Consumer fragility and balanced portfolios (with Vonnie Quinn)

Persistent high energy prices are feeding into inflation expectations and consumer fragility. The consumer is starting to feel inflation at the pump and grocery store. The market is now considering unemployment risks alongside inflation. Earnings growth remains strong (30%+ in 2026, 16% in 2027), which supports equities. Portfolio strategy should be balanced given competing forces: AI capex vs geopolitical turmoil vs high inflation expectations.

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explicit

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Metals

USD

Franklin Templeton 7.8
Asset Manager $1300.00B
Katrina Dudley 8.5

Consumer fragility and balanced portfolios (with Vonnie Quinn)

ndx

Earnings growth expectations for 2026 are over 30%... That strong earnings growth is what drives you and keeps you into equities.

5/14/2026 1:53:10 PM	short term up	5 days later	+0.59%	+0.59%
11/24/2025 6:28:11 PM	medium term up	20 days later	+0.20%	+0.20%
10/14/2025 8:27:35 PM	short term up	5 days later	+1.60%	+1.60%
9/17/2025 3:24:54 PM	medium term up	20 days later	+2.79%	+2.79%

rut

Deglobalization is bringing jobs onshore to the US, which is positive for domestic small caps. Earnings growth is broad-based across sectors.

wti

Higher energy prices are persistent and feeding into inflation expectations. The war is driving food and energy prices.

4/27/2026 5:34:32 PM	short term up	6 days later	+6.49%	+6.49%

yields

The Fed is data dependent, balancing inflation and employment. Five-year forward expectations near 2% suggest no need for hikes, but the path is uncertain. Portfolio strategy should be balanced, not directional.

4/27/2026 5:34:32 PM	medium term cautious up	20 days later	+6.18%	+3.09%
3/27/2026 9:31:06 AM	medium term up	21 days later	-2.12%	-2.12%

Is the market pricing in a reopening of the Strait of Hormuz?

Vonnie Quinn
Katrina Dudley

We need a reopening of the Strait to show progress towards peace talks. The higher energy prices driven by the closure are feeding into inflation expectations and having ramifications down the supply chain.
Oil has been $30 more than before the war for three months. How much longer can we withstand that?

Vonnie Quinn
Katrina Dudley

We thought this would be a short war with a spike, but it's been persistent. We're starting to see fragility in the consumer. Consumer inflation expectations are over 4% vs market pricing of 3.64%. Consumers got sticker shock at the pump over Memorial Day and see higher food inflation. Inflation now feels more permanent.
The market priced in a rate increase, then undid that significantly. What is the market thinking?

Vonnie Quinn
Katrina Dudley

The market is now considering unemployment coming back into the narrative. There are competing forces: deglobalization bringing jobs onshore (positive) vs AI capex ($800B) driving potential job losses. Whatever is winning the day drives the narrative.
Will Kevin Warsh focus on keeping the productivity boom going with lower rates, or on inflation and consider hiking?

Vonnie Quinn
Katrina Dudley

Five-year forward expectations are near 2%, suggesting on a longer-term basis the market is pricing in the 2% level, so no need for hikes. In 2025 we had insurance cuts. But he has to balance the inflation narrative with the full employment narrative. Data dependency will continue under his leadership.
Can reducing the balance sheet faster help on inflation, or is that not enough?

Vonnie Quinn
Katrina Dudley

What will drive inflation expectations is the war, food prices, and energy prices. The Fed is thinking about how that impacts the consumer. The inflation number they look for is more consumer driven.
What do you say to investors looking to get out of equities at these levels?

Vonnie Quinn
Katrina Dudley

Earnings growth drives markets, not valuations. Earnings growth expectations for 2026 are over 30%, driven by multiple sectors. In 2027, earnings growth normalizes to around 16%. That strong earnings growth keeps you in equities. Valuations are never a reason to sell.
Are you seeing more demand at the front end or longer end of the curve?

Vonnie Quinn
Katrina Dudley

We're telling clients to be balanced. It's not a directional market. There are so many competing interests: the AI trade (consensus), resiliency driving the narrative, but also continued geopolitical turmoil and high inflation rate expectations.

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