by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment begins with key takeaways from Apple’s push to ease restrictions on the purchase of Chinese semiconductors. We then turn to the US-Iran conflict, outlining our assessment of the ceasefire’s durability. Next, we briefly examine Volkswagen’s restructuring efforts, the policy agenda of the leading UK prime minister candidate, and President Putin’s recent and notable admission. As always, we conclude with a review of the latest domestic and international economic data.

 Chip Shortage: The scale of the AI buildout is pushing firms to seek regulatory waivers to alleviate mounting supply constraints. Over the weekend, reports indicated that Apple is lobbying the US government for permission to source memory chips from a blacklisted Chinese supplier. The effort comes as Apple has already begun raising prices on key products in response to higher input costs, underscoring growing concerns that AI-related demand is beginning to exert upward pressure on inflation and may eventually weigh on earnings.

• Apple’s push to secure access to Chinese-made chips follows recent price increases across its MacBook and iPad lineup. The company attributed these hikes to constrained access to suitable components, ultimately passing higher input costs on to consumers. In the wake of the rare price increase, Apple’s stock recorded its second-largest single-day loss in company history.
• The iPhone maker’s push to access Chinese-made chips comes as it seeks to navigate US policy constraints amid escalating competition with China over AI dominance. While US rules do not explicitly prohibit commercial purchases from blacklisted Chinese firms, companies that engage with these entities risk losing eligibility to do business with the Department of Defense, creating a meaningful compliance and reputational tradeoff.
• Apple is not alone in passing higher costs on to consumers. Electronics manufacturers including Hewlett-Packard, Dell, Microsoft, and Nintendo have either implemented price increases or signaled upcoming ones to protect margins. Beyond consumer electronics, industries such as automotive, retail, and medical devices have also lobbied the government for relief due to mounting pricing pressure tied to ongoing chip shortages.

• The AI buildout is reinforcing inflationary pressures from both directions. On the demand side, government incentives, particularly tax credits and subsidies, are draining inventories. On the supply side, trade restrictions and tariffs are boosting competition for inputs. These distortions are beginning to filter into consumer prices; while unlikely to trigger a sharp spike, they point to more persistent inflation and could weigh on margins, raising renewed questions around current valuations.
• Apple’s push to ease restrictions on sourcing Chinese chips underscores how the US drive for supply-chain resiliency is already impacting firm profitability. While firms have successfully raised prices to protect profit margins so far, mounting consumer pushback suggests this strategy cannot be sustained indefinitely. As a result of heightened policy and economic uncertainty, we continue to advocate for a balanced portfolio approach.

 Ceasefire Tightrope: Tensions between the United States and Iran remain elevated as both sides contest control over the Strait of Hormuz while simultaneously engaging in longer-term diplomatic negotiations. Over the weekend, hostilities escalated, with both sides exchanging strikes after Iran moved to require shipping vessels to seek permission before transiting the strait. Although the two parties have agreed to continue talks and pause further strikes heading into the week, the episode underscores the fragility of the current ceasefire agreement.

• The dispute appears to center on whether Iran has the authority to impose fees on vessels transiting the Strait of Hormuz. Last week, Iran targeted ships operating along the Oman coast, including vessels involved in a UN-backed effort to assist stranded shipping vessels. In response, the United States launched two-day strikes on Iranian targets, while Iran retaliated by targeting US military bases in Bahrain and Kuwait.
• Although both sides agreed to a temporary halt in military strikes, the resumption of trade flows remains limited. Under the current framework, vessels are permitted to use the UN-backed maritime corridor off the coast of Oman; however, Muscat has reportedly informed European leaders that a transit toll may be imposed. This ongoing friction over potential fees is highly likely to spark another flare-up as both Washington and Tehran attempt to assert leverage in diplomatic talks.
• Washington and Tehran appear intent on continuing talks despite ongoing tensions. Both sides have shown a willingness to use force but also to pursue a longer-term deal, and we expect intermittent tit-for-tat activity as details are negotiated. Our base case is that an agreement is ultimately reached, allowing the conflict-related risk premium in commodity prices to gradually ease, though a breakdown in negotiations would sharply increase market volatility.

VW Overhaul: The German automaker’s proposed restructuring is weighing on sentiment across Europe. The company has proposed a layoff of over 100,000 workers and closure of four plants as profits are squeezed by Chinese competition, US tariffs, and softer European demand. Drawing comparisons to GM’s 2009 overhaul, the move would significantly reshape its operations; even if not yet final, it highlights how European firms must adapt to a changing global environment.

Burnham’s Plan: The prospective UK Prime Minister Andy Burnham is set to lay out his vision for the country on Monday. In his speech, he is expected to advocate devolving more power from London to the regions and to launch a 10‑year mission aimed at lifting living standards through re-industrialization, housing, infrastructure investment, and utility reform. Although he is currently the only declared candidate for the premiership, he is widely seen as the frontrunner in the leadership contest.

Russia Feels Pain: On Sunday, Russian President Vladimir Putin announced that Russia may begin importing energy resources following sustained damage from Ukrainian drone strikes. This rare admission marks one of the first times the Kremlin has publicly acknowledged the extent of the war’s impact on domestic energy infrastructure, potentially signaling a shift in battlefield dynamics away from Moscow’s favor. Despite this development, we continue to view a ceasefire between the parties as a plausible near-term outcome.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment begins with our view on speculation that OpenAI may delay its IPO. We then turn to rising tensions over tolls in the Strait of Hormuz. Next, we briefly discuss Italy’s push to overhaul its electoral system and the US government’s decision to restrict the use of another AI tool. As always, we include a review of recent domestic and international economic data.

 IPO Doubts: While robust earnings continue to buoy tech stocks, lingering valuation concerns are casting a shadow over the sector. On Thursday, The New York Times reported that OpenAI is considering a delay to its initial public offering, following advice that current sector volatility could dampen investor sentiment. The report is likely to intensify fresh worries that the sector has become frothy, underscoring a growing unease among investors regarding tech valuations and highlighting a shifting appetite toward other market sectors.

• The reported delay of OpenAI’s IPO appears tied in part to the recent performance of SpaceX. After an initial surge, shares in the Elon Musk–led company have fallen over 20% from their post-IPO high, declining from around $202 to roughly $153 as early enthusiasm faded. The pullback has raised concerns about the durability of demand for high-profile IPOs, particularly in segments where valuations are already stretched.
• Concerns are also mounting over the availability of liquidity to absorb new IPOs. Given the scale of the SpaceX offering — the largest on record — there is growing unease that retail investors may have limited capacity to support additional deals, particularly with Alphabet also planning its own equity issuance. The fear is that another large offering could prove too much for investors, who have already grown more risk-averse in recent months.

• Bitcoin, which is heavily influenced by retail sentiment, offers a useful barometer for shifts in risk appetite. During the post-pandemic period, bitcoin and the Magnificent 7 stocks largely moved in tandem. However, that correlation began to break down in late 2025, when bitcoin peaked and subsequently failed to recover. The Magnificent 7, by contrast, have also lost some momentum but have since managed to hit new highs.
• The decoupling of bitcoin and the Magnificent 7 likely underscores the primacy of earnings in today’s market. Mega‑cap tech companies have proven that, even with stretched valuations, underlying product demand remains resilient. This dynamic suggests that the AI‑led rally still has room to run in the near term, even if appetite for IPOs has begun to fade. That said, rising volatility across the space strengthens the case for adding exposure to sectors outside of tech as a way to diversify risk.

 Strait of Hormuz: The reopening of maritime transit has come under strain as the United States and Iran continue to negotiate the terms governing passage through the strait. On Thursday, Iran reportedly intercepted vessels and forced them to turn back, insisting that ships not transit the waterway without prior authorization. The resulting uncertainty is likely to heighten concerns about the durability of the ceasefire, particularly as Washington and Tehran remain at odds over whether transit fees or tolls will be imposed.

• The dispute centers on Oman, a key US partner that also works with Iran on securing navigation in the Strait of Hormuz. On Thursday, Oman reportedly allowed internationally coordinated vessels to use a coastal corridor to facilitate passage, which Iran appears to view as violating its requirement that ships obtain prior authorization from its Persian Gulf maritime authority before entering the waterway.
• The episode underscores how much of the ceasefire framework over the strait relies on strategic ambiguity. Earlier in the day, Secretary of State Rubio reiterated that the United States will not accept Iranian tolls for navigating the waterway under any circumstances, a stance that appears to have prompted Tehran to adopt a more assertive posture in projecting control over the strait.
• While the recent conflict has introduced uncertainty, conditions in the strait are beginning to stabilize following the US-Iran ceasefire agreement. Earlier this week, oil prices retracted to pre-conflict levels, while transit volumes through the strait have recovered to roughly 25% of pre-war levels. This improvement suggests that, although the waterway remains contested, access has meaningfully improved relative to conditions just a few weeks ago.
• Rising geopolitical tensions over the strait are poised to drive further volatility in energy prices, as the probability of direct conflict between the two sides remains elevated. Although attacks on commercial shipping have reduced vessel traffic through the chokepoint, the ceasefire appears to be holding for now. This is largely attributed to the US reluctance to escalate militarily while the two sides negotiate a long-term agreement. That said, markets are expected to remain on edge until a final deal is formally secured.

 Italy Vote Overhaul: Italian PM Giorgia Meloni is facing criticism over plans to overhaul Italy’s electoral system in ways that could favor her party in future elections. The proposal would grant a minority coalition additional seats if it secures at least 42% of the vote. Supporters argue that the change would enhance political stability by reducing fragmentation, while critics contend it is primarily designed to help Meloni consolidate power. The proposal reflects a wider pattern of incumbent governments tweaking voting rules to shore up their positions.

 AI Tools Restriction: Security concerns are driving tighter limits on advanced AI systems. The White House has asked OpenAI to restrict its latest model, GPT‑5.6, to a small group of government agencies because of security risks. If implemented, this would be the first time a government has constrained release of a major technology before launch. The request follows earlier efforts to limit foreign access to Anthropic’s Fable 5 and Mythos 5 models, signaling a firmer government grip on frontier AI.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with key takeaways from Treasury Secretary Scott Bessent’s remarks at the Economic Club of New York. We then examine rising tensions between the US and its NATO allies and the implications for its strategic positioning against China. Next, we briefly cover the latest Fed stress test results, deepening US-Taiwan ties, and another strong earnings report from a major chipmaker. As always, we include a review of recent domestic and international economic data.

Bessent Speaks: During a speech to the Economic Club of New York, US Treasury Secretary Bessent offered additional insight into how the Trump administration intends to better align economic strategy with national security objectives. His remarks shed light on the motivations behind several recent policy initiatives and provide a glimpse of what may lie ahead. Overall, his comments underscore the administration’s broader goal of reshaping the economy to feature a greater role for government involvement.

• Bessent outlined five principles that define the White House’s economic agenda: building national capacity by strengthening US supply‑chain resilience, promoting trade reciprocity by ensuring that other countries treat US firms fairly, maintaining economic leadership by helping to shape global trade rules, sustaining financial leadership by protecting the US dollar’s reserve‑currency status, and fostering household prosperity by encouraging broader participation in the ongoing economic build‑out.
• His comments suggest a significant departure from the traditional US model, under which the US positioned itself as the hub of global trade and the primary provider of international security to reinforce its central role. Instead, the administration appears to be moving toward a more state‑centric, inward‑looking framework that prioritizes resilience over pure efficiency.
• While he emphasized the need for the US to become more self‑reliant, he also made clear that this does not imply a total retreat from global engagement. He noted that it would be unrealistic and unnecessary for the US to do everything from start to finish. However, he also indicated that certain strategic industries — such as critical minerals, pharmaceuticals, semiconductors, artificial intelligence, and quantum computing — will need a strong production base at home due to their strategic importance.
• As we have noted in previous reports, the United States appears to be shifting away from globalization while adopting a more interventionist economic posture. This transition is likely to reduce allocative efficiency and increase inflation volatility. In such an environment, commodities tend to outperform, as heightened competition for resources and supply chain frictions place upward pressure on prices and incentivize inventory accumulation.

NATO Fracturing: As the US-China rivalry intensifies, Washington is showing increasing signs of distrust toward its traditional allies. On Wednesday, President Trump criticized NATO members for what he described as a delayed response in supporting US efforts during the Iran conflict, speaking alongside NATO Secretary-General Mark Rutte. The remarks come amid persistently elevated geopolitical tensions, as China continues to expand its espionage activities and military preparedness in pursuit of its challenge to US global leadership.

• President Trump’s criticism comes ahead of next month’s NATO summit, where he has signaled a clear reluctance to attend, citing the alliance’s failure to provide meaningful support during the Iran war and its failure to adequately increase its defense spending. White House officials, such as Peter Hegseth, attending the summit are expected to use the platform to call out specific member states that have fallen short of their commitments as the administration looks to hold allies more accountable.
• As US-NATO tensions simmer, China is leveraging the distraction to fast-track its AI and defense modernization. Alibaba faces allegations from Anthropic of illicit model scraping, a cost-cutting shortcut to AI advancement. At the same time, the Chinese military has built mock US destroyers to test its anti-ship technology. Taken together, these moves reveal a deepening sense of urgency in Beijing as it races to erode America’s military edge.
• The rising competition with China will make it difficult for the US to completely abandon NATO. Even as relations between the US and its European allies grow strained, Washington will likely need to keep Europe within its sphere of influence in order to sustain its technological and military edge over Beijing. That said, the US may be able to leverage these very tensions to extract further concessions. We expect Europe to increase defense spending, not only on its own defense firms, but on US companies as well.

Fed Stress Tests: The Federal Reserve gave passing grades to the largest US banks following its annual stress test of their crisis readiness. According to the report, the banks would collectively lose $708 billion in a severe economic downturn yet would stay above regulatory capital requirements. While the results offer some reassurance that the banking system remains stable, they come at a time when capital rules have been loosened making the findings somewhat less meaningful.

Taiwan Flights: Taiwanese carrier EVA Air will begin direct flights to Washington, DC on Friday. The route is expected to facilitate greater access for Taiwanese officials to US policymakers, a development likely to draw scrutiny from Beijing. The move echoes past episodes of heightened tension, including former House Speaker Nancy Pelosi’s 2022 visit to Taiwan, which led to increased Chinese military intimidation of the sovereign island. As engagement between Washington and Taipei expands, friction with China is likely to intensify.

Chip Rally Lives On! Micron Technology exceeded sales expectations, helping to drive a broader rally in semiconductor stocks. The company expects fourth-quarter revenue to be above $50 billion, well ahead of the $43.2 billion consensus estimate. It also highlighted 16 strategic partnerships secured over the past three years, reinforcing visibility into sustained demand. The market’s reaction underscores the extent to which AI-linked equities are increasingly reliant on continued earnings strength to justify elevated valuations.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment focuses primarily on Venezuela’s efforts to reassert itself on the global stage following the removal of Nicolás Maduro. We then examine rising concerns around AI and monetary policy as investors reassess valuations. Finally, we briefly review the latest developments in US-Iran talks, a major chipmaker’s equity issuance, and the evolving political landscape in US cities. As usual, we include a summary of recent domestic and global economic data.

Venezuela Comeback: Venezuela is seeking to shed its pariah status after a recent thaw in relations with the United States. In a bid to repair its fractured finances, the government has announced plans to restructure its sovereign debt, marking its first major step toward re-entry into international capital markets after nearly a decade of isolation. The rapprochement highlights the economic dividends of stronger US ties in South America and offers a potential roadmap for Cuba, if it follows suit.

• The country is expected to unveil over $240 billion in bond sales, significantly surpassing initial estimates of $150 billion to $200 billion. Official plans to place the government on solid fiscal footing are slated for release by early July, with its macroeconomic framework due to be published in the coming days. The economy is currently estimated at roughly $100 billion, while its debt-to-GDP ratio remains above 200%.
• While Venezuela’s improving fiscal outlook is a welcome development, the political landscape merits equally close attention. Although no election date has yet been set, interim leader Delcy Rodríguez appears to be already mobilizing support for her presidential bid, with María Corina Machado expected to mount a challenge. Recent polling underscores the scale of that challenge. Machado leads by a staggering margin, with 82.6% of voters backing her compared to just 4.5% for Rodríguez.
• Venezuela’s reemergence onto the global stage could offer a roadmap for Cuba’s own potential return from the diplomatic and economic isolation it has endured since 1962. Notably, Havana has already pushed through a series of free-market reforms, a shift accelerated by President Trump’s decision to tighten the embargo and cut off energy imports as part of his “maximum pressure” campaign aimed at forcing the regime to overhaul its economic and political systems.
• We see the United States actively working to draw Latin America back into its strategic orbit, a dynamic we have described as a modern Monroe Doctrine, or “Donroe Doctrine.” As regional governments deepen ties with Washington, they are likely to benefit from preferential access to trade, capital, and policy support. Coupled with prospective structural reforms, this shift supports increasingly attractive opportunities across South America.

AI Angst: Major tech stocks sold off on Tuesday amid growing concerns that persistently high interest rates could derail the artificial intelligence infrastructure build-out. The sell-off was triggered by renewed anxiety over Federal Reserve policy, following the central bank’s latest Summary of Economic Projections, which showed that an overwhelming majority of officials favor raising rates later this year to curb inflation. The market’s reaction underscores a broader unease about how restrictive monetary policy will impact tech valuations moving forward.

• The market response appears to be a reaction to mounting signs that the labor market is regaining momentum. ADP’s four-week moving average of private payrolls shows that the economy has added an average of 30,750 jobs per week. While this pickup is not particularly unusual, it does suggest that the labor market is less strained than it was a year ago, thereby increasing the likelihood that the Federal Reserve may be more inclined to prioritize price stability over maximum employment.
• Interest rates have become an increasingly critical factor in the markets, particularly as more hyperscalers turn to debt financing to fund their AI infrastructure build-outs. Earlier this week, SpaceX announced a $25 billion bond issuance, less than two weeks after its public debut, in a move that underscores just how capital-intensive the AI race has become. The development raises questions about whether these companies may take longer to deliver returns to shareholders as their debt burdens grow.
• Despite Tuesday’s sell-off, we see little evidence that the Fed has committed to a preset rate path. As Chair Kevin Warsh underscored in last week’s press conference, the committee intends to prioritize underlying trends over any single data release. In our view, this suggests investors may be over‑interpreting the latest labor market print and extrapolating too much about the policy outlook from one month of data. As a result, we think the event may be short-lived.

US-Iran: Concerns are mounting over the fate of the peace deal amid confusion surrounding the conditions under which Iran would gain access to frozen funds. According to President Trump, Iran would be permitted to use the money solely for food and medical supplies. Iran must also allow the International Atomic Energy Agency (IAEA) to inspect its nuclear sites. Tehran, however, has rejected both claims as false. While we expect tensions to remain calm, uncertainty about talks could push up energy prices.

AI Spending: SK Hynix is the latest tech name to tap public markets for expansion, targeting a $29.4 billion US listing. The deal would be one of history’s largest, following recent equity raises by SpaceX and Alphabet, plus upcoming IPOs from Anthropic and OpenAI to fuel AI spending. The shift toward equity over debt suggests companies may see stock sales as cheaper financing, possibly because they view their own shares as overvalued.

Democratic Socialism? Left-wing populism appears to be gaining momentum in US cities. On Tuesday, three democratic socialist candidates in New York secured their primary victories following endorsements from New York City Mayor Zohran Mamdani. This comes just a week after a democratic socialist mayoral candidate won the party’s primary in Washington, DC. While these wins may ultimately make it easier for conservatives to compete in deep-blue urban areas, they also underscore the nation’s deepening political polarization.

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