Hard Pullback

Author

Pete Tan
May 13, 2026

S&P snapped its record run. Nasdaq took a dip. And the Fed conversation flipped from cuts to hikes??

Let's break down the three stories that actually mattered.

🔥 INFLATION SHOCK

Apr CPI came in at 3.8% year on year. Street was looking for 3.7%. Core CPI hit 2.8%, also above the 2.7% estimate.

The driver? Energy. Prices rose 3.8% in Apr alone and made up roughly 40% of the entire CPI increase. Gasoline, diesel, jet fuel, electricity, all higher.

This is the hottest annual print in a year, breaking the trend of lower CPI for last 3 years.

Pete's Take 👇 The truth is this is not a one off blip. Energy acts like a tax on the whole economy. When fuel goes up, transport goes up, food goes up, everything downstream goes up. The Fed cannot ignore this much longer. Position your portfolio for sticky inflation, not yesterday's rate cut hope.

💻 CHIP WRECK

The AI darlings got humbled. Qualcomm crashed 13%, its worst session since 2020. Intel slid 8%. The semiconductor ETF dropped 5% in one day.

Even Micron, which led the market to record highs on Mon, reversed and fell 3.6%.

Zoom out though. Semis are still up around 60% year to date. This was profit taking after a monster rally, not a structural break.

Pete's Take 👇 This is healthy. I was just telling SMG members that stocks that go up in a straight line eventually take a breather. The AI thesis is not broken. Some perspective: today's AI leaders trade at around 39 times earnings. The 1999 dot com darlings traded at 152 times. We are not in that territory. We are in a hot market having a normal pullback. Watch for support before you add.

🏛 FED FLIP

A month ago, markets gave a Fed rate hike in 2026 an 18% chance. After yesterday's CPI, that jumped to about 30% by December. Some surveys now show over 70% odds of a hike by Apr 2027.

What about rate cuts? It is unlikely to happen for the rest of 2026.

The 10 year Treasury yield climbed to 4.46%, its highest level since last July.

Pete's Take 👇 This is the move most retail investors are still not pricing in. They are sitting in long duration tech and small caps assuming rate cuts are coming. They are not. Higher for longer is now higher for even longer. Quality companies with real cash flow are going to keep beating hype stocks. Dividend payers and energy names look much smarter today than they did six months ago.

🎯 Pete's Investment Takeaway

One CPI print reminded the market that the inflation story is not over. While inflation is good for the long term, short term it is a poison to the bull run.

For your portfolio: lean into cash flow. Dividend names, energy, quality balance sheets. Trim the speculative growth that has run too hard (aka semis)

Winners in this regime: energy (XLE, XOM, CVX), defence, gold, dividend payers, quality value

Losers: speculative growth tech, small caps, anything that needs cheap money to survive, consumer discretionary

Key things to watch this week: Nvidia earnings on Wed 20 May (the next big AI test)

📣 ONE MORE THING: Invest with Pete LIVE this week

I am going live tomorrow night for the Invest with Pete community. Free for everyone.

We will break down what this CPI shock means for your portfolio, where I see opportunity in this rotation, and the sectors I am watching closely.

I will also demonstrate an option strategy LIVE! So if you wanna learn advanced options, come join in!

Happy Hunting!

Pete
Invest with Pete

🚨‼️ By the way, I’ll never PM anyone on telegram or any other social media platforms. If you receive any “Pete” messaging you, these are scammers impersonating me. Pls beware!

The information provided in this newsletter is for informational purposes only and does not constitute financial advice. Readers should seek their own independent financial advice before making any investment decisions. Please note that while Pete is a portfolio manager, the opinions expressed in this newsletter are his own and do not represent the views of any organization. Always perform your own research and due diligence before investing.