Actionable market insights that have outperformed the S&P 500 for over 26 years.

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In May, it was reported that sharp increases in energy costs caused by war in the Middle East caused inflation to spike to 3.8 percent, pushing the inflation rate even higher above the Federal Reserve’s targeted mandate of 2.0 percent. Wholesale prices also increased, indicating more inflation is in the pipeline. In response, yields on Treasury securities rose, with the yield on the 30-year Treasury bond climbing above 5 percent to its highest level since 2007. 

Traditionally, stubbornly high inflation and rising Treasury bond yield is very bad news for stocks. However, the market was not rattled. Why not?

Last month we advised not to get sidetracked by the spectacle of the military activities and lose sight of the major trend, which is revealed by our Diffusion Indexes. Since then, the S&P 500 rose to record highs.

We rely on the Sound Advice Diffusion Indexes (page 9) to identify business cycles because they have an accurate track record of predicting major stock market trends for the last 50+ years. They work by observing changes in the most sensitive leading and lagging economic indicators that lead to shifts in interest rates...

It has been a wild month with the first significant downdraft since last April. The Sound Advice portfolio did well in the first quarter, thanks primarily to our energy holdings and downside hedges, but the overall market did not.  It was very easy to get sidetracked by the spectacle of the military activities and lose sight of the major trends.  When the activities die down in Iran, oil prices are certain to drop, perhaps not to the low levels seen before escalations, but substantially lower than they are now...

It has been the best of times for stock market indexes. The S&P 500 Index rose 16.4 percent in 2025 because the Magnificent 7 -- Nvidia, Apple, Microsoft, Amazon, Alphabet Class A (Google Class A & C), Tesla, Meta Platforms Class A, and Broadcom – did very well and comprised 37.7 percent of the S&P 500 Index due to their heavy capitalization weighting. It was the worst of times for rest of the market. Churning and rotations undermined the other 493 stocks comprising the S&P 500 Index. Without the Magnificent 7, the Index rose only 2.9 percent.