Ignore Inflation Concerns: Here's a Greater Peril Looming Over Wall Street.

Wall Street Faces a More Notable Peril Than Inflation

In the world of finance, it's a tale of contrasts as economic indicators and corporate performances paint a mixed picture.

Apple, once a growth powerhouse, has seen its engine stall for several years. However, the tech giant's outsized share buyback program, totalling an almost unfathomable $775 billion since 2013, has masked this issue, making the stock more fundamentally attractive to value seekers. This buyback strategy has retired over 43% of Apple's outstanding shares, a move that has significantly impacted the company's earnings quality, inviting scrutiny from financial analysts.

On the other side of the Atlantic, President Donald J. Trump's tariff and trade policy continues to be a topic of concern. The policy includes a 10% sweeping global tariff and higher reciprocal tariff rates on certain countries. This policy, while intended to protect domestic industries, poses a risk of increasing the domestic inflation rate. The potential inflationary pressure is further compounded by the expansion of the U.S. money supply, which has seen its fastest year-over-year expansion in M2 since 2022.

One of the most significant aspects of Trump's tariff policy is its lack of differentiation between output and input tariffs. This means that duties are assigned not only to goods produced in America but also to goods used to complete the manufacture of products in the U.S., making U.S. goods costlier.

Inflationary fears are mounting on Wall Street, with the Federal Reserve targeting a prevailing rate of inflation of 2%. The concern is that the inflation rate could accelerate and remain well above the Fed's 2% target, a scenario that could have significant implications for the economy.

Meanwhile, the automotive sector has seen its own set of developments. President Trump signed the "One Big Beautiful Bill" into law in 2025, abolishing automobile regulatory fees for electric cars. However, this bill also gets rid of automotive regulatory credits for EVs, a move that could further expose Tesla's poor earnings quality, given that the company has consistently derived pre-tax income from unsustainable sources, not from selling EVs or energy generation and storage equipment.

The stock market, represented by the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average, has seen a rollercoaster ride in 2025. The indices have hit new highs, only to fall into correction territory, reflecting the market's volatile nature.

The S&P 500's Shiller P/E Ratio, as of the start of 2025, was at its third-highest multiple in 154 years, raising questions about the market's valuation and potential for a correction. The previous five times when this ratio surpassed 30 and held this multiple for at least two months were followed by declines in the stock market.

In the midst of these economic and market developments, it's essential for investors to stay informed and vigilant, carefully considering the implications of these indicators on their investment strategies.