The Wage Spiral SHOCK Has STARTED… And YOUR WALLET ALREADY FEELS IT...

The economy is growing. The S&P 500 is hitting record highs. Corporate profits are exploding higher. So why does it feel like Americans are falling further behind every single month?

In this episode of Wall Street Truthbombs, Mark Malek breaks down the hidden danger building beneath this historic earnings season: the wage-price spiral. From soaring consumer costs to labor unrest, sticky inflation, and a Federal Reserve trapped between recession and inflation, this video explains why the next phase of the inflation crisis may already be underway.

We cover:
Record S&P 500 profit margins
Why workers still feel poorer
The return of 1970s-style inflation risks
What the Employment Cost Index is signaling
Why the Fed may be unable to cut rates
The hidden danger behind “strong” markets
How rising wages can fuel another inflation wave
What investors should watch next

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Transcript

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The economy is growing, the SP 500 is at all-time highs, and you're getting poorer. Those three things are all true at the same time. And that is not a paradox. That is the setup for something that Wall Street would rather that you not fully understand. By the end of this video, though, you are going to fully understand exactly why the wage price spiral is already turning in the background of this record earnings season, what the data says about how deep it's gone and what it means for your portfolio well before the market figures it out. So pay attention. Let me set the scene first, though. I walked to my ferry terminal this morning, like I do every day, and there were news trucks parked all over in the front of the building. Camera tripods were set up outside, and producers were running around like ants looking for people to talk to. I looked for police tape and I found nothing. I looked for a body outline near the ticket office, and what looked like one turned out to be just the morning sunlight coming through the windows. I still couldn't figure out what it was. So I cued up for my boat and I started scrolling through the news like I do every day. And three stories converged before I even could finish my second cup of espresso. First, World Cup soccer tickets in the U.S. are now sitting unsold at$10,000 a piece,$10,000, guys. Second, my ferry company, where I was at that moment, was announcing a fuel surcharge. Of course, they called it temporary. It was already a surcharge on my already expensive 15-minute commute across the Hudson. And number three, a union boss on my phone screen was threatening to strike, talking about his members are struggling to make ends meet in this high-priced market. Now, I want to spend the next few minutes telling you why those three things, which look like standalone news stories, are actually all reading from the same playbook. First, guys, if you like this type of content, please click like and consider subscribing. It's really important to be in the know, and I hope that you'll do it with us. Okay. Here's what the headlines are telling you. The SP 500 broke 7,300 for the first time in history last week. It notched its sixth consecutive week of gains. According to Factset's latest data, as of May 8th, the blended net profit margin for the SP 500 in the first quarter of 26 stands at around 14%, closer to 15%, actually. And that's the highest margin reading Factset has ever recorded since it began tracking this metric in 2009. 84% of SP 500 companies that have reported this season beat earnings estimates. That's the highest positive surprise rate since the second quarter of 2021. Earnings growth is running at 27% year over year. Companies are beating estimates by an average of 18%. Guys, that is more than double the five-year average. Those are not ordinary numbers at all. In an environment of supply shocks, geopolitical turbulence, and a Fed that's stuck, American corporations have managed to protect their margins with a discipline that has genuinely surprised even the bulls. I'm among those surprised as the bulls, trust me. And the earnings story is real. And I want to be very clear about that before I tell you the part that keeps me up at night. Okay, here's the first crack that's appearing on the surface. While corporate America is printing record margins, the workers who generate that revenue are effectively treading water. The employment cost index released by the Bureau of Labor Statistics for the first quarter of 26 showed wages and salaries up by 3.4% year over year and benefit costs rising by 3.6%. That sounds reasonable on the surface until you strip out inflation. On an inflation-adjusted basis, real wages are up just one-tenth of a percent over the past year. Guys, that's 0.1%. That's not a raise. That is a rounding error on a calculator. And workers know it, which is why that union boss on my phone screen is the most important data point of my morning. Stay with me here because what I'm about to tell you is the part of the story that connects your morning commute to something that took down an entire decade of American economic policy way back in the 1970s. That union boss is not just a guy trying to get a raise for his members. He is the opening act of a very old and very ugly economic show. One that once it starts, tends to run for years, whether the audience wants it or not. The wage price spiral is not complicated in theory. It is brutally simple. Workers see prices rising at the gas station, at the grocery store, on their commute. They go to their employer and they say, I can't afford to live on what you're paying me anymore. The employer, who is himself watching input costs rise, eventually capitulates because he can't afford to lose the workers and he raises wages. Then, because he is now a higher labor cost structure, he raises prices to consumers on whatever he sells us. Those higher prices then land on some other worker somewhere who goes to his employer and says the same thing. So here, inflation begets wage demand, wage demand begets price increases, price increases beget more inflation. Round and round and round. Now, here's the part of the story that makes every serious investor genuinely uncomfortable. Even if the Strait of Hormos reopens tomorrow, even if crude oil drops back toward comfortable levels, the wage price spiral doesn't automatically stop. That is the dirty secret that nobody on the Sunday morning shows will say out loud. The trigger for the spiral was the supply shock. But the spiral itself has its own momentum. It has already been loaded into the system. Wages negotiated this year are not unnegotiated when oil gets cheaper. Contracts, once signed, do not retroactively adjust because crude drop by 10 bucks. The ferry company's fuel surcharge may eventually come off the bill, but if the transit authority settles with a union at a higher wage rate, that operating cost does not go away when the Gulf calms down. It's baked in permanently. Now, here's the shadow data that I love to talk to you about that makes all of this stuff concrete. The Q1 2026 employment cost index shows real wages. Inflation adjusted up just one-tenth of a percent over the year. Workers demand more. They got more, and inflation is running fast enough that the raises barely keep them whole in real terms, which means the pressure to demand still more does not go away. It intensifies. You can see the feedback mechanism operating in real time if you know where to look. Now, history is instructive here, and it's not encouraging at all, unfortunately. The last time this country went through a genuine, genuine wage spot uh wage price spiral of consequence, it took one of the most painful episodes in modern American economic history to break it. Paul Volcker, who took the reins at the Federal Reserve in 1979, tried every soft option first. Wage and price controls under Nixon, Ford's Whip Inflation Now campaign, half measures and hand-wringing. None of it really worked. So Volcker did the one thing that actually worked. He induced a severe recession on purpose. He pushed the Fed's funds rate up to 20% and held it there until the psychology broke. Inflation retreated to just over 3% by 1983, but the bill for that medicine was devastating. Nearly 4 million Americans lost their jobs in back-to-back recessions, and unemployment peaked north of 10%. The Fed today is not vulgar. Jerome Powell and whoever his successor is going to be, possibly Kevin Warsh, his term, Powell's term, ends this month. And the Fed funds rate currently sits at 3.5% to 3.75%. You know this. It was held steady at the April 26th meeting. You also know this. The bond market, the smartest market in the room, is already telling you something really important. And I put out some videos on that last week, Friday, I believe. Polymarket currently prices in a 56% probability that the Fed doesn't cut rates at all in 2026. That's the market's way of saying the Fed is paralyzed. The inflation data is just too hot to justify easing. The labor market is too uncertain to justify tightening. So the Fed sits and the spiral, if it's indeed taking hold, continues to do its quiet, compounding damage in the background. So let me ask you something here. If the spiral is already loading into the system and the Fed can't move without breaking something, what's actually standing between you and a replay of the 1970s experience? Well, here is one genuinely constructive data point in an otherwise pretty complicated picture. Those record profit margins, 14.7% for the SP 500, matter in this context in a way that most investors are not thinking about. If the wage spiral deepens and companies face genuine pressure to rage wages, rate to raise wages meaningfully in the next round of contract negotiations, well, corporate America sitting on record margins has more room to absorb some of that labor cost than corporations might have had in the 1970s when margins were thin and the pass-through to consumer prices was almost instantaneously. A corporation staring at a demand destruction in its own order books, World Cup tickets at$10,000 sitting unsold, has a rational incentive to absorb some of the wage increase rather than immediately pass it to consumer and watch demand collapse further. So it's not a solution. It's not a guarantee, but it is a buffer. And an environment where buffers are in short supply, that really matters. But a buffer is not a firewall, guys. So what should you be watching? Well, watch the next round of union contract settlement across transportation, logistics, and municipal services. Watch whether services inflation, which is the stickiest component of CPI, accelerates or holds in tomorrow's April print. Watch how corporations characterize labor costs in their next round of earnings guidance. Those three signals will tell you faster than any headline whether the spiral is gaining traction or losing it. The container ship analogy applies here. I use this all the time. Guys, economies don't move on a dime. The ship may have already turned, and you will only see the wake when it's too late to easily adjust your position on the deck. So, your truth bomb for today is this the SP's record margins are the only thing standing between the wage price spiral and your grocery bill. And a buffer is not a firewall. Join me every day for Wall Street Truth Bombs, where I drop them right here before the market figures them out. And if you want more, don't forget to join us on Thursday afternoons for our live stream, which we're going to do every single week going forward.