Joe Lavorgna of SMBC warns that the stock market's narrow leadership could unravel quickly if financial conditions tighten and risk appetite changes.

The war in the Middle East fundamentally changed the economic dynamics, derailing a potential "disinflationary boom."

Over the last couple of years, inflation has run approximately 75 basis points above the Federal Reserve's target.

In the short term, the buildout of data centers for AI may be contributing to inflation due to increased energy usage.

The New York Fed's Global Pressure Supply Index indicates ongoing supply chain disruptions that are pro-inflationary.

In the longer term, AI is likely to be disinflationary.

The stock market is a dominant driver of policy decisions for Donald Trump.

Excluding the healthcare sector, there has not been a significant amount of job growth in the US economy.

The Federal Reserve would likely only cut interest rates if there is significant labor market deterioration, such as the unemployment rate rising to 4.5%, 4.8%, and then 5.1%.

Raising interest rates to combat inflation, which is currently 1 to 1.5 percentage points above target, generally leads to a recession.

The pressure point for the US President to take strong action regarding Iran could be gasoline prices reaching $6 or $7 per gallon.

The United States is unlikely to implement fiscal austerity measures because neither major political party supports them.

The specific 10-year Treasury yield that would destabilize the financial system is unknown, but could be around 4.75% or 5%.

The market has only priced in about one interest rate tightening from the Federal Reserve, but Joe Lavorgna believes a series of tightenings could potentially occur.

The bond market is not fully appreciating the inflationary impact of current supply chain disruptions.

The "supercore" inflation metric favored by former Fed Chair Jay Powell has been running at approximately 3.5%.

AI-related activities have directly accounted for approximately one-third of US GDP output in the last year.

If the Federal Reserve avoids raising rates to prevent a recession, it would implicitly change its inflation target, resulting in a higher interest rate environment and a steeper yield curve.

When the S&P 500 declined by 15%, President Donald Trump quickly pivoted on policy, which led to a massive market rally.

Joe Lavorgna predicts that interest rates will rise due to a higher inflation risk premium and the U.S. Treasury's need to increase supply.