaps most worrisome for Trump is an inflation rate that now exceeds wage growth. That means real earnings are negative, the typical paycheck buys less, and the average worker is falling behind.

There’s a silver lining. Modest job and wage growth means the Federal Reserve may not have to raise interest rates to choke off inflation. That gave stocks a modest boost after the job news arrived. Most investors think the Fed will raise rates by around half a point this year. But it may not have to if the end of the Iran war brings energy prices down permanently and there’s no sign of an overheating job market.

[There’s a new type of inflation to worry about]

That would be good for stocks, as lower rates are bullish for corporate profits. But the roaring stock market of the last year has not coincided with a job or earnings boom that benefits most workers. That may be the story for the rest of 2026.

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The sniping is taking on the characteristics of a weekend affair, with US and Iranian forces shooting at each other for a couple of days, then wrapping everything up before US markets open on Monday morning. Trump clearly doesn’t want any more energy shocks rocking his presidency. But Iran is still fighting to control the vital shipping lane out of the Persian Gulf, and not yielding much. This could go on indefinitely, with unhappy implications for oil and energy prices.

The latest dustup illustrates what Iran is trying to accomplish—and why it might work. Before the war, there was one main shipping channel through the middle of the Strait of Hormuz, which is 21 to 24 miles wide. That route is now mined.

So now there are two other routes—one that hugs the Omani coast, to the south, and another that passes close to Iran, to the north. Iran wants all ships to take the Iranian route, so it can charge hefty tolls or otherwise manage traffic as it sees fit. But Trump says that’s unacceptable, since it would violate global shipping norms and give Iran more power over Middle East energy shipments than it’s ever had.

On Thursday, June 25, Iran struck a container ship exiting the Persian Gulf with a drone, because it was taking the wrong route, the southern one near Oman. That was an obvious violation of the US-Iranian ceasefire agreement. So on the evening of Friday, June 26, Washington, DC time—after markets closed for the week—US forces retaliated by attacking Iranian military facilities along its southern coast.

[The Weekly WTF: Algae and Iran conspire against Trump]

Iran responded to that by hitting a Qatari oil tanker with a drone the next day. US forces hit more Iranian targets. Iran launched drones and missiles at US bases in Kuwait and Bahrain. Then on Sunday, June 28, American officials told media outlets that the United States and Iran had decided to stop attacking each other. Stocks rose when the markets opened on June 29, and the big story that morning wasn’t Iran but a flurry of controversial Supreme Court rulings.

Did Iran really agree to no more attacks? Doubtful. Iran continues to warn shippers that the Iranian route through the strait is the only acceptable one, and to threaten attacks against ships that don’t comply. “This aggressive behavior will likely continue,” Noam Raydan of the Washington Institute for Near East Policy wrote in a June 26 analysis. “The United States and its regional partners will need new policies and measures to ensure that Iran is not the only authority dictating rules in the strait.”

[There’s a new kind of inflation to worry about]

A cycle of Iranian attacks, US counterattacks and relative calm by Monday morning could continue for months. Iran knows that Trump’s hope for an easy military victory blew up in his face, and that he’s now eager to move on to something else. Trump himself is very likely the one dictating that episodic US military action always wrap up by Sunday night, lest markets get rattled and oil prices soar again. That means Iran knows it can pop a tanker or two late in the week, absorb a day or two of American strikes, then get a respite before doing it all over again the following week.

As this porous ceasefire has gone into effect during the last few weeks, oil prices have tumbled by way more than almost anyone expected. At around $73 per barrel, Brent crude prices are almost back to pre-war levels. That’s not because there’s a gusher of oil suddenly flowing out of the Gulf. Tanker traffic through the strait is still a fraction of normal levels.

Traders do think, however, that both sides have incentives to get the oil flowing, and they’re not especially worried about Iran charging tolls. Prices are down because traders think oil markets will be flush with supply sometime soon. If tanker traffic remains snarled and those supplies don’t materialize, physical shortages could push prices back up.

[Are you better off that one year ago? Only if you own stocks]

This might be the way it goes for the foreseeable future, with Iran and the United States shooting at each other periodically on what they think is a proportionate basis. Iranian attacks are meant to show the regime isn’t intimidated and plans to control the Strait of Hormuz. US counterstrikes are meant to show that the cops are still trying to police the neighborhood. Sure, there could be a miscalculation that leads to worrisome escalation. But Trump would probably have to break his usual Sunday evening deadline for that to happen.

Trump’s Iran war is unpopular, with solid majorities of Americans opposed to it. But it was probably more unpopular when oil was at $115 per barrel and gas was getting close to $5 per gallon. Gas prices are now back below $4, Americans are heading to the beach, and whatever is happening in the Middle East is becoming background noise. Trump wants to keep it that way.

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A stock market tear started at the beginning of April, when the Iran war was still hot and oil was well over $100 per barrel. For two months, the artificial-intelligence boom seemed so compelling that traders put aside concerns about a war and a global energy crisis, bidding stocks to new record highs.

Now, oil prices have tumbled to around $72, nearly back to pre-war levels. There are occasional ruptures in the Iran war ceasefire, but in general it is holding and oil tankers are once again plying the Strait of Hormuz. Yet stocks are in a June swoon and investors are worried about interest rate hikes. The euphoria of the late-war phase has morphed into anxiety.

What gives?

Just a few weeks ago, investors thought the end of the Iran war would bring energy prices down rapidly and alleviate concerns about inflation, which has jumped from 2.4% before the war to 4.2% now. That has partly happened. Assuming there’s no major resumption of hostilities and the oil keeps flowing, energy prices should be back to relatively low pre-war levels in a few months.

[The Weekly WTF: Algae comes for Trump]

But a new inflation gremlin has emerged. The AI boom has generated huge demand for memory chips, crucial to building data centers in addition to all the computing equipment everybody uses. Structural shortfalls have doubled the cost of these components, with no easy fix in sight. We’ve built a new chart to illustrate the trend:

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The stock market is very frothy, with sharp selloffs in hot sectors such as semiconductors fueling worries that an artificial-intelligence bubble is bursting and ugly times are nigh, akin to the dot-com bust of 2000.

Nobody knows where stocks are heading, but the current turmoil presents a good opportunity to look at a couple of the trendy trades of recent years. If you get in and out of these trades at more or less the right times, you’ll be fat and happy. But timing is everything, and even the pros struggle to consistently buy low and sell high.

Let’s look first at the semiconductor sector, where the gains have been breathtaking but the recent selloff has brought the whole market lower.

Read more

It wouldn’t look so good. Not economically, anyway.

The Trump economy in 2026 looks substantially weaker than the economy did at the same point in Trump’s first term, in June of 2018. Employment and income growth have been lower during the first 18 months of Trump 2.0 than during the same span in Trump 1.0. GDP growth is lower. Inflation is worse. The only thing that’s substantially better is the overall gain in the stock market since Trump took office.

We track this data as part of our Trumponomics project, which includes data provided by Moody’s Analytics going back to Jimmy Carter’s term in the 1970s. We follow monthly or quarterly numbers on employment, manufacturing employment, incomes, inflation, GDP growth, and stock values, allowing us to measure each of the last 13 presidents against one another at the same point in each term. The full methodology is here, and you can see an interactive version of the data at graphic artist David Foster’s web site.

[The Weekly WTF: Iran mounts stunning come-from-behind comeback]

The data allows us to rank presidents based on the performance of the economy during their terms. The current Trump economy ranks 4th out of the last 7 presidents, which includes all who have held office in the 21st century. In a ranking of the last 13 presidents, going back to Jimmy Carter, Trump ranks 8th out of 13. (For simplicity, we’re only showing data on the last 7 presidents here.)

The Biden economy was slightly better than the current Trump economy at the 18-month point. Biden did better in three categories: growth in employment, manufacturing jobs and GDP. Trump has done better in income growth, stock-market performance and inflation. The statistical edge goes to Biden. But it’s worth noting that 18 months into Biden’s term, in June of 2022, inflation was soaring and voters were rapidly souring on Biden’s economic leadership.

[5 lessons from Trump’s Iran war]

The president before that, of course, was Donald Trump. And the performance of the Trump economy during the three years leading up to the 2020 Covid pandemic may explain why voters gave Trump high marks on the economy when he was running for president again in 2024.

The Trump 1.0 economy ranks 2nd out of the last 7 presidential terms at the 18-month point, mainly because most things were going right. Growth in employment, incomes and GDP was solid. Inflation was modest and a surge of energy production caused by the fracking revolution kept gasoline prices low.

When Trump took office in 2017, he inherited an economy in the midst of a slow but sustained recovery from the Great Recession, which ended in 2009. By the latter half of the 2010s, the economy was back on its feet and many Americans felt like they were getting ahead.

Trump dabbled with tariffs during his first term, but they didn’t arrive until his second year in office, with the heaviest tariffs coming during his third year. Even then, they were pretty mild. The average tax on imports rose from about 1.5% to 2.8% during the entire term. That wasn’t high enough to do much economic damage.

[Here’s the real problem with Elon Musk’s SpaceX]

Trump went much further, much faster, during his second presidential term. By April of 2025—his third month in office—Trump announced tariffs that pushed the average import tax to nearly 28%. Legal challenges and Trump’s own backpedaling have brought the average tariff rate down to about 9% now. But that’s still the highest average tariff in at least 50 years, and it helps explain a weaker economy.

The Iran war Trump launched on February 28 has been another stiff headwind for the economy, forcing businesses and consumers to grapple with soaring energy costs and much more uncertainty than usual. Energy costs are receding amid a shaky ceasefire, but a new risk premium in oil prices could keep energy prices higher than necessary indefinitely. Tariffs and the energy shock are probably holding back hiring and investing in much of the economy, as CEOs wait to see how disruptive Trump’s policies will be.

Trump defenders argue that there’s no recession in sight, so Trump’s rambunctious governing style hasn’t caused any harm. But that’s not quite right. The artificial-intelligence boom is providing an unusual boost to the economy, and that’s masking a lot of weakness elsewhere. Economist David Rosenberg of Rosenberg Research points out that tech, health care and financial services are the only sectors of the economy growing. The rest of the economy is shrinking.

Voters elected Trump to a second term in 2024 largely because they thought he’d do a better job managing the economy and especially getting prices down. That may have been because they remembered Trump’s first term as a pretty good time, setting aside the Covid pandemic.

Trump’s standing on the economy has collapsed, as his tariffs and Iran war sent prices up, not down. Many Americans see recession in their midst and think the country has gone far off track. Biden never recovered when inflation sent his approval rating into the basement, and Trump probably faces the same fate.

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Wall Street parsed every word, gesture, and unstated inference when Kevin Warsh made his debut on June 17. The new Federal Reserve chair has vowed to “reform” the central bank by cutting back on guidance about what the Fed might do, reducing its footprint in financial markets, and focusing more on keeping inflation low. There was a modest stock-market selloff after the Fed concluded its latest policy meeting on June 17, as Warsh and his fellow monetary mandarins indicated they might have to raise interest rates this year.

The Fed’s hints at rate hikes were something of a surprise, since President Trump, who nominated Warsh for the job, has pushed hard for a Fed chair who will lower rates, not raise them. But Warsh’s first concern isn’t Trump, or even the overall US economy.

It’s Iran.

The only reason the Fed might have to raise rates this year is that Trump’s war with Iran caused a global energy crisis, pushing the cost of oil, gasoline, and many other commodities substantially higher. That, in turn, pushed the overall inflation rate from an almost normal 2.4% before the war to a worrisome 4.2% now.

[The Weekly WTF: Iran mounts stunning come-from-behind victory!]

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SpaceX may set the stage for two more giant IPOs that are coming soon, the artificial-intelligence companies Anthropic and OpenAI. The same indexes that let SpaceX in the side door will probably do the same for Anthropic and OpenAI, generating some forced buying of those shares, too. None of these three companies is profitable, or likely to be any time soon. Yet the insiders will likely amass gargantuan fortunes regardless of how well their companies perform.

In an age of worsening wealth inequality, maybe it’s natural that there’s growing populist hostility toward these AI overlords. But this isn’t the main story. The AI boom, so far, has lifted the entire stock market, boosting portfolio values for just about anybody who owned stocks during the last three years. The giant newcomers won’t move markets very much for months, and maybe years. There are bigger threats to markets, meanwhile, than Musk’s intergalactic wealth, no matter how obscene it might seem.

I spoke recently with Dave Nadig, President of ETF.com, to get some ground truth about the indexes bending their rules to accommodate SpaceX, the risks for ordinary investors, and where we might be in the AI boom (or bubble). The full video is below, followed by a bullet-point summary of the conversation—which came from human intelligence, not its artificial knock-off. 😁

Beware the “GameStop problem.” Nadig worries about a huge company like SpaceX being valued like a meme stock, with little connection to underlying performance. “I worry about the GameStop problem,” Nadig says. “What happened in GameStop had nothing to do with the company and everything to do with vibes. SpaceX is in that exact same boat. Having a lot of value tied up in vibes means you can get really weird stuff going on in the market. SpaceX could report a terrible quarter and the stock could go up 100% and everybody would go, ‘the whole market’s broken.’”

[See why most Americans are missing out on an epic stock-market boom]

SpaceX isn’t big enough to roil markets, yet. While the market values SpaceX at around $2 trillion, only about $100 billion of that is stock trading in public markets. The rest is still privately owned. But much of the company will ultimately trade publicly, as restrictions on insider selling expire and those stockholders sell. That’s when SpaceX might be big enough to rock the overall market. GameStop’s average market value during its meme-stock era has been around $10 billion. So SpaceX’s value could be 200 times that of the most prominent meme stock. That would be a different order of problem.

Markets may treat Anthropic and OpenAI differently than SpaceX. The two AI giants might not get the same valuation pass that the Musk mystique seems to generate. I asked Nadig if he thinks investors might treat the two AI giants like meme stocks. “I suspect not. And I hope not,” he said. “I suspect both of those will be treated like normal companies as opposed to weird Elon moonshots.”

[Why Elon Musk is a trillionaire]

Should you be angry about a few stock indexes bending their rules for giant, unproven companies? Probably not. First of all, the S&P 500 index, the biggest of them all, is not changing its rules at all, and it could be years before any of these companies joins that index. Most people with investments in an index fund follow the S&P 500, so there are no issues there.

Other indexes changed their rules because the big investing firms that package index funds—Fidelity, Vanguard, Schwab and the like—generally wanted them to. Allowing in these hot new companies allows those firms to offer some exposure to their own customers. And some investors always want to get in on the hottest new thing.

Should you be betting big on these new companies? Please don’t, unless you have money to burn. Nadig suggests maintaining a “cowboy account” for risky bets that should be no more than 1% of your net worth. “It’s money you’re spending largely for entertainment and psychological value, not because you’re going to get it right,” he says.

[The Weekly WTF: Trump 💖 inflation]

If you do want to experiment with shares of a risky new public company, you may as well just buy a few shares directly through your brokerage, instead of bothering with a targeted fund. Just be prepared to lose. SpaceX will probably hit some major potholes before it launches for good—if it ever does.

The two warring parties have supposedly signed a “memorandum of understanding,” with negotiations on precise terms to follow and a signing ceremony scheduled for June 19 in Switzerland. This has the hallmarks of a phony deal. Iran is a notoriously wily negotiator not likely to sign off on details to be named later. A substantive peace agreement could take months to hammer out. There might never be one.

But each side may be tired enough of conflict to kick the can down the road, with the understanding that Iran can once again freely export oil and cargo will start flowing through the Strait of Hormuz. That’s what markets see, which is why Brent oil, which hit nearly $120 per barrel in April, is down to $84.

It’s been a momentous four months. Here’s what we’ve learned:

Trump is capable of colossal blunders (duh). It’s hard to think of a presidential decision in modern times that has backfired more than Trump’s decision to attack Iran on February 28. Trump obviously thought Iran would fold quickly and he’d have a rapid victory, as in Venezuela at the start of the year. Any national-security expert could have told Trump Iran would be a much tougher foe, and some undoubtedly did.

The consequences of Trump’s blunder will be widespread. The Iranian regime’s ability to survive a joint US-Israeli onslaught will embolden Tehran, while proving that America’s vaunted military has limits. At home, Trump’s approval rating has fallen to the lowest level of his two presidential terms, and may never recover. The surge in energy prices, which can only be blamed on the incumbent Republicans, has bolstered Democrats’ chances of taking one or both houses of Congress in the November midterms. There will other long-term repercussions not yet apparent.

Trump failed to displace the Iranian regime (despite what he might claim). The war did nothing to help ordinary Iranians, who are still oppressed by a government most of them hate. Iran still has nearly 1,000 pounds of uranium it can use to build nuclear bombs. Iran has lost a lot of military equipment, and it might be a little more careful in the future about provoking a US or Israeli attack. But it’s hard to see how this war accomplished anything positive and lasting for the United States.

[The SpaceX IPO lands without incident]

The energy revolution of the last 40 years has been a lifesaver. The two changes that stand out most are a huge improvement in energy efficiency and the fracking revolution that made the United States the world’s largest oil and natural gas producer.

First, efficiency. The closure of the Strait of Hormuz for four months (or longer) was the biggest disruption ever in oil markets, in terms of the volume of oil blocked from global supplies. Yet oil and energy prices remained far below the levels of past crises, in inflation-adjusted terms.

The US economy is far less “energy-intense” than it used to be, which means we produce more with less energy. That’s the result of efficiency improvements throughout the economy: cars that burn less gas, buildings that require less energy to heat and cool, industrial processes that sip fuel, and technological breakthroughs such as heat pumps. These changes mostly happened incrementally starting in the 1970s, but over time they helped minimize a crisis.

The fracking revolution that started around 2010 now allows American drillers to serve as “swing producers” able to generate more oil when markets are tight. US oil production has crept up to record highs and is likely to rise further into 2027. Exports of petroleum products surged in April and May. That doesn’t insulate Americans from price hikes, but it demonstrates that a Middle East energy crisis won’t bring the US economy to its knees as it did twice in the 1970s.

[The Weekly WTF: Trump loves inflation]

Green energy is back. Environmentalists dismayed by Trump’s hostility toward green energy suddenly have something to cheer about. The Strait of Hormuz oil crisis has fueled more solar and wind power production nearly everywhere in the world … except the United States. China, the world’s leading producer of solar-power equipment, is exporting more solar components than ever to dozens of countries. The higher cost of fossil fuels, and the prospect of a sustained crisis in the Middle East, make renewables more cost-competitive at the same time those costs have been plummeting.

[Why Elon Musk is a trillionaire]

Even here, where Trump is going out of his way to block green energy, renewables account for most of the new power generation added to the grid. Trump has canceled many federal incentives for green-energy development, but many states are promoting renewables, which are taking off even in Texas. The growth rate of renewables in the United States has declined, largely because of Trump’s resistance. But investment is still solid. A few years from now, Trump’s crusade against green energy will look like a dunderheaded effort to block the inevitable, with his Iran war marking an important pivot point in favor of renewables.

More big changes are coming to energy markets. Iran has newfound leverage over Persian Gulf energy shipments, but the value of that leverage is probably already declining. That’s because markets are already adapting to the prospect of a single energy hegemon dictating Persian Gulf prices and outcomes.

Saudi Arabia has been bypassing the Strait of Hormuz chokepoint and exporting oil through a pipeline that ends at the Red Sea. The UAE has been exporting oil through a pipeline that reaches the Gulf of Oman, outside the Persian Gulf. These have turned out to be vital workarounds allowing some Persian Gulf oil nations to get some of their product to market.

[Trump’s affordability plan has unraveled]

There’s now a flurry of projects underway to build more workarounds, via pipelines to the Gulf of Oman, the Red Sea, and the Mediterranean, and even trucking routes out of the Gulf that were once thought laughably inefficient. The Strait of Hormuz will remain a crucial cargo passageway, if Iran lets the cargo pass freely. If it doesn’t, the oil nations will find other ways. This will probably happen at other key global chokepoints as well.

Iran will remain a Middle East troublemaker. Don’t believe any Trump statements about how the United States “won” the Iran war or how agreeable the Iranian government suddenly seems. It’s the same group of militant theocrats who want a nuclear bomb, “death to Israel,” and all the grisly perks that come with a dictatorship. Trump once said he “fell in love” with North Korean dictator Kim Jong Un, who eight years later may represent more of a risk to the United States than ever. Let’s hope he doesn’t fall in love with any more tyrants.

The most likely outcome of the Iran war is not a peace deal that tidies everything up and puts all the pieces back together, but an ongoing state of tension in which neither side buckles and nobody’s sure what will happen next. The good news is that markets can probably live with that. The bad news is that Trump will be running the show for the foreseeable future, with future blunders always possible.

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The most important development in financial markets right now isn’t in the headlines: Things are getting back to normal.

Here’s what is in the headlines: Elon Musk is the world’s first trillionaire. His rocket company SpaceX blasted onto public markets with a staggering $2 trillion valuation. Musk’s stake is worth more than $800 billion, with his ownership in Tesla bumping him over the trillion-dollar threshold. Capitalists cheer; Musk-haters jeer.

The Iran war devolved to shooting again, with Iran downing a US helicopter, US forces retaliating and Iran re-retaliating. Then there was talk of a peace deal, for at least the 38th time.

President Trump’s war with Iran has pushed inflation to the highest level in three years. At the start of the year, investors thought the Federal Reserve would be cutting interest rates in 2026. Now it looks like they’ll have to raise rates, to combat inflation. The change in expectations has already pushed mortgage rates up by half a point, making housing affordability worse.

[Why Elon Musk is a trillionaire]

And yet: Markets are calm. Iran war drama seems to be fading. And it’s possible the second half of 2026 will be less volatile than the first.

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A trillion dollars is obviously more money than anybody needs. And Musk is annoying. But he is also a remarkable innovator who has changed entire industries despite nearly impossible odds. Even if it’s too much, he has earned his money the right way: By building better mousetraps.

Musk’s first major windfall came from digital payment service PayPal, where he was a cofounder. After eBay bought PayPal for $1.5 billion in 2002, Musk used his share of the proceeds to start SpaceX and invest in Tesla, where he eventually became CEO.

Tesla didn’t invent electric cars. Musk’s innovation was to use the power of batteries to build ecofriendly cars that were fast, fun, and cool. Up till then, most cars employing electrification, such as the Toyota Prius, were wheezy econoboxes meant to maximize efficiency. Musk’s focus on performance made the Tesla Roadster and Model S hits. Just about all the giant automakers copied him, sooner or later, by building electrics with muscle and flair.

Tesla pioneered over-the-air updates, which are software updates beamed to a car through a cellular or WiFi connection, without the need to visit a dealership. OTAs, as they’re known, don’t solve every problem that might crop up in a car. But they solve a lot of them, while allowing for upgrades as the software improves. This is becoming the industry standard, courtesy of Musk.

[Missed out on the SpaceX IPO? Don’t sweat it]

Other Tesla innovations include the integrated Supercharger network, battery-storage systems and a modular manufacturing process. Many industry veterans predicted the newcomer Tesla would fail in a ruthless, low-margin, heavy-manufacturing business. Instead, it became the world’s most valuable automaker.

SpaceX’s biggest innovation is the reusable rocket, which has slashed the cost of sending payloads into space and made Musk’s rocket company the world’s dominant commercial space launch provider. The 2002 startup has muscled aside established heavyweights such as Boeing and Lockheed Martin to become the government’s top space-launch contractor.

You can pick just about any Musk venture and point to failures and controversies. Tesla’s rollout of self-driving systems has been more aggressive than other automakers’, and probably more deadly, for instance. Musk combines his companies in unusual ways that can seem self-serving, such as directing SpaceX to buy more Tesla Cybertrucks than any other single customer. One of his businesses appears to be subsidizing the other.

[The Weekly WTF: Inflation Rocks!]

Musk’s involvement with President Trump’s “DOGE commission” last year probably generated more bad press for Musk than anything his businesses have done, as Musk’s hand-picked team of outsiders dismantled the aid agency USAID and many other parts of the bureaucracy. The social-media platform X, which Musk purchased in 2022 when it was known as Twitter, has become a right-wing echo chamber promoting Trumpy extremists. Some of Musk’s own posts seem racist.

All of this has made Musk a complicated figure even the most ardent capitalist can find hard to like. And Musk’s situationship with Trump makes him a target for liberals, such as Sen. Elizabeth Warren, who charge that Musk has exploited crony capitalism to feather his own nest.

[Why most Americans are missing out on a stock-market boom]

Yet Musk’s companies endure the scrutiny of public markets and still thrive. Most of his wealth now comes from SpaceX, which went public on June 12 at a valuation of nearly $1.8 trillion. Musk owns 46% of the company, worth some $820 billion. Tesla used to be the biggest source of Musk’s wealth, but that’s now worth about one-fourth of his SpaceX stake. Musk’s share of two other private companies, Neuralink and the Boring Company, are probably worth about $9 billion.

SpaceX is the most valuable company ever to go public, with a sky-high valuation based on future plans to operate data centers in space, colonize Mars and accomplish other unprecedented things. Some of those plans will undoubtedly flop.

But the market discounts Musk’s failures while placing a premium on his ability to disrupt and innovate. It’s easy for critics to cherry-pick his failures, while overlooking a record of achievement that may be rivaled only by the world’s greatest investors. You don’t have to like Musk. But you’re fooling yourself if you don’t respect his accomplishments.

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But there’s no reason any ordinary investor should be clamoring for shares of SpaceX, or should feel left out if an effort to buy shares near the opening price fails. Public offerings are hit or miss, and early exuberance over an IPO often brings buyer’s remorse.

Part of the allure of SpaceX is Musk himself, given that his electric-car startup Tesla has made many shareholders rich. But Tesla didn’t start out as an overnight success. It was a money loser when it went public in 2010, and didn’t become profitable for a decade. One year after going public, Tesla’s stock was an underperformer, up by 22%, compared with 30% for the S&P 500 index. It didn’t break out and become a fast-riser until its third year as a public company.

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If Trump had taken office in 2025 and gone into deep hibernation, we’d probably have inflation back to the normal range of 2% or so, with lower interest rates and steady growth. Instead, we have a renewed spurt of inflation, gasoline prices above $4 per gallon, rising interest rates and deep uncertainty over the health of the economy.

Inflation jumped from 3.8% in April to 4.2% in May, as the effects of the energy shortage caused by Trump’s Iran war spread throughout the economy. Gasoline prices are 41% higher than a year ago, driven entirely by the Iran war. Before Trump launched the war on February 28, there was abundant oil in global markets and gas prices were below $3 per gallon on average.

Higher energy costs show up most prominently in gasoline prices posted at every filling station in the country, but they also creep into the prices of many other things through higher production and transportation costs. Airfares are up 27% because of higher fuel costs. Household energy costs are up 6.4%. Clothing prices used to be tame, but they’ve suddenly jumped nearly 5%, the biggest increase since 2022.

[The AI bubble is deflating]

Grocery prices are rising at a modest 2.7%, but could spike as the higher cost of production, shipment and fertilizer caused by the Iran war moves through supply chains. All these price increases come as Americans are thoroughly fed up with costs that have gone up and stayed up during the last five years.

Inflation is now outpacing wages, which means real income growth is negative and the typical worker is falling behind. The last time this happened, in 2023, President Joe Biden watched his approval ratings collapse, never to recover.

You might think Trump would try to do something about all this. He is—by making it worse.

Trump’s promises to lower prices were always disingenuous, because he vowed to impose new tariffs at the same time. Tariffs are taxes on imports that raise prices, pure and simple. American importers pay the tax to the government and try to recoup as much of it as possible by passing the cost increase along to buyers.

[Everybody calm down about Elon Musk’s SpaceX IPO]

Courts have struck down Trump’s most draconian tariffs, but he is undeterred. His administration is preparing to roll out new tariffs to replace the ones courts have invalidated, and these are likely to have better legal standing. That means they’ll probably stick.

Overall, Trump has raised the average import tax from 2.5% to about 10%. The new tariffs could push that to 15% or so.

Meanwhile, the core element of Trump’s 2026 affordability plan was supposed to be the tax cuts he signed into law last year. But Moody’s Analytics says the higher cost of energy and other things caused by the Iran war now exceeds the average tax savings from the tax law. As usual, the burden of higher costs hits lower earners the hardest.

Trump’s approval rating is going the way of Biden’s. His net approval rating, which is the portion who approve minus the portion who disapprove, is -25, according to YouGov. That’s lower than Biden’s net approval ever got. Trump’s marks for handling inflation have collapsed, from +6 net approval when he took office in 2025 to -44 now.

What that means is that voters generally believed Trump when he said he would get prices down. But when it came time to convert words into action, Trump did the opposite of what he promised, pushing prices up. The data shows it and voters, not surprisingly, are pissed.

[Trump has a Joe Biden problem on jobs]

If there’s any good news, it’s that May inflation was about what markets expected, so it didn’t induce any sharp moves on its own. Some economists think inflation may be close to a peak for the year. And there’s always the possibility the Iran war will end and the oil will start flowing again, even though Trump’s perpetual promise of an imminent deal has become a running joke.

The lesson of the Biden years, however, is that inflation stings long after the data shows that it’s subsiding. Trump has burned voters, and he may never get them back.

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