Unstoppable A.I. Versus Sticky Inflation - Market Outlook (Ep. 31)

The stock market this past week (Mon. May 11 – Fri. May 15, 2026) was dominated by a tug-of-war between the unstoppable AI rally and growing fears about inflation, oil prices, and higher interest rates.  The stock market experienced a roller-coaster week surging to new all-time highs on Thursday, with the S&P 500 crossing 7,500 and the Dow crossing 50,000 for the first time, before everything came tumbling back down on Friday due to a severe bond market rout, surging oil prices, and renewed inflation fears.  The dominant story early in the week was the artificial intelligence trade.  Semiconductor and infrastructure-related names continued to scream higher dragging the major indexes higher with them...

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Transcript

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Welcome to this week's edition of Market Outlook. Market Outlook is a weekly podcast where I take a look at last week in the market as well as previewing the week ahead. I will also share with you some potential options trades that I think are interesting for this week. But first, what were the major stories in the stock market this past week, Monday, May 11th to Friday, May 15th? The stock market this past week was dominated by a tug of war between this unstoppable AI rally and some growing fears about inflation, oil prices rising, higher interest rates. The stock market experienced a roller coaster week surging to all-time highs on Thursday, with the SP crossing 7,500 for the first time and the Dow crossing 50,000 for the first time before they eventually came tumbling back down on Friday due to a severe bond market route, surging oil prices, as well as those renewed inflation fears. The dominant story early in the week was the artificial intelligence trade. The semiconductors, all of your infrastructure-related names, they continue to scream higher. And it's really just these handful of AI-related names that are dragging the major indexes higher with them. If you really look at the broad market across all sectors, this market looks really weak outside of the big AI names. Midweek, we got some inflation data that came in hotter than expected. We had the PPI report, which is the producer price index, which is a major inflation gauge. And PPI coming in hotter than expected, that caused traders to sharply reduce expectations that the Federal Reserve is actually going to cut rates. In fact, investors started discussing now that there's a possibility the Fed's next move could actually be another hike rather than a cut. The yield on the 10-year Treasury jumped to 4.59%, while the 30-year Treasury yield hit 5.13%. That's its highest close since 2007. Which, if you remember 2007, that was the start of a really bad time in the market. So these higher yields, they generally pressure equities by making borrowing more expensive. So higher yields is definitely not what the stock market ever wants. Friday's sell-off was a big sell-off. And that sell-off was partially due to some of these rising oil prices and concerns over the situation in the Middle East. For the last few weeks, I think the market seems to have largely forgotten about the Iran situation because, you know, the market kind of priced things in. The market kind of had it in mind that this thing was kind of wrapped up. They saw, you know, about a month ago, they were like, hey, this thing's gonna come to a close. And, you know, in a few weeks, it'll be done. And now this thing has dragged on and dragged on. And I think this week, geopolitics has suddenly mattered again. Like people are starting to circle back to what's going on in Iran, the Strait of Hermuz, and they're like, hey, this thing isn't done yet. And the concerns about Iran and disruptions involving the Strait of Hermuz, uh, that's pushed crude oil quite a bit higher this week, right? We saw a sharp increase in crude oil. President Trump also publicly rejected Iran's latest peace proposal, and that caused oil prices to spike, which in turn stokes fresh inflation worries. So while some sectors actually saw some strong earnings, recent economic reports have shown that inflation could be revving back up. So for me, and it looks like this market is seriously concerned about inflation. We've been worried about inflation for several years now, going back to like 2021, 2022, the bear market year of 2022, especially, that was largely driven by inflation. People scared about inflation. And, you know, the AI boom started in 2023, and we've ridden this wave, this AI wave up. But underneath all of the AI stuff, there's still that lingering inflation concern that has never gone away. And now I think it's starting, investors are starting to realize that this sticky inflation, right? This inflation problem that just will not go away is going to be a problem. And it's going to be a problem, I think, really soon. That said, despite all the negative news and the tariffs and the inflation, the weak consumer confidence, the higher interest rates, the market has kept making higher highs over the last few weeks, right? This rally over the last, say, two months has been, of course, a rally for the ages, right? It has been a record kind of rally. Uh this thing has been out of control. But I think for this thing to continue, for the momentum to continue higher, I think we have to see oil prices eventually go down. I also think we actually have to see bond prices actually go up. Right now, the uh oil trading near its highs and bonds trading near some pretty serious lows. I think that is going to put some serious pressure on the market. And I think this rally is going to stall out very soon unless oil and bonds turn around in a big way. Now, last week I mentioned that I was thinking about starting to ease off the gas a little bit. I've been very long this market. I've been carrying a lot of long deltas into the rally, which has been great. Now, that's what you want to do. When the market, you know, makes a bottom and starts heading back up. You want to ride that wave. You want to be aggressive with those long deltas. And I was aggressive, but now I'm starting to ease back a little bit. I'm starting to reduce some of my long delta exposure to this market, right? I'm not just selling puts on everything. I'm selling calls occasionally. I'm selling strangles. I'm doing some other stuff. I'm also putting on more defined risk trades, some small defined wrist trades, rather than just doing naked short options and everything. Because again, I'm concerned about this rally at some point. You know, this huge up move may we may get a big pullback. And you know, I don't want to be caught with my hand in the cookie jar carrying all of these long deltas. I'm pulling back a little bit as I'm again, I'm a little concerned because just like in fighting and trading, you should protect yourself at all times. So let's switch over to the charts and see what the major market indices did last week. Let's start with the SPX, the SP 500. And if we take a look at close of the previous Friday to the close of this past Friday, it was very slightly up. If I actually uh I actually calculate these percentages uh manually with a Python script that I wrote. But if you wanted to actually take a look at this yourself inside a chart here on Tasty Trade, you can use their tool here called the Info Line. And I could actually draw from the top of this candle on the previous Friday to the bottom of this candle on the close of this past Friday, and I can see that the market was up 0.1%, which is exactly what I got with my Python script that's uh I run every uh Saturday morning before I run these. So I already have the percentages. That way I don't have to draw annoying lines on the screen. So let me clear out that line there. But if I zoom out, you can see, you know, the big meltdown in February and March, and then the massive rally, just an insane rally. Not only did we recover from the market meltdown, the two-month meltdown, but we just blew right past the tops, right? We made a new all-time high this past Thursday in the SPX as it uh finished above 7,500 for the first time. And then, of course, the big drop on Friday. The SP 500, though, I will say, was pretty resilient as far as the market uh indices because the NDX, which is very tech heavy, tells a different story. If we actually zoom in on it and we go to the close of the previous Friday, to the close of this past Friday, that's actually lower on the week. The NDX was off by 0.4%. So, you know, not much of a down move, but still it kind of signals. I mean, we haven't had a down week in forever in the NDX, right? And we've had some massive upweeks, right? The upweeks have been huge. And the fact that this week, well, we finished slightly lower, again, that to me tells me things could be changing in this market. If I move over to the Russell 2000, let's take a look at the RUT, the R UT, the Russell 2000 index. This one is even more of a telling story because the Russell small cap stocks are much more sensitive to rising interest rates and inflation. And because of some of the worries that came into play this week, the Russell 2000 was actually down 2.4% on the week. And you can see the huge down day on Friday, just a massive sell-off in the right. Moving over to the DJ X, which is the Dow Jones index here. Uh, this finished the week down very slightly. If I take a look at close of the previous Friday to the close of this past Friday, it was down 0.2% on the week. And then finally, let's take a look at the VIX, the volatility index. This is the volatility of the SP 500. And we actually had a rise in volatility this week. The VIX actually finished the week up $1.24. That is a 7.2% increase in volatility, which is uh something different as well. Kind of how the markets have been just going up, going up for several weeks now. And then this week, all of a sudden, we get kind of a flat to a down market depending on which index you look at. The VIX has been trending lower for several weeks. And then this week, uh, things have changed, right? I wouldn't say this is kind of a volatility spike, but you know, it is definitely, you know, the volatility definitely did not contract like it had been doing for the last several weeks. So, again, is that something to be concerned about? I think it's something to pay attention to. Now let's take a look at what some of the major market sectors did this past week. On the upside, uh, the list is very few. So uh let's start with the major sector that had an upweek, and that is energy because of the rising oil prices, the energy stocks did well. So energy this past week was up 6.7%. That's XLE, the energy sector ETF that we're looking at. So that is a huge increase in that sector, and that really was about it. If I move over to the tech sector, uh, despite the weakness in the tech sector, uh, the tech sector did actually finish positive on the week. It actually was up on the week about 0.4% on the week. XLP, which is consumer staples, was also up on the week. Uh, consumer staples tends to outperform when the market is kind of doing bad. Uh, and then this past week, I wouldn't say the market was uh doing bad, but there was some concerns, right? So there was a little bit of a sector rotation as people go into more defensive sorts of stocks and sectors, and certainly consumer staples is a defensive sector. So you can see that week over week, from the previous Friday to this past Friday, it was an increase in consumer staples of about 0.5%. One other sector that had uh up week was healthcare. I'm gonna take a look at XLV, which is the healthcare sector ETF. This saw an increase of about 1.1% on the week. Now let's switch over to some of the sectors and industries that had really rough weeks. I'm gonna pull up XRT, which is the retail industry ETF. Retail at five red days last week. That was that was a brutal week. Uh it was actually down 6.6 percent on the week. So really nasty week for the retailers. And I mentioned this because we're getting toward the end of the earnings season, but this next week, a lot of the major retailers do report this next week. You've got companies like Target and TJX, Home Depot, Lowe's. Uh, you got a lot of retailers reporting this next week. So pay attention to XRT this upcoming week. XHB, which is the home builder's industry ETF, also had a really ugly week. This was down 6% on the week. XLY, which is consumer discretionary, which tends to do bad when the market's doing bad. And then this week, you know, the market, you know, had a rough week. Consumer discretionary was down 3.1% on the week. XBI, which is the biotech industry ETF, which if I zoom out, you can see biotech has been on a tear for like a year now, right? It's just been straight up and to the right. Well, this past week took a little bit of a breather, mainly because of Friday, because Friday saw a sharp decline. Uh basically, it pushed XBI down for the week, uh, finished the week down 3%. But overall, I would say looking at the chart of XBI, this has been strong for several months now. I probably wouldn't be looking to get short this thing right now. XLRE, which is the real estate sector, had a rough week. You see, Thursday and then especially on Friday, you're starting to have this waterfall effect going on in the real estate sector. XLRE finished the week down 2.7% on the week. XLI, which is in the industrial sector ETF. This finished the week down 1%. XLU, which is the utilities sector ETF, finished the week down 1.9%. XLC, which is the communications sector, this finished the week down 0.7% on the week. And then finally, XLF, which is the financial sector, which, you know, this one has me scared a little bit because you can see the last uh month or two, while the general market was rallying, this has been very flat, right? The financials, the big banks have not participated in the market rally at all. Uh, and you can see this past week they really didn't do much. Uh, they've actually finished the week down 0.3%. Now let's take a look at what some of the big mega cap tech stocks did this past week. I I think this past week, NVIDIA was the big story because NVIDIA, of course, the uh biggest company in the world by market cap. I mean, this thing had been screaming higher and took a big down day on Friday, but still overall, the strength of NVIDIA last week was up 4.7% on the week. So just a monster move in a very large company. And that really is the reason the SP 500 and the NASDAQ didn't have severe down weeks, is because market cap-wise, NVIDIA being worth more than $5 trillion, it is very heavily weighted in those indices and having a good week that saved those uh those indexes, right? The SP and the Nasdaq. Apple had a pretty good week. It was up 2.5% on the week. MU, which is Micron, now uh it wasn't just screaming higher this past week like it had been doing. This is interesting because MU, if you take a look at the close of the previous Friday to the close of this past Friday, it actually had a down week. I don't know when the last time this thing has had a down week. You got to go back at least a couple of months since the last time it actually finished down on a week. So is this the start of some of these memory stocks starting to uh find a top and maybe roll back over? I I'm not calling that just yet, but I do think at some point, right, this crazy move up in these memory stocks, it kind of has to stop. At some point, you run out of buyers. At some point, everybody that's going to get long this thing is already long. So the momentum to the upside has to stop at some point. Now, on a week where some of the tech stocks got beat up a little bit, we already mentioned Nvidia was strong, Apple was strong, Meta and Microsoft, which have both been very weak uh over the last several months, they actually finished positive on the week. Meta was up 0.8% on the week. Not much of an up move, but it didn't sell off, and a lot of the other tech stocks did, so I think that's a good sign for Meta. Microsoft, which has been kind of weak lately, also finished uh positive on the week. It was up 1.6% on the week. And then uh a lot of the names that are in the chip space, the semiconductor space, the AI space, a lot of those names got beat up really badly. AMD, let's start with AMD. AMD, of course, has had a huge run-up during the market rally, but this last week it sold off. It was down 6.8% on the week. Amazon, which has been trading near its all-time highs, had a down week this past week. It was down 3.1% on the week. Coinbase, and this is interesting because Coinbase, of course, is crypto related more than anything else. Crypto kind of been chopping around. So Coinbase has kind of been chopping around a little bit, but this past week it was down 2.8% on the week. Palantir, which is another AI-related name that uh kind of got beaten up recently. You can see it's actually been uh chopping around sideways to slightly lower for about two or three months. So it has not participated in the big market rally, so that's a little concerning. Palantir this past week was down 2.8% on the week. Tesla finished the week down slightly. It was down 1.4% on the week. And that was largely driven by Friday. Uh if Friday had not happened, Tesla would have had a nice positive week. Rounding out some of the big tech stocks. AVGO, which is Broadcom, finished the week down 1.1% on the week. Google, which is a massive company now trading very near its all-time highs. Google was down 1% on the week, but Google is now a $4.79 trillion company, right? It's right at that $5 trillion mark right behind NVIDIA. So uh the fact that it was down on the week, you know, that kind of you know held the SP and the NASDAQ back a little bit. And then Netflix, uh I'm still waiting for Netflix to actually do something. Netflix has had a rough last uh year, really. All right, it's been about the last year. You know, it made a high back in uh June of last year and has done nothing but go down, had a little bit of a bump back here on some good news uh that it got out of the deal with uh Warner Brothers Discovery, but then kind of chopped around a little bit. Now it's starting to trend back lower. Uh this past week it finished the week down 0.5% on the week. A couple of the high-flying stocks that have been on a tear lately that took the week off. Intel, which has been on a crazy move up this past week, had essentially five down days in a row. You can see from the close of the previous Friday, it was trading at $125 a share. And on Friday, this past Friday, it closed at $108 and changed. So that is a pretty sharp decline in one week in Intel. Now let's move over to some of the commodities and futures. Let's start with energy because that's the big story, right? It's all about oil. What is oil doing? Well, this chart of USO tells it all, right? Oil is trading very near its recent all-time high, right? And when I say all-time high, I'm talking about anything within the last year or so. And uh, yeah, this is by far about as high as we've been. Uh it looked like USO traded as high as 150 and change about um three weeks ago. Right now, it's trading at 148.20. And this is a problem. This is a problem for the market. This past week, that was an increase of 11% in oil, and this is starting to scare the market, right? It's scaring the children a little bit. Now, I know I'm I'm a little concerned. Actually, I'm more than a little concerned about oil right now. UNG, which is the natural gas ETF, netty gas, was also up big this past week. It was up 7.2% on the week. Moving over to the crypto space, let's take a look at iBit, which is the Bitcoin ETF. This is spot uh Bitcoin. iBit was down 1.4% on the week. So a little weakness in the crypto space. Ethereum, if I take a look at ETHA, which is the Ethereum ETF, this was down uh whopping 4.1%. So that's part of why uh you saw a little bit of weakness in a company like Coinbase, is because the crypto markets had a pretty nasty week. GLD, which is gold, also didn't have a great week. And I'm long gold, so I really, especially the move Friday, did not help me at all. The metals were in full-blown crash mode on Friday. And because of that, GLD finished the week down 3.8%. The move in silver was even more pronounced, and I'm very long silver. So yeah, I was not a happy camper on Friday when uh SLV uh was down at one point like 10 or 11% in a single day on Friday. For the week, SLV finished the week down 5.4%. But that move on Friday and gold and silver, I think people took notice in that. Those were moves that you you don't get all that often. And I think again, that's starting to cause people to worry about this market. Let's take a look at the dollar. I'm gonna pull up UUP, which is the dollar index ETF. UUP finished the week up 1.6%. So the dollar was strong, which means probably the Euro had a uh a negative week. If I pull up FXE, which is the Euro ETF, this was down 1.3% on the week. Makes sense. The dollar's up 1.6, the euro is down 1.3, kind of makes sense. The euro is the biggest component of the dollar index. The second biggest component is FXB, uh, the British pound here. The British pound had a oh ugly week, down 2.3% on the week. That is uh a substantial move. FXY, which is the Japanese yen, uh also down on the week, 1.3 percent. So, yeah, the strong dollar, obviously, the uh currencies against it all had negative weeks. Finally, let's take a look at the bonds. I'm gonna pull up TLT, the 20 plus treasury bond, ETF, and that move on Friday. You know, we took out the lows. We we've been hanging out at this low level. We bounced off this lower level and we kind of broke it uh last week, but we we saw a rebound, but then we tested that low again, and then on Friday we made a big gap down. Uh and that was an ugly, ugly, ugly move. I mean, you can basically say the bonds look like they're about to crash. TLT finished the week down 2.8%. You don't see uh a nearly 3% decline in bonds ever. Bonds are not a volatile product. This is not like the tech sector. This is not like energy. This is definitely not like the metals, right? They don't move like that. If I pull up the ZB chart, the ZB futures, where you've got the overnight session as well, so you don't have a gap down, you can see that they were there, there was some panic selling there on Friday. That was that was a scary moment, and that was what just wrecked the SP 500 and the NASDAQ and the Russell 2000 on Friday. When this started happening, the market took a complete and total dump. So let's talk about earnings for this week. There's not a lot of earnings left in this earnings season this week. There's probably only about 10 or 12 names that I'll mention that I think are playable as far as options. So Monday before the bill, Baidu reports earnings. You can't play Baidu for earnings unless you already had a trade on because it reports before the bill on Monday. Uh, after the bill on Monday, nothing of note reports. Before the bill on Tuesday, HD Home Depot reports. That's a big company. Pay attention to that, uh, especially for the retail space, right? And because it's kind of the first big retailer. Later in the week, more retailers report. But Tuesday after the bill, uh, TOL, which is Toll Brothers, reports. Wednesday before the bill, lots of retailers. Target, Lowe's, TJX all report before the bell on Wednesday. And then Wednesday after the bell, the last of the big Mag 7 stocks reports. Nvidia reports after the bill on Wednesday. Also, Intuit uh reports after the bell on Wednesday. Thursday before the bell, you have more retailers, Walmart, right? Then you have uh John Deere, uh Neo AAP, which is Advanced Auto Parts, all report before the bell on Thursday. Thursday after the bell, you have Webull, Zoom, Take To Work Day, and Ross Stores. And then Friday, both before and after the bill, nothing you need to worry about on Friday. So let's talk about a few trade ideas for this week. Uh, you know, I want to start with some of the futures and commodities because I think several of them are making some pretty big moves that I want to kind of fade a little bit. Let's start with what is going on in bonds. This is the 30-year uh ZB, right? So here's what I would do. I would go to either ZB, the 30-year, or Z in the 10-year, and this will depend on how big a trade you want to put on. With ZB, if you're gonna be bullish, and that's what I want to do, I want to be bullish after a big down move like it just had on Friday. I would go and buy the at-the-money call debit spread. So a one point wide debit spread, which is really $1,000 because the multiplier in ZB. So if you do the at the money call debit spread where you straddle at the money, you buy the in-the-money call and then sell the out-the-money call $1 wide, you're basically risking $500 to make $500. It's a 50-50 shot, it's a pure directional bet. If this goes up, you win. If it goes down, you lose. I'm risking $500 to make $500. Now, if that's too big of a trade, if you're trading with a smaller account and you can't do this $1,000 wide spread here, go to the Z N because the Z N has strikes that are half a tick wide, and that allows you to put on a trade like this call debit spread, where you're risking basically $250 to make $250. And in this example, I would be uh risking $280 to make $220. It'll depend on where you get filled and where things are trading at the time. But you're gonna, it's basically a 50-50 shot. You're gonna risk somewhere around 250 to make 250 if you do this in the ZN. And I think it makes sense to be directional like that after something makes a crazy move like that. I think SLV silver, we just talked about the down move. Now I'm already bullish, so this is not something I can do because I'm already in some positions. But if you're not in a position, I think now's the time to go to the 62-day cycle, the July monthly cycle. And if you're not already in a bullish position, go sell a 15 Delta put for a buck 31 credit on a buying power reduction of 559. That's got a pop of 88% and a P50 number of 96%. For me, all signs point to go on that trade. And then one final ticker I want to take a look at is MCL, which is the micro crude oil futures. So, oil, we've already seen it's trading pretty much at its recent highs. And I don't I don't think it's going to explode higher. I think it could go higher, but I don't think it's going to go crazy high. And I also don't think it's coming back down in a big way anytime soon. I think we're just kind of stuck in the mud with what's going on with Iran right now and the Strait of Hormuz. So I expect these prices to trade in a range to chop around a little bit. So for me, I think I would like to do an iron condor, maybe go to the 61-day cycle in MCL. And, you know, I would go, let's go to the uh 77.5 here, which is the 16 delta. And I'm gonna go, well, we'll make it kind of wide here. I'm gonna go and buy the 72 and a half. Yeah, it's five dollars wide, and that's a 101 credit on that five dollar wide put credit spread. That's an outstanding credit. Then on the call side, I'm gonna go now. The call is probably because the put spreads trade so rich, the call spreads will probably be very cheap. So I probably can't go as far out on the call side. But on the call, let's see what this uh 132.5 versus a 137.5 spread adds. It only adds another uh 35-40 cents. So the call spreads are almost not worth trading. So what I'd probably do, I know the calls themselves, the naked call by itself is probably worth trading. Uh if I remove the leg, actually, let's just remove everything and just sell like a 10 delta call. Yeah, 130 credit. I'm gonna go back and I'll just do the naked put with it. So maybe still do that uh 77 and a half put. So 16 delta put versus uh like a 10 delta call, but it's the 372 credit on a buying power reduction of only $728. I think that's a great trade. The pop is 80%. The P50 number is not being reported, but it's going to be probably 90% or better. So good risk reward, certainly a risky trade, a naked strangle and a product that could come crashing back down and it could certainly could explode higher. You never know, but I'm not expecting crude oil to do much in the next two months. I think it's kind of found this new range that it wants to hang out, around $90 to $100 a barrel. I think for the foreseeable future, that's where it's going to be hanging around. So that's it for this week's edition of Market Outlook. For those that are listening to the audio version of this podcast on Apple or Spotify, give the show a five-star rating. Help us grow in the algorithms. For those watching on YouTube, check out a link in the description for my book, The Super Wheel Option Strategy. This book is published on Amazon. That's about one of my favorite option strategies, which is the wheel option strategy. You'll find a link in the description. Also, consider becoming a member of the DT Options Patreon slash Discord. So when you sign up to my Patreon, you're granted access to a members-only Discord where I hold a live voice chat every trading day, every day that the stock market is open. We get together and I share my trading platform. You get to see all the trades I'm in, any new trades I make that day, any closing trades, any rolls I make, and I get to bounce ideas off of you guys. You guys get to bounce ideas off of me. We've got a great trading community there, and we'd love to have you as well. Take care, guys. Peace.