The nonfarm data just woke the market up from its rate-cut dream.
But don’t rush—the first cut against the bulls is only beginning.
What will really affect your wallet, and the rest-of-year direction of U.S. stocks, are the three examiners walking toward us next.
First, CPI—it tests whether the bills ordinary people pay are actually cooling down.
Second, PPI—it tests whether corporate cost pressure is really under control.
Third, tech earnings—AI and high valuations—whether they actually have profits backing them.
If even one of them doesn’t nod yes, then the rate cuts, AI story, and bull-market narrative the market believed in over the past six months may all need to be repriced.
Nonfarm payrolls didn’t give the market an answer—it asked a question:
If the U.S. economy is still this resilient, why should inflation obediently come down?
Strong employment means companies are still hiring, wages are still supported, and spending hasn’t shut off.
On the surface, that means the economy is still decent.
But the real variable to watch is whether too much resilience makes inflation harder to bring down.
What the Fed fears most is not simply good jobs data, but strong employment and strong inflation at the same time.
It’s like a pot of water. The market thought the fire was nearly off, then looked underneath and saw the wood was still burning.
How could the water cool down quickly?
CPI looks at the consumer side.
Plainly put, it’s the ordinary person’s bill.
Rent, services, food, energy—have prices really eased?
If CPI is still hot, the market doesn’t just worry about one ugly number; it worries the Fed has no reason to cut rates too soon.
Because if consumer prices still can’t be contained, cutting rates too early is like letting off the brakes too soon—the market fears inflation will be unleashed again.
PPI looks at the producer side.
It measures raw materials, transportation, production prices, and business service costs.
In other words, whether the cost of doing business has really come down.
If PPI stays hot, the problem isn’t just inflation; it hits profits too.
If corporate costs don’t come down, there are only two paths: either they absorb it and margins get squeezed, or they keep raising prices and pass the cost to consumers.
The first path makes earnings ugly.
The second path makes inflation ugly.
If only one exam is failed, the market may still hold up.
But if CPI and PPI both flash red, the third exam—AI earnings—becomes the only lifeline the market can grab.
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From here on, every data release won’t be about chasing price action randomly—we’ll look at which part it really hits.
Why say that?
Because when rate pressure doesn’t ease, the market can only ask tech stocks a more brutal question:
Are you actually making money?
Oracle and Adobe may look like they’re just reporting earnings, but what the market is really doing is checking the goods.
Oracle is being tested on AI infrastructure.
For years, the market believed AI would bring massive cloud demand, compute demand, and data-center demand.
But now the question is: are those demands really turning into orders?
Can cloud growth turn into revenue?
Will such huge capital spending end up eating profits instead?
Oracle is testing whether AI has really turned into infrastructure orders.
Adobe is being tested on AI application software.
Since generative AI came out, many people have asked: does it help Adobe increase product value, or does it weaken Adobe’s moat instead?
Will users pay extra for AI features?
Can subscriptions stay stable?
Can software companies still rely on pricing power to support high valuations?
Adobe is being tested on whether AI has really become software pricing power.
One tests whether demand is really durable; the other tests whether profits are real.
In the past, the market was willing to pay up for the AI story because everyone believed rates would come down, future money would be cheaper, and growth could be monetized gradually.
But under high rates, the market gets very realistic.
Is your AI a concept or an order?
Are your users growing or leaving?
Are your profits expanding or being eaten by competition and cost?
Tech stocks are not unable to rise; they just have to prove their valuation is justified.
Going forward, ordinary investors don’t need to guess up or down—they can look at three combinations.
First, inflation cools and earnings stay stable.
That means the market will keep believing rate cuts are delayed, not gone.
Companies with orders that can be fulfilled, profits that can hold, and stable cash flow will be more easily rewarded by capital.
Second, inflation stays hot but earnings are strong.
That means the market will be conflicted.
The fundamentals are okay, but rate pressure remains.
In that case, richly valued assets won’t feel so easy, and companies with real pricing power and quality earnings become more important.
Third, inflation is hot and earnings fail to hold up.
That’s the most dangerous combination.
High rates compress valuations, costs crush margins, and the AI story cannot be monetized.
The most pressured assets will be the ones with rich valuations, lagging profits, and weak cash flow.
After nonfarm payrolls, the market really has three hurdles to clear: inflation, costs, and profits.
What’s worth watching is not whether U.S. stocks are red or green today, but whether the market still treats high rates as temporary and expensive valuations as justified by profits.
Once the data is out, I’ll break down the real scores of these three exam papers first in the community and then in the next video.
Do you think this time AI can still support high valuations?
Feel free to leave your view in the comments.
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Before the storm hits, let’s see the money picture clearly and stay at the winners’ table.
