UBS’ Art Cashin shares what he’s watching for on inflation and where he sees possible bubbles

Published Thu, May 13 20212:49 PM EDT

Jesse Pound @/in/jesse-pound @jesserpound

Wall Street legend Art Cashin said Thursday that inflation is the top issue facing the stock market right now, but it is too early to jump to conclusions about the final path of prices. Cashin, the director of floor operations for UBS and a long-time fixture of the New York Stock Exchange, spoke with CNBC's Bob Pisani in an exclusive conversation for CNBC Pro subscribers. The pair discussed recent economic data and weakness in the stock market, the relationship between the Federal Reserve and the bond market, and the boom in crypto and blockchain assets. Inflation Rising prices for consumers has been one of the big topics on Wall Street in recent weeks, and Cashin said that the Fed being wrong about inflation is the "major market risk." Wednesday's consumer price index report showed the biggest year-over-year price jump in more than a decade, but Fed officials have said they expect a temporary rise in prices in the months ahead, especially when compared to last year's pandemic-depressed economy. However, the UBS veteran said it was too soon to know if the Fed was right. "I don't think we can prove this is transitory yet," Cashin said. Cashin said that investors should pay attention to the bond market, and the 10-year Treasury yield in particular, to see if professional traders still believe the central bank is correct about inflation. If the Fed gets behind the curve, it tends to "not tap on the brakes, but slam on the brakes," which could hurt both the market and the overall economy, he added. "The market will tolerate it for awhile, but if they think the train has left, things could get very dangerous in the stock market," Cashin said. The stock market bounced back on Thursday after a rough sell-off in the previous session. Cashin said that the "market was oversold and looking for a bottom" and the producer price index report, which was released Thursday and showed a faster-than-expected rise in prices, was less important to traders than the CPI, which had spooked the market on Wednesday. NFTs and crypto A CNBC Pro subscriber asked Cashin about how to approach some non-traditional investments, such as real estate investment trusts or master limited partnerships in energy. The Wall Street veteran said that those assets could have a function in portfolios, but he warned about excesses in some other areas. He specifically focused on non-fungible tokens, which are blockchain-based digital assets that resemble trading cards or art work and experienced a boom earlier this year . Cashin said he thought they were different from collector's items that have gained value over time. Cashin said that he was not skeptical of the NFT boom because it was new. Rather, it reminded him of previous bubbles. "They were created for speculation, and they are being traded for speculation. To me, that spells bubble in most cases," Cashin said. Earnings season Cashin also addressed the blowout corporate earnings season and its apparent failure to drive the market higher despite strong numbers from top companies. "Look what happened in the month of April. We came in and said, 'Oh, April, that's a good month for the stock market historically, I think I should be buying. And the earnings are going to have to be good to justify these multiples,' and that's what happened," he said. "The earnings were great ... and yet the market flattened out ... because all we were doing was achieving the assumptions we had made." The strong numbers for earnings growth coincided with strong numbers for economic growth as well, leading some strategists to worry about reaching the peak in growth soon. "We're at the best level in a variety of things that we have been in some time," Cashin said, but he stressed that that doesn't mean we are currently at a peak. "There might be room for some of these things to move a little higher," he said. Watch the full interview above.

CNBC

Wall Street legend Art Cashin said Thursday that inflation is the top issue facing the stock market right now, but it is too early to jump to conclusions about the final path of prices.

Cashin, the director of floor operations for UBS and a long-time fixture of the New York Stock Exchange, spoke with CNBC's Bob Pisani in an exclusive conversation for CNBC Pro subscribers.

The pair discussed recent economic data and weakness in the stock market, the relationship between the Federal Reserve and the bond market, and the boom in crypto and blockchain assets.