THE DEEPER DIVE: The Bull is Strong, but the Economy is Weak
David Haggith

When I say, “the bull market is strong,” I only mean the market for selling words that are complete “bull____” is strong. The stock analyst bull that goes in your ears about the economy is reeks strongly these days. The economic reality, itself, is weak. And, for that reason, the resurrected bull market in stocks is but a ghost of the bull market that died for the NASDAQ, starting back in December, 2024, from where it fell 24%; and the bull run that nearly died for the S&P, which fell 19% from Feb. 19, 2025 (while the Dow fell only 16% from Dec. 4, 2024).

Stocks this past week, largely ended their half-year flirtation of dancing with the bear as the S&P and the NASDAQ both made new record highs. While technically, that means the S&P was never in the bear-market rally I said this rally would turn out to be, anticipating a deeper market decline to end more than 20% down before a return to a new high, the Dow begs to disagree by remaining in its own muddy bearish wallow, well below its last high, but who listens to the Dow anymore?

Meanwhile, the NASDAQ, which did make it fully into a bear market, turns out to have started a new bull market with its latest rally, which has risen 33% from its bear-market low on April 8, 2025. (The smaller-stock Russel 2000 fell 27.8% from Nov. 25, 2024 to hit its bear-market low on April 8, 2025 and has only recovered 60% of the amount it lost, so it still remains bearishly below its last all-time high.)

While that is all a mixed bag, I have to admit that, technically speaking, I was more wrong than right in predicting a stock crash for 2025 … so far.Two of the three major indices never got there. The Russel joined the member of the big three that did. Nevertheless, I continue to believe that market investors are as delusional as the often-hallucinating AI they are betting on and that we’ll find out how delusional soon enough.

I believe the resurrected bull market is a phantom that will quickly fade. With that view in mind, I’m going to look at a few of the economic factors that continue to chew away at the S&P and NASDAQ bull markets’ foundations, understanding that maybe delusions—investments made on pure sentiment regardless of how bleak the economic picture for businesses becomes—may still win the day and push the market higher.

I believe economic destruction will continue to undermine market sentiment, causing stocks to turn back down as the delayed impacts of the Trump Tariff Wars, the DOGE reductions, and Big Beautiful Bill’s ballooning debt start to show up this summer along with damage from all the continuing, intentional chaos. Remember, that my predictions for stocks, inflation, and recession were largely based on the economic impacts those major political changes would cause this year; but courts intervened and largely stayed or delayed the political changes, thereby, of course, delaying their impact.

Another kind of delay came from Trump, himself, as he endlessly flip-flopped on what he stated very matter-of-factly he would do with tariffs; and the stock market was ready to take his word for it time after time when he delayed various tariffs, which it did on opiated hopes that a delay meant the tariff damage would not be so great. We are likely to see even more delays of Trump’s own making when the deadline for his 90-day moratorium hits just a little more than a week from now.

As one reader here said to me in a private message, he expects Tuesday, July 8th—when the deadline arrives for Trump’s moratorium on higher tariffs—to be TACO Tuesday (of the Trump Always Chickens Out kind). So do I. Trump already had his press secretary run a flag up the pole for another postponement earlier this week:

President Donald Trump could extend looming deadlines for reimposing steep tariffs on imports from most of the world’s countries, the White House said Thursday.

Trump’s July 8 and 9 deadlines for restarting tariffs on those nations are “not critical,” White House Press Secretary Karoline Leavitt told reporters.

“Perhaps it could be extended, but that’s a decision for the president to make,” Leavitt said.

With scarcely any deals actually formalized from those many nations that were supposedly ringing Trump’s phone off the hook, desperate to make a deal, he’s going to have to extend and pretend, which may include more promises the market could love in its delusion that deals are coming that will mean lower tariffs. I think the market will be wrong about extensions meaning lower tariffs if that is what it is betting on.

Earlier Thursday, White House Council of Economic Advisers chairman Stephen Miran told Yahoo Finance that he expected those deadlines would be extended for countries that engaged in “good faith” trade negotiations with the U.S.

But, of course! That has clearly been Trump’s modus chaoticus since the start of the Trump Tariff Wars. Constant fake deadlines.

However, there is no room for stock-market levity here because Trump also has made clear in his boasting that the only thing he considers a great deal is when he victoriously gets other nations to allow the US to place higher tariffs on its own citizens than those nations levy on their citizens. So, a good deal only means you, if you’re a US citizen, get to pay much higher taxes on all the items you import than citizens of all the other nations pay on the items they import. If you’re a business, you, too, get to pay higher taxes on all that you import. Trumpian logic says that the nation that gets to have the highest tariffs is the winner! Those are the deals he’s bragged about. And to think the US once fought a Tea Party over this kind of taxation!

Even his extend-and-pretend may mean that he raises tariffs to extra-high levels again to try to jolt a deal out of all those nations that still re not dealing with a unilateral decision. That will be with the intention of easily flipping the sizzling tortilla he is warming up for his TACO by announcing the next day that those nations started ringing the phone for a desperate deal again, so just to be a nice guy, he’s going to cut those nations some slack on the high tariffs he charges to American consumers and companies.

The ludicrous market may readily accept another fake tariff increase will be the last because fantasy prevails over fact because headlines prevail in the world of stock-trading algorithms and because emotion and greed are still completely running the human side of the market. Lucy has pulled the football away from Charlie Brown several times, the stock market appears willing to keep being beguiled by that action. It may still be awhile before we get to know where this all settles out, as Trump loves the constant chaos, but it will certainly settle out on average with higher tariffs than we have today because that is how he sees a win.

Leavitt also said Thursday that if any of those countries refuse to make a trade deal with the United States by the deadlines, “The president can simply provide these countries with a deal.”

“And that means the president can pick a reciprocal tariff rate that he believes is advantageous for the United States, and for the American worker,” she said.

Stocks rose to session highs following Leavitt’s remarks, which are just the latest signal that Trump may not hold fast to deadlines he has set.

That stock rise is proof of the market’s lunacy because the market is ignoring Trump’s own statements many times over that a Trump-set rate on imports into the US has already been promised to be higher than any negotiated rate, and we’ve already seen that is where all the “good deals” end up. That, or the market rose because it hates the chaos so much and vainly hoped that a Trump-set rate would mean the end of chaos. It won’t.

Anything could cause Trump to change rates again. Most of the rates we had before the present tariff wars were rates he set in his first term. So, this is all stock-market idiocy by people who have completely lost the ability to think. Of course, people who cannot think may do any number of idiot things for a long time before they die of ultimate fatigue.

Inflation is now rising once again

So, with that, yes, the higher inflation I promised due to tariffs is coming because a good deal in Trump’s eyes is only one that results in high tariffs for Americans to pay through inflated prices. In fact, the rising tide for inflation is starting to trickle up the shallow sandy slope of the beach right now.

The latest inflation article, which will appear in Monday’s headlines, says that the main gauge the Fed goes by just went up in May “higher than expected.” (Well, not higher than expected here by a long shot, but higher than dimwitted economists believed it would.) April, it turns out now, was also slightly higher than expected (getting revised this month to show what it did not show in the last report).

Prices rose faster in May than forecasters had anticipated, and consumers unexpectedly lost income and pulled back on spending.

According to a report on Personal Consumption Expenditures by the Bureau of Economic Analysis Friday, "core" consumer prices, which exclude volatile prices for food and energy, rose 2.7% over the year. That is up from an upwardly revised 2.6% annual increase in April and higher than forecasters had expected, according to a survey of economists by Dow Jones Newswires and The Wall Street Journal.

The uptick in core PCE inflation is especially significant because it's Federal Reserve officials' preferred inflation benchmark….

Falling gas prices helped keep PCE inflation relatively cool in May, similar to the CPI inflation measure, a separate report released earlier in the month.

That latter hedge against inflation, of course, could become imperiled (as it briefly was already) by the Israel-Iran war.

One interesting bit of this news was that the rise in inflation came despite consumers pulling back on purchases, which would normally have a deflationary impact. It could be the impact of the pull-back is delayed, or it could be confirming that the rise in prices is coming despite a fall-off in demand because tariffs are pushing prices up more than falling demand can pull them down.

Also of significance for the Fed, consumers pulled back on spending in May as their incomes fell. Consumer spending fell 0.1% month-over-month after rising 0.2% in April. Forecasters had expected spending to rise 0.1%.

To be sure, the inflationary resurgence is but a trickle so far; but that is exactly as I forecast. I didn’t believe any significant inflation from tariffs would hit the shelves until early summer, and have stated it would likely take until August, when July data gets reported for it to really show up in the data. There are, however, a number of tariffs that are in place and affecting the costs of goods sold, and I did also state that a few items would probably hit shelves early where stock was low and would start to show some movement in prices—the timing of inflation depending entirely on the backlog of merchandise, which store owners tried to stock up on in order to front-run the tariffs, and, therefore, on how long it would take before the more highly tariffed merch hits the shelves.

The spending pullback could be related to President Donald Trump's tariff campaign. Many consumers had bought imported products in March and April in anticipation that tariffs would drive up prices, and subsequently didn't need to buy those things in May, at least one economist said. People have also gotten nervous about the state of the economy, according to consumer surveys, and that may be making some people more cautious about spending.

Therefore, we’ll look in the rest of this article to what little came through in the news this past week about the state of the economy, but first let me also note that the state of the tariff war, in terms of what Trump said he wanted to accomplish, is backfiring on him:

Another headline to appear in Monday’s list, following on the heals of a similar article reported here this past week, is “Humiliation for Donald Trump as US trade deficit increases by 11% to $97-billion despite tariffs.” That was a big leap (no trickling tide here). Worse, still, it didn’t come from US consumers buying fewer imports. It came from US exporters shipping fewer US products. So, it was the retaliatory tariffs of other nations that had the greater impact, not the US tariffs paid by our consumers on their products. It was all about the hurt caused by those retaliatory tariffs to US producers:

Exports of goods dropped $9.7 billion to $179.2 billion while imports were little changed at $275.8 billion.

Not good for the Donald’s claimed objectives at all.

Recession on our doorstep

Of course, nothing crashes stocks like the arrival of a good recession. Even though we’ve already had one recessionary quarter already, I anticipate the front-running of tariffs during the second quarter may give a temporary lift back out of those low levels. By this, I am referring to the front-running by consumers, mentioned in the quote above. The cost of imported products doesn’t add to GDP because all of that gets subtracted out of the GDP calculation as a line item, but retail sales of those items do add above that line. In other words, the imported cost of any imported product gets subtracted from GDP because we didn’t produce the products, but the percentage of the retail price that covers the retailer’s operations and profits remains and contributes to GDP as a service provided because the retailer does the work of finding, cataloging, displaying, and advertising the products, plus providing heated and lighted shopping space for all the imported products to make it easy for the consumer to buy them.

That recession is still developing around us, even if tariff front-running somewhat jumbles up the statistical data:

According to Torsten Sløk, the chief economist at Apollo Global Management,… the US is at a critical inflection point for stagflation, a dire scenario in which economic growth slows while inflation remains high….

The scenario has largely been triggered by President Donald Trump's tariffs, Sløk wrote in a white paper published on Monday.

"Tariff hikes are typically stagflationary shocks — they simultaneously increase the probability of an economic slowdown while putting upward pressure on prices," Sløk wrote, adding that consensus forecasts on Wall Street for economic growth had drifted lower this year, while inflation forecasts have edged higher.

That is precisely what I said months back we could anticipate and what I just pointed out above from the preliminary stats that are now coming in since the start of numerous tariffs: Prices edged up even as consumers slowed down their economic activity.

That is, as the article just quoted said, the worst type of recession. So, now let’s explore further signs that is happening …

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