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Transcript

The Great Rotation: Inflation Fears and the Market’s Reality Check · The SPY Trader

• 0:00
  Good morning , everybody !
• 0:02
  This is Sunny Side Up , your host for the Spy Trader podcast .
• 0:06
  It is currently 6 am on Sunday , May 24th , 2026 , here on the Pacific Coast .
• 0:12
  I hope you are all having a wonderful and relaxing holiday weekend , because things are about to get very interesting when the markets open back up on Tuesday .
• 0:21
  We are coming off an incredible historic eightweek winning streak for the S&P 500 , which we trade as the SPY .
• 0:29
  However , as we head into the last week of May , it looks like we might be facing a serious reality check .
• 0:36
  While the S&P 500 has rallied nine percent so far this year , we have to look closely at the valuation numbers .
• 0:44
  We are currently sitting at twentyone point one times forward earnings , which is well above the tenyear average .
• 0:51
  We also have a brand new leader at the Federal Reserve .
• 0:55
  Kevin Warsh has just been confirmed as the new Fed Chair , and the market is nervous that he might take a more hawkish stance on interest rates .
• 1:03
  This is especially concerning because core PCE inflation has recently reaccelerated to a four point three percent annualized pace .
• 1:11
  The big DDay for our portfolios is Thursday , May 28th , when the Bureau of Economic Analysis releases the latest PCE price index .
• 1:21
  This is the Fed's favorite way to measure inflation .
• 1:25
  If that number stays high , we should expect a sharp correction in longterm bonds like the TLT and our favorite tech stocks in the QQQ .
• 1:34
  We also need to talk about the disconnect between Wall Street and Main Street .
• 1:38
  While stocks have been rising , the University of Michigan’s Consumer Sentiment Index just hit a historic low of fortyfour point eight .
• 1:46
  High oil prices from ongoing conflicts in the Middle East are acting like a tax on the average consumer .
• 1:53
  But there is a silver lining .
• 1:55
  We are seeing a rotation in the market rather than a full retreat .
• 1:59
  Investors are starting to take profits from big winners like NVIDIA .
• 2:03
  Even though NVIDIA reported record revenues of over eightyone billion dollars last week , the stock has begun to stumble as money moves into other areas .
• 2:13
  We are seeing breakouts in Real Estate through the VNQ and smallcap exposure via the Vanguard Total Stock Market ETF , or VTI .
• 2:23
  Healthcare is also a safe haven right now , especially since the XLV sector added seventysix thousand jobs in the last report .
• 2:32
  Looking at the week ahead , the markets are closed Monday for Memorial Day , but the rest of the week is packed .
• 2:38
  On Wednesday , we get earnings from Salesforce and Snowflake .
• 2:43
  Salesforce is currently the worstperforming stock in the Dow , so everyone is watching to see if they can prove their AI software is actually making money .
• 2:52
  We also have Dell and Marvell Technology reporting , which will tell us if the AI hardware boom is still going strong or if it has reached a peak .
• 3:01
  For the consumer side , we will be watching Costco and Best Buy to see if that low consumer sentiment is actually stopping people from spending .
• 3:10
  Now for your Spy Trader game plan .
• 3:12
  First , I recommend a Buy or Hold on the Vanguard Real Estate ETF , ticker VNQ .
• 3:20
  Real Estate is breaking out as a rotation play and offers a good hedge against tech volatility .
• 3:26
  Second , I suggest accumulating the Health Care Select Sector SPDR , or XLV .
• 3:33
  It is the most resilient sector for earnings stability in this highinflation environment .
• 3:38
  On the cautious side , it is time for a tactical trim of the Invesco QQQ Trust .
• 3:45
  With the tenyear Treasury yield at four point six one percent , tech is very vulnerable if the inflation data surprises us on Thursday .
• 3:53
  I would also avoid new positions in the iShares 20 plus Year Treasury Bond ETF , known as TLT , until we see that data .
• 4:02
  Finally , keep Costco on your individual stock watch list .
• 4:06
  Costco often outperforms when shoppers are looking for value during tough times .
• 4:12
  If the inflation data on Thursday shows any cooling , we might see the S&P 500 test the seventyfive hundred resistance level .
• 4:21
  But if inflation stays above four percent , prepare for a three to five percent pullback in the SPY .
• 4:28
  Stay smart and enjoy the holiday !