by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with our thoughts on the growing concerns about AI. We then turn to geopolitics, examining the latest developments in the conflict between the US and Iran. Next, we briefly cover the EU cracking down on Meta, Middle Eastern countries looking to build new oil pipelines, and the latest AI tool developed by Anthropic. As always, we conclude with a review of recent domestic and international economic data.

AI Uncertainty: There are growing concerns about the cash needs of Big Tech companies as they look to build out their AI infrastructure. Over the last few weeks, several high-profile companies have sought to tap equity markets for capital. Private companies SpaceX, OpenAI, and Anthropic are moving forward with IPO preparations. Meanwhile, public tech giants like Alphabet have announced new equity offerings, while Meta is also exploring one. The push to issue equity has led to concerns that future earnings may not be enough to justify current valuations.

• Over the past few weeks, several banks have raised concerns about the durability of the AI trade. On Tuesday, Bank of America strategist Savita Subramanian noted that while parts of the tech sector remain healthy, a clear shift has emerged since November. Specifically, cash flow conversion and buybacks have slowed, while capex, debt, and equity issuance have increased. Her view aligns with similar warnings from Wells Fargo and JPMorgan that the AI trade is showing signs of frothiness.
• The unease may reflect how readily many tech firms have turned to issuing equity for cash, even though borrowing remains relatively cheap. With corporate bond spreads still well below their long‑term averages, these companies could easily tap the debt markets instead. Their choice to lean on equity issuance suggests that management sees stock as the cheaper form of financing, which can also be read as a signal that they view their shares as fully valued, if not overvalued.
• The recent AI-driven market scare likely highlights growing fragility within growth stocks, driven by an overweight allocation to the technology sector. During Tuesday’s sell-off, equity markets rotated toward more defensive stocks, attracted by their better valuations and the perception that these sectors are more likely to preserve value over the long term. This rotation mirrors similar episodes seen over the past few months, where even minor jitters prompted investors to flee major tech names in search of safety.
• While AI is likely to remain a dominant market narrative, there are emerging signs that its momentum may be moderating. The recent wave of equity issuance by technology firms, while not inherently negative, can be interpreted as opportunistic due to the elevated valuations. Given this context, along with our broader concerns around market fragility, the current environment may present an opportunity for investors to reassess positioning and consider increasing exposure to value-oriented assets.

Mideast Tensions: Developments in Iran suggest that while Middle East tensions remain elevated, energy supply chains are showing resilience. Following Iran’s downing of a US helicopter, the two sides exchanged attacks on Wednesday, highlighting ongoing escalation risks. However, oil prices remained contained, with Pentagon officials signaling improved success in maintaining flows through the Strait of Hormuz. Despite continued hostilities, these dynamics point to a reduced near-term risk of major supply disruption.

• On Wednesday, the US and Iran exchanged missile strikes following Iran’s downing of a US Apache helicopter, marking a renewed escalation in tensions. The recent clashes come as both sides attempt to break the negotiating impasse and reopen the strait, with US efforts focused on countering Iran’s attempts to assert control over the waterway. The fighting underscores the fragility of the ceasefire, which has been repeatedly tested in recent weeks.
• However, despite ongoing fighting around the strait, US officials have expressed growing confidence in their ability to sustain transit through the waterway. Energy Secretary Chris Wright noted that traffic through the strait is increasing meaningfully and is expected to continue rising. His remarks appeared to reassure markets, contributing to a pullback in oil prices, with WTI futures falling below $90 and holding at those levels despite the overnight escalation in US-Iran tensions.
• While some progress is being made, concerns around oil inventories are building. Since the conflict began, oil markets have been well supplied by increased US exports, subdued Chinese imports, and strategic reserve releases by several governments. These measures have helped cap prices by narrowing the gap between physical tightness and futures pricing. However, the longer the conflict drags on, the greater the risk that these buffers erode and higher oil prices re‑emerge.
• We remain cautiously optimistic that conditions in the Strait of Hormuz will improve. Despite the recent escalation, both sides continue to engage in talks aimed at reopening the waterway, and much of the current posturing appears geared toward extracting additional concessions. This dynamic could invite further tactical attacks, but it also leaves room for a potential breakthrough in the coming weeks. In the meantime, we expect oil prices to remain volatile until a more durable agreement is reached.

Pipeline Alternative: Kuwait is looking to build an additional pipeline that would allow it to transport oil without relying on the Strait of Hormuz. The state-owned oil producer is working with Saudi Arabia and the United Arab Emirates to increase pipeline capacity, enabling exports to different markets. This effort comes as other Middle Eastern nations have also turned to alternative pipelines to transport their oil. The move signals that oil markets could shift due to the ongoing conflict over the strait.

EU Restrictions: EU regulators have ordered Meta to stop restricting AI rivals from operating within WhatsApp. The European Commission has warned that Meta must restore access for general‑purpose AI assistants within five working days or risk penalties under the bloc’s antitrust rules, potentially including a fine of up to 10% of its global annual revenue. The move underscores the EU’s determination to prevent its digital ecosystem from being dominated by US tech giants and could further strain relations between Brussels and the White House.

Mythos Update: AI provider Anthropic has released a new general-use version of its AI tool, Mythos, which is expected to be less powerful than the original version. The new model, Fabel 5, has similar capabilities to Mythos but includes built-in safeguards that prevent it from carrying out a cyberattack or developing a bioweapon. The release highlights the danger these AI tools pose to the broader world and could eventually pave the way for future regulation.

View PDF

by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

On a slow news day, our short Comment today opens with early signs of relatively disappointing demand for World Cup tickets, which could mean the economic stimulus from the event will be less than expected. We next review several other international and US developments that could affect the financial markets today, including an unexpected interest rate hike in Indonesia and a US blacklisting of more Chinese firms as suppliers to Beijing’s military.

FIFA World Cup: New data from FIFA shows it still has some 15,000 initial tickets available for first-round “group” games during the US-Canada-Mexico tournament, as well as a whopping 176,000 resale tickets available. Analysis by the Financial Times suggests demand is so weak that most resale tickets are being released at a loss after fees.

• The apparent shortfall in enthusiasm could mean that the economic jolt for cities hosting the games will be less than hoped for.
• It could also mean that the surge in hospitality and local government hiring and other preparations for the tournament will be reversed quickly, leading to some potentially weak economic reports for June and July.

China-North Korea: Chinese General Secretary Xi today wrapped up his visit to North Korean paramount leader Kim. While few substantial, concrete agreements or other developments have been noted, one key observation is that there was no significant reference to North Korea’s nuclear program. That suggests Xi no longer sees North Korea’s denuclearization as feasible. In turn, the US may not be able to rely on China for additional pressure on Pyongyang to scrap its nuclear weapons. North Korea will therefore remain a security risk for Asia and its investors.

United States-China: The Pentagon today designated about two dozen additional Chinese companies as suppliers to Beijing’s armed forces. The newly designated firms include tech giants Alibaba Group and Baidu, electric car manufacturer BYD, pharmaceutical firm WuXi AppTec, and humanoid robotics company Unitree. The designation means the firms can’t do business with the Pentagon, but it can also lead to reputational risk that can be a headwind for their overall business in the US.

US Artificial Intelligence Industry: Late yesterday afternoon, ChatGPT creator OpenAI announced that it has filed for an initial public offering that will likely come sometime this autumn. That means that OpenAI, its rival Anthropic, and SpaceX are all now planning big IPOs (at mammoth valuations) in the coming weeks and months. Reports indicate that some investors have already begun selling shares in other companies to raise cash and be ready to buy the new tech shares. In turn, that could weigh on share prices for targeted sectors or firms.

• Interestingly, some major college endowments that invested in SpaceX via private equity funds in recent years are now set to earn billions of dollars from its IPO.
• For some institutions, including Washington University in St. Louis, equity in SpaceX makes up more than 10% of their endowment portfolio. (We don’t expect any windfall to lead to lower tuition rates, unfortunately.)

US Housing Market: The Financial Times today carries an interesting article showing that buy-now, pay-later firms are starting to offer so-called “rent-split loans,” in which the lenders cover a tenant’s monthly payment to their landlord and receive the money back in installments spread over the course of the month. The loans effectively split up the borrower’s rent bill into smaller sums. The new product reflects the financial challenges that many lower-income consumers are facing because of rising living costs.

Indonesia: In an off-cycle move today, Bank Indonesia unexpectedly boosted its benchmark short-term interest rate to 5.50%, up from 5.25% previously. The hike followed a 0.50% increase just three weeks ago, which had been the first rate hike in about two years. According to the policymakers, the rate increases aim to support the rupiah, which has been losing value against the dollar and other major currencies as investors begin to project possible rate hikes in the US and other countries because of the war in Iran.

View PDF

by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with a few words on the apparent rebound in risk-asset markets so far today. We next review several other international and US developments that could affect the financial markets, including an update on the war in Iran and further evidence that the US administration wants the federal government to take ownership stakes in major companies involved with artificial intelligence.

US Stock Market: After Friday’s rout across risk markets, including a 4.2% drop in the NASDAQ price index, US stocks look set for a significant rebound today. That makes sense to us, as Friday’s strong data on nonfarm payrolls, which helped spark the sell-off, was likely distorted by hospitality firms and local governments going on a hiring binge to prepare for the World Cup. Other parts of the employment report were tame, such as modest wage growth and continued weakness in the number of workers saying they’ve found jobs.

• It’s true that the Federal Reserve is now much less likely to cut interest rates as much as we previously thought over the rest of the year.
• Nevertheless, it’s probably too early to assume that rate hikes are coming due to new Fed Chair Kevin Warsh taking over.
• Of course, the other major source of the stock-market volatility late last week was concern about the future of the artificial intelligence business. That issue is likely to remain a source of risk and volatility going forward.

United States-Israel-Iran: Over the weekend, Iran launched attacks on Israel for the first time since the current ceasefire took effect in April, saying the strikes were to retaliate for Israeli attacks on the Iran-aligned Islamic militant group Hezbollah in Lebanon. Israel responded with its own attacks on Iran, including a strike on Iran’s energy infrastructure. The strikes threatened to undermine the ceasefire, but both Iran and Israel today said they would suspend their attacks. Restoration of the fragile truce is likely also supporting stock prices so far today.

United States-Israel: Reports over the weekend said the Defense Intelligence Agency (DIA) has raised its threat assessment of Israeli espionage against the US to the “critical” level. Israel has long been known as an especially aggressive espionage threat, but the reports say it has now gone so far as to install spying software on telephones and computers of US military personnel in Israel and has tried to install listening devices at DIA headquarters in Washington and in a Secret Service vehicle. The DIA action could further fray US-Israeli relations and disrupt the war against Iran.
Japan: Confirming our view that Japan could rapidly become a major arms exporter now that it has dropped its decades-long ban on selling lethal weapons abroad, Tokyo late Friday said it has entered negotiations to sell modern Asagiri-class destroyers to Indonesia. That follows previous reports that Japan will sell Mogami-class frigates to Australia and is in talks to sell anti-ship missiles to the Philippines. The rapid spate of deals since dropping the arms export ban in April suggests Japan’s heavy industries and their suppliers could see a flood of new defense orders.

South Korea: The Bank of Korea and the Financial Supervisory Service today ordered the country’s major banks to take stronger steps to prevent their clients from engaging in “speculative market-disrupting behavior” that capitalizes on a weaker currency. The order comes as the won continues to depreciate in response to higher fuel import costs and the risk of higher interest rates in the US. The won has now lost 11.4% of its value against the dollar over the last year, despite a technology-driven jump in South Korean exports.

China: Chang Xin Memory Technologies (CXMT), China’s leading producer of dynamic random-access memory (DRAM) semiconductors, reportedly won approval last week for an initial public offering in Shanghai. Meanwhile, Chinese flash-memory champion Yangtze Memory Technologies Corp. (YMTC) reportedly began IPO preparations and could formally submit a listing application later this month.

• The potential IPOs suggest Chinese memory makers could soon become more serious challengers for South Korea’s world-leading makers, such as Samsung and SK Hynix.
• Of course, China’s typical trade strategy would suggest that the government will heavily subsidize CXMT and YMTC to help them eventually gain a dominant position in the global memory chip market.
• If successful, that would give China yet another key source of economic leverage over the US and its allies.

United States-China: President Trump’s eldest son, Donald Trump, Jr., late last week warned against investing in China, mostly because its legal system is tilted against foreigners. He added that, “I don’t think we can pretend they’re an ally. That would be, I think, foolish.” The same day, US Agriculture Secretary Brooke Rollins testified before Congress that dependence on China for food, fertilizer, and other agricultural inputs poses an “existential” threat to the US.

• The statements come as President Trump continues trying to establish a kind of détente with China after its bruising pushback to his tariff war last year.
• The statements illustrate how, despite the president’s effort to cool tensions, many investors, businessmen, economists, and policymakers see risk in drawing too close to Beijing.

India: The youth-oriented Cockroach Janta Party (CJP), which has drawn millions of followers after starting out as a joke on social media, held its first real-life protest march in New Delhi on Saturday. The move from social media to real life suggests that the Cockroaches, as they have become known, could become a viable opposition movement against Prime Minister Modi and his increasingly repressive Hindu-nationalist government. If so, it could undermine policy stability in India and potentially damage the country’s improving investment environment.

US Artificial Intelligence Industry: President Trump on Friday provided further evidence that he may push for the government to take ownership stakes in major AI firms, telling reporters that, “There’s something very interesting about it, where it almost becomes a partnership with the American public.” While the president appeared to base the idea on the opportunity for US citizens to participate in the vast value creation some expect from the technology, industry leaders also believe public ownership could ease public opposition to it.

• Of course, government “ownership of the means of production” is one definition of socialism, an epithet that right-wing politicians often apply to left-wing policies. Indeed, Democratic Socialist Sen. Bernie Sanders has proposed that the federal government take 50% ownership stakes in top AI companies.
• On the other hand, populist policies that focus on the interests of working-class people are increasingly embraced by both the right and the left. Indeed, when asked about the Sanders proposal, Trump responded, “As far as economics is concerned, we have certain things that aren’t that far apart. People are surprised.”

View PDF

by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with new research that helps confirm our belief that China’s growing comprehensive power — political, military, economic, and technological — is giving it much more geopolitical leverage. We next review several other international and US developments that could affect the financial markets today, including the latest on the war in Iran and a U-turn by S&P Global on when it will include the upcoming SpaceX shares in the S&P 500 index.

Global Pharmaceutical Industry: New research by the Council on Foreign Relations has found that China dominates the global supply of key medicines and pharmaceutical inputs nearly as much as it dominates the global supply of critical minerals such as rare earths. That validates our view that Beijing has probably developed multiple sources of economic leverage over the US and its allies.

• Beijing could therefore restrict its exports of key products to force the US or other countries to bow to Chinese demands, as it did with critical minerals during the US-China tariff spat in 2025.
• Even if the US and other countries successfully build their own critical mineral mines and processing facilities in the coming years, the analysis suggests China will still have important tools to impose economic pain on its adversaries.
• Coupled with its other sources of increased power, such as China’s rapidly growing arsenal of nuclear weapons, Beijing now has a level of total, comprehensive power that is at least starting to rival that of the US. In turn, that will likely undermine US companies’ market opportunities going forward.

United States-Israel-Iran: Islamic militant group Hezbollah yesterday rejected the US-brokered ceasefire deal between Israel and Lebanon, which was announced on Wednesday. The deal was aimed at stopping the Israeli attacks on Iran-aligned militant groups in Lebanon, which Israel launched in conjunction with its participation in the US war against Iran. Stopping the attacks on its proxies in Lebanon has been a key Iranian demand in order to accept a peace deal with the US. Therefore, the development provides added reason to think the Iran war will continue.

United Kingdom: As long anticipated, Manchester mayor Andy Burnham yesterday confirmed that he will try to replace Keir Starmer as prime minister if he wins a parliamentary by-election on June 18. Labour Party rules require that anyone launching a leadership contest must be a member of parliament. However, the district Burnham will be contesting has not traditionally voted Labour, so it is still uncertain if he will have the chance to unseat the unpopular Starmer.

European Union-China-India: In a new survey by The Conference Board and the European Round Table for Industry, only 34% of corporate chief executives in the EU were optimistic that business conditions in China would improve in three or more years, while 34% were neutral and 23% were pessimistic. In contrast, 70% of the respondents were optimistic or very optimistic about conditions in India, with only 4% pessimistic.

• The figures underscore how India is increasingly being seen as a more attractive place to do business versus China.
• In turn, that could suggest better prospects for Indian stocks as well.

India: To shore up the depreciating rupee, New Delhi today said it will end a 12.5% capital gains tax on government bonds held by foreigner institutions, allow foreigners to buy government bonds with maturities up to 40 years (compared with 10 years currently), and raise the current 10.0% cap on foreign ownership of publicly traded Indian companies. The investor-friendly measures are aimed at offsetting the downward pressure on the rupee that has resulted from the war in Iran and the associated spike in India’s oil import bill.

US National Security: The Financial Times yesterday revealed that AI-giant Anthropic is already making its powerful Mythos model available to the National Security Agency to launch offensive cyberattacks against US adversaries. The company is helping the NSA despite its continuing dispute with the Pentagon over what its AI models can be used for. The news suggests Mythos is so capable that the Pentagon can’t pass up the opportunity to use it despite the continued dispute.

US Stock Market: In a statement yesterday, S&P Global said it will abandon its earlier plan to change its rules for inclusion in the S&P 500 to quickly move SpaceX into the key stock index once it completes its initial public offering. By maintaining its current rules, SpaceX will have to go through a one-year seasoning period before it becomes part of the S&P 500. In turn, that will mean that index-fund investors won’t automatically have exposure to the company until sometime in 2027.

US Private Credit Industry: Investment giant Blackstone yesterday said investors in its large BCRED private credit fund had requested to redeem 10% of the fund’s assets during its most recent quarter, up from 8% in the previous quarter. The company said it would therefore reverse its previous lenient policy and start enforcing a 5% cap on quarterly withdrawals going forward. The clamp-down apparently eased investor concerns about a mass wave of redemptions, allowing the firm’s share price to jump 7.5%.

US Banking Industry: In an exclusive new article yesterday, the Wall Street Journal said JPMorgan Chase, Bank of America, Wells Fargo, and other large commercial banks are planning to launch a tokenized deposit network to help them compete for assets as the White House pushes to reduce restrictions on cryptocurrencies. Importantly, the new tokenized deposit network would allow real-time, 24/7 settlements.

View PDF

by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment begins with an assessment of recent business survey reports, including the ISM surveys and the Federal Reserve’s Beige Book. We then examine the rising political costs associated with the war in Iran. Next, we discuss European efforts to initiate peace talks between Russia and Ukraine, AI-related concerns following Broadcom’s weaker-than-expected outlook, and emerging risks in leveraged loan markets as delinquencies rise. As always, we include a review of recent domestic and international economic data releases.

Economic Resilience: Recent data suggests that AI-driven investment momentum continues to support growth. The latest Fed Beige Book and ISM Services survey indicate that the economy remained in expansion territory in May. Firms appear to be accelerating purchases in anticipation of potential supply disruptions linked to the Iran conflict, while AI continues to drive greater investment. While the headline resilience reinforces the view that the economy is absorbing geopolitical shocks, it also points to emerging risks beneath the surface.

• The May ISM Services PMI rose from 53.6 to 54.5, exceeding expectations of 53.8. The gain was driven by a notable acceleration in new orders and a sharp buildup in inventories, as firms moved to meet stronger demand and preempt potential supply disruptions. Inventories climbed to their highest level since 2010. While the pickup in activity itself is not particularly alarming, it did contribute to firmer input cost pressures, which could have implications for the inflation outlook.
• The report is consistent with the Beige Book’s characterization of overall activity as expanding at a slight to moderate pace, with manufacturing supported in part by strong demand tied to data centers and related infrastructure. While the Beige Book does not explicitly attribute this strength to policy, the pattern is consistent with the broader impact of tax incentives and elevated defense spending in underpinning activity.
• That said, there are clear areas of concern, particularly in the labor market and in sentiment. While the ADP report showed that the economy added 122,000 private sector jobs in May, surveys from both the Federal Reserve and the ISM suggest firms remain cautious about hiring. At the same time, inflation concerns continue to weigh on households and businesses, as budget constraints and margin pressures shape spending and investment decisions.
• While we remain constructive on the near-term economic outlook over the next three to six months, emerging signs of softness suggest the economy is increasingly vulnerable to a pullback. A prolonged conflict involving Iran could amplify these risks, particularly as households continue to face pressure from rising inflation and a decline in savings. At the same time, robust investment in AI-related infrastructure and technology remains a key source of support and is likely to partially offset broader moderation in consumption.

Iran Pushback: The conflict involving Iran is increasingly becoming a political liability for the White House. On Wednesday, a Republican-led House voted to restrict the president’s ability to initiate military strikes in Iran without congressional approval, marking a meaningful setback. This constraint is particularly significant given the administration’s reliance on targeted strikes to enforce its blockade in the Strait of Hormuz. In response, the White House appears to be pivoting back toward more nationalist policy positioning in an effort to rebuild political support.

• While the measure is unlikely to become law, it signals that support for the president may be beginning to erode. The Democrat-backed bill passed with the support of four Republicans, marking the first time such legislation has cleared the House after previous failures in both chambers. The vote is likely to prompt similar action in the Senate, which could further underscore growing political resistance to a conflict now entering its fourth month.
• The vote comes amid signs that the ceasefire is beginning to fray. On Wednesday, Iran launched a series of missiles targeting US airbases in Kuwait and Bahrain. While no American troops were killed, the strikes did result in at least one casualty. Although the president downplayed the incident publicly, reports suggest he may be willing to abandon the ceasefire if future attacks result in US fatalities.
• In an effort to regain momentum amid the conflict, the White House has revived nationalist rhetoric, including renewed references to territorial expansion. Secretary of State Marco Rubio noted that Greenland remains part of Denmark “for now,” echoing prior interest in acquiring the territory, while the US ambassador to Canada referred to the country as the “51^st state.” While largely symbolic, these moves highlight the administration’s attempt to rebuild political support.
• We think the longer the war continues, the greater the political toll on the president, particularly as the midterms approach. While this dynamic may increase pressure to reach a settlement, it is unlikely to compel the administration to accept an agreement that falls short of its core objective of preventing Iran from acquiring a nuclear weapon. Consequently, in our view, the risk of a prolonged conflict remains elevated.

Europe Talks: European allies are stepping up efforts to open negotiations with Putin aimed at ending the war in Ukraine. Germany, France, and the UK are expected to take the lead, seeking to ensure a meaningful role after earlier US-led talks stalled. Although Putin still appears to prefer engaging directly with Washington, he has not ruled out serious discussions with European counterparts. Taken together, these moves suggest that a diplomatic breakthrough in Ukraine may be closer than markets currently reflect.

AI Doubts? Tech shares fell after Broadcom issued a softer‑than‑expected AI revenue outlook. The company projected AI semiconductor revenue of about $16 billion for its fiscal third quarter, below consensus expectations of roughly $17.2 billion. The sharp sell‑off underscores how dependent the AI trade has become on chipmakers meeting or beating ambitious growth expectations to support elevated valuations, and may foreshadow further downside if earnings momentum starts to fade.

Credit Concerns: There are growing concerns that a default cycle may already be underway. PIMCO’s Chief Investment Officer has warned that the market could face higher losses than those to which investors have become accustomed. This comes as several financial firms caution that delinquencies may rise as leveraged buyout debt from 2021-2022 approaches maturity, even as credit spreads remain near historic lows. While systemic risks appear contained for now, the economy’s heavy reliance on credit leaves it vulnerable to a deterioration in liquidity.

View PDF

by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with our views on the newly proposed trade tariffs. We then turn to the SpaceX IPO and its implications for AI‑related trades. Next, we briefly address the recent executive order on AI risks and the progress of the US‑EU trade agreement. We also provide updates on tensions in the Middle East and the war between Russia and Ukraine. As always, we conclude with a review of recent domestic and international economic data releases.

Trade Tariffs: The White House has proposed a new round of tariffs on foreign goods as it seeks to reinstate the import taxes that were struck down by the Supreme Court earlier this year. The move follows an investigation into trade practices that alleged certain partners were handling goods produced with forced labor. Under the proposal, tariffs would be set at 10% for imports from Canada, Mexico, the European Union, Taiwan, and the UK, while imports from China, India, Japan, South Korea, and Brazil would face a 12.5% rate.

• The new tariffs come as the US seeks to maintain pressure on trade partners to honor agreements reached last year. After the Supreme Court ruled that tariffs imposed under the International Emergency Economic Powers Act were unconstitutional, the White House began searching for replacement levies grounded in a legal framework more likely to withstand judicial scrutiny, aiming to preserve its ability to use tariffs as an enforcement tool.
• The latest tariffs were introduced under Section 301 of the Trade Act of 1974. Under this framework, the administration must conduct a country‑specific investigation and provide opportunities for consultation and hearings before any measures take effect. The new tariffs are expected to begin in July, as the levies imposed under Section 122 of the Trade Act expire, and are likely to include exemptions for selected products, such as beef and coffee, depending on the country of origin.
• The overall impact of these tariffs is likely to be limited, as most firms have already adapted to similar measures. Many companies that could pass higher costs on to consumers have largely done so, while others have developed workarounds in response to last year’s tariff regime. Consequently, we do not expect a lasting or material market reaction to the new measures.

SpaceX IPO: The Musk-owned company is positioning itself to become the first major satellite and artificial intelligence firm to go public, potentially establishing a blueprint for future IPOs from companies such as Anthropic and OpenAI. The company is reportedly targeting a share price of $135, aiming to raise approximately $75 billion, an amount that would make it the largest IPO on record. A SpaceX IPO would likely serve as a key gauge of investor appetite for AI-driven businesses as the sector moves toward public markets.

• SpaceX is expected to set the terms of its IPO this week. Market participants generally anticipate that SpaceX and other AI‑focused firms will be met with strong demand when they come to market. The company has already used the deal’s prominence to push underwriting banks to accept lower fees, while employees have organized to secure specialized advisory and wealth‑management services designed to maximize the value of their post‑IPO equity.
• A move to the public markets will inevitably sharpen the focus on valuation. The company is expected to list at a multiple in excess of 100x. Recent disclosures show its AI segment posted an operating loss of $6.4 billion in 2025 and a further $2.5 billion loss in the first quarter of the current year. At the same time, SpaceX has secured sizable commitments from Anthropic that are projected to generate more than $1.25 billion in monthly payments through 2029.
• While the IPO will likely generate substantial excitement, it may also suggest that AI enthusiasm is nearing a cyclical peak. Historically, many IPOs see strong first‑day gains before fading in subsequent weeks, with some even dropping below their opening‑day levels.

AI Order: President Trump signed an order aimed at addressing AI‑related cybersecurity risks without putting the US at a competitive disadvantage. The measure is lighter than what many experts had sought, making testing of advanced AI tools subject only to a voluntary 30‑day government review rather than the tougher 90‑day process that was floated in May. Although relatively modest, it still helps lay the groundwork for more stringent AI regulations as associated risks become clearer.

Europe Trade Deal: The European Parliament has advanced the trade agreement it reached with the US, moving it closer to final approval. The deal still requires a plenary vote scheduled for June 16. Under the agreement, the EU would remove tariffs on US industrial products, while EU exports to the US would face a tariff cap of 15%. The deal is expected to help prevent a deterioration in transatlantic relations, as the White House has signaled it would move to impose new tariffs if the pact is not approved by July 4.

Iran Attacks: Tensions clearly remain elevated despite the ceasefire between the US and Iran, as evidenced by the Iranian missile strike on an airport in Kuwait. The attack follows a cooling in peace talks, with Tehran reportedly viewing Washington’s stance as an attempt to force an unconditional surrender. It also underscores the risk that any renewed fighting could spill over into neighboring states, broadening the conflict across the Middle East. The shaky ceasefire continues to support high energy prices.

Ukraine Responds: Ukrainian drones struck an oil terminal in St. Petersburg in apparent retaliation for recent Russian attacks on Ukrainian cities. In our view, the conflict cannot continue indefinitely given the constraints both sides face. Ukraine is limited by ammunition and manpower while Russia is operating under growing fiscal and economic pressure. Recent strikes of this kind look less like an escalation toward total war and more like an attempt by Kyiv to improve its leverage ahead of an eventual return to negotiations.

View PDF

by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with a discussion of Big Tech’s escalating bet on AI and its implications for the broader economy. We then turn abroad to examine the latest developments in Russia’s invasion of Ukraine. Next, we provide updates on negotiations between the US and Iran, Anthropic’s push toward an IPO, and the White House’s decision to lower select tariffs. We conclude, as always, with a review of recent domestic and international economic data.

AI Build Out: Heavy infrastructure spending remains a top priority as companies race to meet accelerating demand for compute capacity. On Monday, Google announced plans to issue equity to help finance additional data center expansion, becoming the latest firm to tap external funding for these capital-intensive projects. This wave of investment, driven by AI, continues to provide incremental support for economic growth. However, as investment continues to build, there is a risk that the economy may become increasingly dependent on AI as a key source of growth.

• Alphabet, Google’s parent company, plans to raise more than $80 billion in its first equity offering in over two decades, marking a notable shift in how large technology firms are financing elevated capital spending. Historically, these companies have relied on cash reserves and debt to fund investment. Turning to equity issuance suggests that management views its stock as a relatively attractive, lower-cost source of capital compared with traditional alternatives.

• Alphabet’s AI spending reflects a broader push across the technology sector to expand capacity in response to surging cloud demand. Major players — including Meta, Microsoft, and Amazon — are collectively committing roughly $750 billion in capital expenditures this year to scale infrastructure, raising the possibility that such spending may begin to crowd out other forms of investment. Notably, investment in data centers has already exceeded spending on public transportation in 2026.

• This scale of spending remains a key pillar of investment growth, significantly outpacing most other sectors. Recent GDP data shows that since 2025, technology investment — defined here as software, power, and communications infrastructure, and technology equipment — has largely crowded out other forms of investment. This dominance underscores both the magnitude of the AI-driven shift in the economy and the increasing reliance on it as a primary engine of growth.
• As long as the buildout continues, it should provide a stabilizing force and reduce the likelihood of a meaningful downturn. However, if that momentum were to reverse, replacing this primary engine of growth would be challenging. While we think technology exposure is good for its growth potential, we also recommend an allocation to value as a source of capital preservation, particularly during periods of heightened uncertainty.

Russia Under Pressure: There are growing signs that the tide may be turning against Moscow. Reports on Monday indicated that financial officials warned President Putin that the war in Ukraine is becoming increasingly unaffordable, with concerns it could push the fiscal deficit to unsustainable levels. Mounting tension within the Kremlin over how to continue financing a conflict now well into its fourth year highlights the difficult trade-offs facing the Russian economy and may begin to reopen the door to renewed peace negotiations.

• Pressure to rein in spending comes as Russia’s fiscal position shows clear signs of deterioration. The economy is facing a combination of weaker GDP growth, declining oil and gas revenues, and rising debt-servicing costs. While authorities have attempted to cut expenditures outside of defense and social programs, it remains uncertain whether these measures will provide a durable, long-term solution.
• While negotiations between Russia and Ukraine have largely stalled, there are signs of renewed momentum toward resuming talks. This shift comes as Russia faces mounting setbacks, with Ukraine demonstrating an ability to defend its territory and push back Russian forces. Ukrainian President Volodymyr Zelenskyy has indicated a desire to see meaningful progress by winter. At the same time, reports suggest President Trump has sought to enlist Xi Jinping’s support in pressuring Putin to return to the negotiating table.
• However, Moscow is showing little sign of backing down. On Tuesday, Russia launched a large-scale barrage of missiles and drones against Kyiv and other Ukrainian cities, following through on earlier warnings that it would carry out “systematic” strikes after urging foreign nationals and diplomatic staff to leave the capital. These attacks are part of Moscow’s effort to intensify operations and try to tilt the battlefield momentum back in its favor as it looks to regain leverage.
• There are growing indications that some form of a deal may be possible in the coming months. Given mounting economic and military strains on Russia and increasing US pressure on all parties to move toward a negotiated outcome, we see a roughly 50% probability of a ceasefire or framework agreement emerging over the next 6-12 months. If we are correct, it could provide a tailwind for global risk assets, particularly in Europe, and especially if any agreement includes easing of sanctions on Russian energy.

US-Iran Tensions: Despite renewed strikes over the weekend, both sides remain engaged in talks, though there is little sign of substantive progress. Iran has warned that hostilities could resume if Washington continues to insist on what it describes as unconditional surrender. At the same time, the White House is seeking to rein in Israeli strikes on Lebanon amid concerns that further escalation could derail negotiations. A return to open conflict would likely weigh on risk sentiment and add to volatility in energy and broader asset markets.

Anthropic IPO: Anthropic appears to be moving closer to a public offering. Reports on Monday indicated that the company submitted draft paperwork for a listing, suggesting an accelerated timeline that may be part of a broader effort to reach public markets ahead of OpenAI. Such a move could help strengthen its positioning in the race to become a leading AI provider. At the same time, the IPO will serve as an important test of investor appetite for AI, where a weak reception could begin to challenge the durability of the AI rally.

Lower Tariffs: The White House has announced plans to lower tariffs on farm and construction equipment in an effort to support industrial investment. Under the proposal, headline tariff rates would be cut from 25% to 15%, with foreign manufacturers that source at least 85% of their steel from US producers eligible for a reduced 10% rate. The measure is aimed at easing trade-related cost pressures on the economy while simultaneously boosting demand for American steel.

View PDF