by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with a discussion of the strengthening labor market. We then outline our views on tariff policy one year after Liberation Day. In addition, we provide a brief update on the US-Israeli war with Iran and examine concerns that AI investment may be crowding out other areas of capital spending. As always, we include a summary of recent US and international economic data releases.

 Labor Comeback: There are growing indications that firms are finally starting to ramp up their hiring activity. In March, the ADP private payrolls report showed that the economy added over 62,000 jobs, beating estimates of 40,000. Although the overall number remains low, the upside surprise suggests that the economy is starting to gain steam following a slowdown in which the BLS estimated that only 181,000 jobs were added during the whole of 2025. The uptick in job creation is likely to boost optimism that the labor market and the broader economy remain on solid footing.

• The reading is likely to increase positivity heading into the next payroll report, scheduled for release on Friday. While the ADP and BLS private payroll series often diverge on a month-to-month basis, they have historically tracked each other over longer time horizons. A sustained acceleration in ADP readings should eventually show up in the BLS figures — though no single report should be treated as a reliable preview of the official data.
• The Michigan Survey of Consumer Sentiment adds to the case for a firming labor market, with households reporting greater optimism about near-term job prospects. The improvement was broad-based across education levels but most striking among high school-educated respondents. A growing sense of job optimism among workers over 65 is an additional signal, suggesting improving labor conditions may be drawing older workers back into the workforce.

• This improvement is likely to reinforce the Federal Reserve’s view that the labor market is stabilizing, reducing the urgency for near-term rate cuts. Several Fed officials, including Chicago Fed President Austan Goolsbee, have indicated a wait-and-see approach, with inflation remaining stubbornly above the 2% target. This leaves the Fed increasingly focused on its price stability mandate before considering further easing.
• The improvement in the labor market is likely a welcome sign for the economy, as it should help counter concerns of a downturn. However, the resurgence could make it harder to justify a rate cut this year. While we believe the economy remains well positioned to absorb shocks, we think that a strengthening labor market, together with still‑elevated inflation, will likely keep the Fed from cutting rates at least until the summer, when a new Fed chair is selected.

 Liberation Day Anniversary: A year after the White House announced its new tariffs, uncertainty persists over both the scale and durability of these levies. The government is now in the process of issuing refunds to companies after the Supreme Court ruled that imposing tariffs under IEEPA exceeded the president’s authority. At the same time, the president has been exploring alternative legal statutes to reimpose similar measures. Although the broader economy has displayed notable resilience, this policy uncertainty continues to unsettle business owners.

• The president is expected to announce two tariff changes in the coming weeks. He is scheduled to introduce new tariffs on Thursday targeting pharmaceutical companies that have failed to reduce drug prices. In addition, the White House is preparing to overhaul existing steel and aluminum tariffs by shifting the focus toward finished products, with the administration aiming to impose a 25% duty on goods manufactured using non‑US inputs.
• The move comes as the White House seeks to bolster the effectiveness of its trade measures following heightened legal and political scrutiny. Pharmaceutical firms have so far failed to bring US drug prices in line with those charged in other countries. Additionally, existing steel and aluminum tariffs have drawn criticism for effectively penalizing domestic manufacturers that must purchase higher‑priced US metal even as foreign competitors continue to access cheaper overseas supplies.
• That said, firms are still in the early stages of adapting to the current tariff regime, relying on product mix shifts, supplier diversification, margin compression, and selective price increases to absorb costs. At the same time, firms have found additional cost savings through technology adoption, which has boosted productivity and reduced the need to hire more workers.
• While uncertainty persists, these measures have likely fostered greater resilience than what was present at Liberation Day. Since last April, it has become clear that the economic and market impact of tariffs may be less severe than originally feared. Consequently, we are less worried that tariff changes (though disruptive to specific sectors) will undermine the broader market. Our view remains that tariffs only matter if they hurt earnings or lead to tighter monetary policy.

Iran Update: On Wednesday, both the US and Iran appealed to the American public concerning the Persian Gulf conflict. President Trump asserted the US is positioned to end this war in the coming weeks and vowed to intensify pressure on Iran. The Iranian president sent a letter expressing no ill will to the American people and stated that Iran poses no threat to the country. Both nations are strategically courting American public opinion to gain diplomatic leverage in talks.

AI Crowd out: Growing concerns have emerged that the tech sector’s aggressive push to build out AI infrastructure has come at the cost of investment elsewhere in their businesses. Microsoft is a notable example; after pausing data center development, it found itself losing ground to rivals. The setback underscores the dilemma of whether to spend heavily on AI to stay competitive, even at the risk of overcapacity. While AI investment still has momentum, there are early signs that the buildout is leading to underinvestment in other business segments.

Note: Due to the holiday, there will not be a Daily Comment published tomorrow or a Bi-Weekly Geopolitical Report published next week.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with a discussion of the US decision to de-escalate and withdraw from the Persian Gulf over the coming weeks. We then outline our views on how the resulting energy shock is affecting economies around the world. In addition to examining the new Japan–France rare earths partnership, we will highlight emerging signs of deregulation that appear to be improving liquidity conditions. As always, we include a summary of recent US and international economic data releases.

NATO Friction: President Trump announced his intention to withdraw from the Persian Gulf within the next two to three weeks, regardless of whether a deal is reached with Iran. He also singled out NATO allies for failing to assist with the mission, claiming it was their problem to fix. The decision to leave comes as the conflict has dragged on longer than the White House initially anticipated, with Iran’s ability to attack vessels proving more formidable than expected. This reality has also raised growing concerns about when the Strait of Hormuz will reopen.

• There appears to be broad agreement that Iran’s leadership is likely to remain in power. In his speech, the president declared that the United States has accomplished all of its military objectives in the region and expressed confidence that the current regime is an improvement over the one the one that preceded it. Similarly, Israeli Prime Minister Benjamin Netanyahu, in a televised address on the eve of Passover, echoed this sentiment by highlighting what he described as key achievements from the conflict.
• On Tuesday, Iranian officials stated that although messages have been exchanged through intermediaries to explore an end to the conflict, no direct negotiations have taken place with the United States. Tehran indicated, however, that it would halt hostilities if Israel and the US cease their strikes and agree to provide reparations. Additionally, it also threatened to ramp up the pressure by targeting American tech companies operating in the Middle East starting today.
• While the United States and Israel are considering a potential wind-down of the conflict, NATO allies have remained largely unwilling to become directly involved. On Wednesday, Italy denied US forces access to its military air base in Sicily. Although Italian officials described the decision as a procedural matter, it comes as Spain and the United Kingdom, both critical of the operation in Iran, have also rejected similar US requests.
• In the absence of NATO allies coming together to resolve the dispute in the Middle East, Beijing has emerged as a potential peace broker to help reopen the strait. China and Pakistan have been working on a ceasefire agreement that largely delivers on many of the demands issued by Iran. While it remains unclear whether Washington supports the gesture, the effort does demonstrate China’s diplomatic weight, as well as its potential to serve as a counterweight to the United States in the Middle East.
• A possible end to the conflict would likely set the stage for a fragile recovery as markets begin to focus on what comes next. Once hostilities subside, the full extent of the damage to energy infrastructure across the Middle East should become clearer, helping to establish a realistic timeline for restoring and normalizing operations. In the near term, this disruption is likely to benefit energy producers globally, including in the United States, as they move to fill the supply gap.

Energy Concerns: While optimism is building that the US–Israeli joint mission against Iran is beginning to de-escalate, concerns over a potential energy crisis remain elevated. Many fear that if the United States withdraws before the Strait of Hormuz is fully reopened, oil prices could spike to $200 per barrel. These risks have prompted public officials worldwide to consider policy responses and emergency measures to ease pressures from supply shortfalls, reinforcing a broader shift toward more regionalized energy supply chains.

• In Asia, where economies are heavily reliant on fuel transported through the strait, governments have scrambled to implement stopgap measures to safeguard energy access. China has imposed a fuel export ban, exacerbating supply pressures on Southeast Asian economies. In response, countries across the region have stepped up cooperation, including various forms of resource‑swapping and informal barter arrangements, in order to make more efficient use of available supplies within the region.
• Europe is likewise grappling with how to manage its emerging energy shortfall. Governments across the region are embracing an “all of the above” strategy that includes accelerating investment in renewable energy, revisiting nuclear power options, and, in some cases, extending or expanding coal use. At the same time, policymakers are advancing demand‑side measures such as incentives and guidelines for working from home to curb fuel consumption and reduce pressure on electricity and heating systems.
• Across Latin America, governments are increasingly using taxes and spending to deal with rising oil prices. Several Latin American countries — including Chile and, to a lesser extent, Colombia — have allowed fuel subsidies to shrink or prices to move more closely in line with market prices to protect government budgets. In contrast, Mexico and Brazil have gone the opposite route, using tax cuts, aid programs, and targeted fuel subsidies to shield households and key industries from the worst of the price shock.
• The push toward higher oil prices is likely to impact international equities, though we still see some opportunities, especially as the conflict winds down. We expect that international companies in the traditional energy sector could see a rebound in the short term. However, as energy prices begin to fall, we may also see some of the hardest-hit countries — particularly in Asia — start to recover. In short, we still see a case for maintaining some international exposure despite the conflict in the Middle East.

Rare Earth Partnership: Japan and France have agreed to launch a public–private partnership to refine heavy rare earths in southwest France. The initiative is part of a broader push to reduce global dependence on China for critical rare earth supplies. The partnership underscores growing Western investment and coordination around securing key strategic materials and is likely to strengthen the resilience of supply chains in both Europe and Japan.

Repo Market Functions: Wells Fargo’s recent inclusion in the short-term lending market has reinforced confidence that deregulation can help ease liquidity stress in the repo market. Since the removal of its balance sheet caps, the bank has expanded its repo lending activities, contributing to greater stability in the financial system. We expect ongoing discussions in Washington regarding regulatory capital and liquidity requirements, as policymakers consider reducing barriers that restrict banks from holding or purchasing US Treasurys.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with an update on the war in Iran, which continues to affect not only geopolitics but also economic and political developments around the world. We next review several other international and US developments that could affect the financial markets today, including a statement by Federal Reserve Chair Powell that suggests the central bank will hold interest rates steady for the time being and new data showing airport security lines are shortening now that Transportation Security Administration officers are being paid again.

United States-Israel-Iran: Reports last night said a Kuwaiti oil tanker was hit by an Iranian drone while in the waters of Dubai, sparking a fire. The attack on the tanker came hours after Iran also reportedly hit one of Kuwait’s water desalination plants. The attacks on the energy transporter and the key piece of civilian infrastructure heightened concerns that the conflict is again escalating, pushing global oil prices higher again. At the same time, President Trump has reportedly told aides that he’s willing to end the war without reopening the Strait of Hormuz.

• According to the Wall Street Journal, the president is prioritizing a swift end to the war within the four-to-six week deadline he had stated. That’s likely a political decision based on public aversion to “forever wars” like Afghanistan and Iraq. However, leaving Iran in control of the strait could keep oil and natural gas prices high, especially given that much of the energy infrastructure in the region has been damaged and will take time to repair. The resulting price inflation would also exact a high political cost.
• The administration has suggested that even if the US withdraws without opening the strait, a coalition of interested nations could launch a military campaign to do the job in the future, perhaps with US participation. However, there would be no guarantee that such a coalition would be formed or that it would be strong enough to dislodge the Iranians.
• In a social media post this morning, President Trump said countries suffering from war-induced fuel shortages should buy from the US or simply go and seize it from the strait. The post criticized other countries for not wanting to contribute military forces to open the strait, but foreign leaders are likely to be angry at being criticized for not wanting to clean up after a war they didn’t start. That will likely further erode relations between the US and its allies going forward.
• Leaving the Iranian regime in place with control over the strait would also send a dangerous signal to other potential adversaries of the US. The lesson for those countries would likely be that if they can just hold out against any attack for a month or two, the US will retreat and leave them alone.
• Separately, reports say South Korea, Thailand, and other Asian countries are increasingly restarting coal-fired electricity generation plants as the war disrupts oil and natural gas shipments from the Middle East. Indeed, we think the war will lead to continued concern about the security of Middle Eastern fossil fuel supplies and prompt increased demand for a range of other energy resources, from coal to wind and solar.
• In a more ominous sign of the economic disruption from the war, the last known shipment of jet fuel to the UK from the Middle East is expected to arrive on Thursday. Industry leaders are increasingly warning that shortages of the fuel could soon develop and eventually lead to flight cancellations if the war doesn’t come to a close.
• Because of Europe’s high dependence on natural gas-heated industrial greenhouses to grow its vegetables, high gas prices are also threatening food production beyond the impact of disrupted fertilizer supplies from the Middle East. If agribusiness and grocers can’t pass on the cost of higher gas prices, they may scale back heating, reducing the yield of their facilities.

United States-Cuba-Russia: A Russian tanker today will reportedly deliver 730,000 barrels of oil at the Cuban port of Matanzas, effectively breaking the US’s two-month energy blockade. According to administration officials, the US will now allow fuel deliveries on a case-by-case basis to avert the most dire humanitarian outcomes arising from energy shortages, such as the mass electricity blackouts that the island has been experiencing. The move may also mark US reluctance to spark a new crisis while the war in Iran is still raging.

US Monetary Policy: Speaking to students at Harvard University, Fed Chair Powell yesterday said the central bank would be inclined to hold interest rates steady and look past the energy price shock from the Iran war. However, he also cautioned that the Fed might hike rates if higher energy prices begin to boost consumer expectations for future price inflation. The statements confirm that Fed policymakers are now much less inclined to cut rates than they were before the war. In turn, that realization continues to weigh on bond values, buoying yields.

US Fiscal Policy: While Washington state previously had no income tax at all, Governor Bob Ferguson yesterday signed into law a new 9.9% tax on all income over $1 million. Revenue from the tax is earmarked for childcare programs, free school meals, tax credits for working families, and tax breaks for small businesses. The move follows a tax of 4.0% on incomes over $1 million that was imposed by Massachusetts in 2022 and may signal a greater willingness of state officials to hike taxes on the wealthy.

US Airline Industry: Following President Trump’s executive order that Transportation Security Administration officers be paid despite the continuing Congressional budget impasse, reports say more TSA officers have come to work in recent days and security lines generally shortened on Monday. However, more than one-third of officers still called out sick in Baltimore, Houston, New Orleans, and Atlanta, and the permanent resignation of others will probably keep lines longer than usual for some time to come, discouraging air travel and hurting the airlines.

Eurozone: In a preliminary estimate, the March consumer price index was up 2.5% from the same month one year earlier, accelerating from 1.9% in the year to February and marking the bloc’s highest inflation rate since January 2025. The acceleration was driven by a jump in energy prices. Excluding the volatile food and energy components, the March “core” CPI was up 2.3%, decelerating from 2.4% in previous month. The figures show how price inflation is likely to rise because of the war in Iran, potentially leading to interest-rate hikes and slower economic growth.

United Kingdom: The government is considering new legislation that would allow it to buy the inefficient, loss-making British Steel from its current Chinese owner, fully nationalizing the company to protect jobs and ensure some domestic steel production. The move illustrates how countries around the world are committing funds to protect the domestic production of key goods and boost economic resiliency. Over time, more state intervention in the private economy could potentially weigh on economic growth and hurt private firms.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with an update on the war in Iran, including discussions on Iran’s remaining weapons arsenal and potential planning for a US ground operation. We next review several other international and US developments that could affect the financial markets today, including discussions in Congress about cutting federal healthcare spending to help pay for the war and a government move in Japan to ease rules on coal-fired power plants to ease the impact of higher energy prices.

United States-Israel-Iran: As the US and Israel continued to attack Iran over the weekend, the Iranian military continued to respond with missile and drone attacks against Israel and other countries in the region. The Iranian counterattacks raise further concerns about the country’s deep arsenal of weapons and whether significant new capabilities are still being held in reserve. Meanwhile, diplomats from Turkey, Egypt, Saudi Arabia, and Pakistan met to discuss peace proposals over the weekend but with no breakthroughs.

• The New York Times yesterday quoted an unnamed US official as saying Iran likely retains thousands of Shahed attack drones and hundreds of ballistic missiles. Although the official acknowledges that no one knows for sure how many weapons Iran still has, anything in that range would suggest it can still attack and potentially keep the Strait of Hormuz closed for some time.
• In a potentially ominous development in recent days, Houthi rebels in Yemen have fired at least two ballistic missiles at Israel. Both were intercepted, but the development shows how the war could expand further. The Houthis’ military capabilities are widely seen as weakened, but their firepower could still help Iran make up for assets destroyed by US and Israeli bombardment.
• Given the Iranians’ success in hitting critical weapons systems at US military bases in the Middle East, military observers are increasingly convinced that Russia and perhaps China are providing detailed targeting coordinates to the Iranians and may also be providing knowledge or equipment to defeat US air defense systems. Such aid could expand the war, but the US has not lodged a significant public protest against it yet.
• Meanwhile, in an interview with the Financial Times yesterday, President Trump said he’d like to “take the oil in Iran,” suggesting he may send ground troops to seize control of Kharg Island, the center of Iran’s oil export industry. In what may have been an effort to prepare the US public for a prolonged occupation, he also said, “It would also mean we had to be there [in Kharg Island] for a while.”
• Separately, the Wall Street Journal has reported that President Trump is mulling a US operation to seize the 1,000 lbs. or so of partially enriched uranium that Iran is believed to have. Such an operation deep in Iranian territory would require ground troops and be extremely risky, potentially prolonging the war and impacting the president’ political fortunes in the midterm Congressional elections later this year.
• Iran’s effective closure of the Strait of Hormuz not only continues to drive up energy prices, but it is also creating shortages and boosting prices for other commodities. For example, Middle Eastern helium producers have declared force majeure and warned customers that they won’t be able to honor contracts due to the conflict. Global shortages of helium could lead to production disruptions and raise prices for semiconductors.
• In response to the developments over the weekend, global energy prices are up modestly so far this morning, with Brent crude oil changing hands at $107.37 per barrel, up 1.9%.

US Fiscal Policy: Republicans in Congress are reportedly considering cuts to federal healthcare spending to help pay for a budget bill providing as much as $200 billion to fund the Iran war and immigration enforcement. The healthcare cuts would be couched as reducing fraud and abuse, but some Republicans are concerned that the move would open the party up to election-year attacks that they’re cutting health care to pay for an unpopular war. If offsetting spending cuts or tax hikes aren’t passed, the enormous cost of the war would be added to the federal deficit and debt.

US Politics: A poll taken at last week’s Conservative Political Action Conference found that 53% of attendees support Vice President JD Vance to be the Republican Party’s presidential nominee in 2028, while 35% support Secretary of State Marco Rubio. No other Republican contender had support beyond the single digits. The results suggest Vance currently remains the leader in the race despite Rubio’s growing support.

US Private Credit Industry: New analysis reveals that four large private-credit funds marketed to individual investors by Apollo, Ares, Blackstone, and Blue Owl Capital have more exposure to the software industry than their filings suggest. Amid fears that software firms are threatened by artificial intelligence, the analysis helps explain why investors are now so eager to withdraw their funds from private-credit managers. If AI does materially undercut software firms, the funds’ high exposures would raise the risk of financial contagion, tighter credit, and a recession.

Japan: In a meeting on Friday, the government took steps to let less-efficient coal facilities take part in capacity market auctions in the fiscal year starting in April. Previously, such plants had been restricted from the auctions, where generators sell supply, in order to help tackle climate change. The new move illustrates how countries around the world are now backing away from climate stabilization policies to ensure a more diversified energy mix and better absorb the energy price hikes arising from the Iran war.

Canada: As they try to regroup from their poor third-place showing in last year’s parliamentary elections, the left-wing New Democrat Party over the weekend chose Avi Lewis as its new leader. Lewis, a filmmaker, is a scion of a leftist political dynasty that has been influential at both the national and the provincial level in Ontario. By pushing progressive policies on issues such as the environment and the fate of the Palestinians, Lewis aims to win back voters who abandoned the NDP for the Liberal Party of Prime Minister Carney.

Russia-United Kingdom: The Russian government has declared an official at the UK Embassy in Moscow persona non grata and ordered him expelled from the country for having unofficial meetings with Russian economists. The incident is likely to further strain UK-Russian relations. It will also further reduce the combined US and UK diplomatic presence in Moscow, which has made it difficult for the allied governments to understand and influence Russian foreign policy.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with a discussion of proposed reforms to US monetary policy. We then provide a fresh update on the conflict in Iran. In addition, we examine Google’s latest breakthrough and its implications for the market for memory chips, the impact of immigration crackdowns on population trends, and a new Chinese probe into US trade practices. As always, we include a summary of recent US and international economic data releases.

Fed Reform: The Federal Reserve could be set for a makeover once current Chair Jerome Powell steps down in May. The US Treasury Secretary Scott Bessent is considering ways to expand Treasury oversight of the central bank after a successor is named, with the possibility of making the Fed look more like the Bank of England. The change will likely be welcomed by Fed Chair nominee Kevin Warsh, who seeks reforms that influence not only the agency’s decision-making process but also its balance sheet management.

• Bessent is specifically targeting changes to the Fed’s operational independence. In a paper for International Economy magazine, he argued for revising how the Fed conducts quantitative easing, which he characterizes as a kind of “gain‑of‑function” policy experiment. He has also expressed support for a model of more limited interaction between the central bank and the government, similar to the Bank of England’s approach during the gilt market crisis.
• His proposals may also find support from Warsh, who had previously argued that the Bank of England manages its balance sheet more effectively than the United States. In 2014, Warsh served on a committee tasked with reviewing the Bank of England’s operations. He later praised the BoE’s practice of requiring governors to write formal letters to the chancellor to explain key decisions, arguing that this system clarifies the rationale for policy moves and enhances transparency.
• Potential changes to Fed policies are likely to intensify scrutiny over whether the central bank can maintain its independence, especially after several unsuccessful efforts to remove senior officials. Earlier this week, Jeanine Pirro, who had accused Chair Jerome Powell of lying under oath, conceded there was no evidence of wrongdoing. At the same time, questions have also emerged around the inquiry into whether Governor Lisa Cook misrepresented information on a loan application to secure more favorable terms.
• That said, whether or not the Fed will ultimately move closer to the BoE model, it does appear likely that it will keep trimming the size of its balance sheet. Fed Governor Stephen Miran has argued that, with targeted deregulation and reduced stigma around the use of the Fed’s lending facilities, the central bank could shrink its balance sheet by as much as $2 trillion without materially tightening financial conditions.
• We suspect the US Treasury and the Federal Reserve will maintain a close working relationship over the next few years as they navigate the impact of policy on long‑term interest rates. While any perception of coordination may draw scrutiny, clearer communication and more predictable operations from both institutions could help tame bond‑market volatility.

Iran Update: The war is now entering its fifth week, at the edge of the four‑to‑five‑week window the White House initially floated. On Thursday, President Trump announced that he had extended the timeline for a potential strike on Iran’s nuclear facilities, citing progress in ongoing talks. At the same time, Iran’s attacks appear to have intensified, signaling that it is not yet prepared to de-escalate the conflict. Meanwhile, trade through the strait is beginning to show signs of improvement, suggesting that there may be more that is unfolding behind the scenes.

• The president appears to be working through Middle East proxies to develop an off-ramp to the conflict. He has stated that he has been able to communicate with Iranian leadership through Pakistan, and that negotiations have so far gone well. This progress that led him to extend his deadline for targeting some of Iran’s critical infrastructure by 10 days. He later explained that the extension would allow the US to deploy as many as 10,000 additional troops to the Middle East.
• However, progress toward a deal has not yet produced a meaningful break in the fighting between the two sides. Israel and Iran continue to trade missile strikes. On Thursday, Israel announced that it had struck three of Iran’s ballistic missile and air defense systems. Meanwhile, Kuwait reported that two of its commercial ports were hit, while Saudi Arabia said it was forced to intercept Iranian missiles headed toward its capital, Riyadh.

• The conflict has nonetheless underscored Iran’s ability to disrupt traffic through the Strait of Hormuz. Despite US efforts, Washington has struggled to provide reliable naval escorts, with one analyst likening ships sailing under US or Israeli flags to “sitting ducks.” By contrast, vessels from friendlier countries such as China and India have generally found it easier to transit the strait, helping ease prices for Oman crude, which is largely shipped to Asia. Even so, new reports show that even these shipments are beginning to be turned away.
• Over the coming days, the market is expected to monitor developments more closely and may begin to price in a de-escalation of the conflict. Signs of concrete progress toward a resolution would likely facilitate a relief recovery; however, this sentiment remains fragile and could quickly reverse if market patience is tested. Given the current uncertainty, we recommend maintaining a conservative investment profile, prioritizing profitability and value over high-growth assets, as the situation unfolds.

Memory Disruption: A breakthrough from Google parent company Alphabet has triggered a selloff in memory‑chip stocks. The tech giant released a new paper describing an algorithm that could significantly increase the efficiency of the data storage needed to train and run artificial intelligence systems. If widely adopted, the innovation could reduce reliance on high‑end memory chips, which have been in short supply amid the AI infrastructure boom. That shift could be a boon for AI developers but a headwind for chipmakers.

Immigration Crackdown: The initiative to reduce immigrant populations has resulted in a contraction across 40% of US counties. This sharp demographic shift may partially explain the recent softening of the labor market. Historically, stagnant or declining population growth has weighed on overall economic expansion; however, this trend could be counterbalanced by a surge in productivity, particularly if AI adoption accelerates.

Beijing Probes US: Chinese regulators have launched an investigation into US trade practices, a move that follows the announcement of President Trump’s scheduled visit to China in mid-May. The probe is expected to focus on trade policies that disrupt global supply chains and restrictions on green technology. Furthermore, the investigation will likely define the parameters for a potential trade agreement as both sides convene to resolve their economic differences.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens by highlighting the ongoing controversy around private credit, including offering the differing outlooks for the asset class. We then provide another update on the Iran conflict. In addition, we examine a recent legal setback for social media companies and outline mounting economic concerns in Argentina. As always, we include a summary of recent US and international economic data releases.

Private Credit: While recent headlines have taken a dim view of private credit, we think the outlook is more constructive than many acknowledge. On Wednesday, Lloyd Blankfein cautioned that a single shock could prompt these lenders to reassess the value of their holdings, potentially forcing substantial markdowns after a run of failed portfolio sales. His remarks come after several firms were unable to find buyers for slices of their private asset books. However, there is more to the story than Blankfein suggests.

• The concerns are being driven by several prominent private credit firms which in February posted their weakest performances since 2022. The weakness reflects mounting scrutiny over the valuation of software‑as‑a‑service (SaaS) firms, as AI tools from Claude and others can perform comparable functions at lower costs. This threatens SaaS companies, which account for roughly one‑fifth of these lenders’ balance sheets. In response, some firms have imposed limits on client withdrawals to contain the fallout.
• A key concern for the software sector is the looming “maturity wall,” as a large wave of loans are coming due in 2027 and 2028. Many of these facilities are highly levered, making their capital structures a growing focus for investors. In response, software firms are working to demonstrate the durability of their business models — some by moving quickly to showcase sustainable profitability, others by refinancing to bolster valuations and strengthen balance sheets.
• That said, the situation may not be as dire as it is being portrayed. While major private credit firms have faced some pushback, many of the big names still outperformed the broader leveraged loan market in February. This outperformance signals that the risk to these credit funds has less to do with perceived default risk and more to do with going concern risk. In short, much of the decline in valuation stems less from present day performance and more from future earnings expectations.
• It is also worth noting that while many software companies may be in danger, AI also presents opportunities for them to pivot. Over the last few months, several software companies have begun reshaping their business models to more closely resemble AI agents, which has helped improve their outlook. One company that has been able to make this transition is Salesforce, which has shifted its software-as-a-service model to more of a service-as-software approach.
• While there is plenty of doom and gloom around AI and private credit, it is worth remembering that we are still in the early stages of both trends. That leaves time for weaker companies to adapt and potentially stage a comeback. In our view, the risks in private credit are real but likely less severe than the most alarmist headlines imply. This is a sector to watch closely but not one that should trigger outright panic.

Push to the End: The US is continuing to push for an end to its conflict with Iran by any means necessary. On Wednesday, Tehran rejected the White House’s 15‑point ceasefire proposal, which was conveyed via intermediaries including Pakistan. In response, Iran tabled its own five‑point set of conditions, which includes demands for reparations and formal recognition of its authority over the Strait of Hormuz — a proposal likely to meet the same fate. Washington, meanwhile, has intensified its military campaign even as indirect contacts persist.

• Tehran’s rejection of recent US overtures has drawn a sharp rebuke from President Trump, who is now calling for a more decisive international response. The president warned that Iran must engage seriously before “time runs out.” His remarks come as the White House signals that it is preparing for what officials are describing as a potentially decisive phase of the campaign, with options under discussion reportedly ranging from strikes on critical infrastructure, including power facilities, to the possible deployment of ground forces.
• The White House has already begun preparing for the potential economic fallout of a broader conflict. On Wednesday, the Pentagon announced that it has raised the maximum enlistment age for active‑duty service to 42 and is reportedly considering reallocating weapons systems originally designated for Ukraine to support US operations in the Middle East. Additionally, officials are running contingency scenarios for a spike in crude prices to $200 per barrel.
• What happens next is likely to carry significant repercussions for the global economy, given the potential to reshape the balance of power in the Middle East. A resulting power vacuum could fuel a more protracted conflict, particularly if the US is unable to secure meaningful cooperation from regional leaders in an effort to restore stability. While this remains a worst‑case scenario, it would also imply heightened volatility in energy markets.

Social Media Loses: Meta and Google suffered a major legal defeat over the impact of social media on mental health. A court ruled on Wednesday that their platforms created conditions that made them addictive for young users, leaving the companies liable for resulting harm. The decision marks a significant setback, raising the possibility that social media could be treated as a public health risk and subjected to stricter regulation, potentially on a scale comparable to tobacco.

Argentina Slowdown: Milei’s economic agenda appears to be running into headwinds as the broader economy softens. While his plan has centered on cutting spending to improve Argentina’s fiscal position, the strain now seems to be emerging on the revenue side. In recent months, overall growth has slowed and tax receipts have struggled to keep pace with inflation. This slowdown has raised concerns that he may need to alter policy to keep his agenda on track.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens by highlighting growing optimism that there is now a plausible pathway toward de‑escalation in the Middle East conflict. We then examine why expectations are building that the Federal Reserve may be preparing for a more hawkish policy stance. In addition, we discuss the Pentagon’s potential setback in its lawsuit with Anthropic and the emergence of Arm as a serious new rival in the chipmaking space. As always, we include a summary of recent US and international economic data releases.

 Easing Tensions? The market gained cautious optimism following signs that the White House is engaging in direct talks with the Iranian leadership. On Tuesday, President Trump suggested that negotiations were progressing, claiming Tehran had offered a “present” as a sign of good faith. While these claims were quickly undermined by additional US troop deployments and Tehran’s refusal to acknowledge talks, the market continues to hold out hope that cooler heads will prevail as it awaits an end to the conflict.

• The easing of tensions appears to be part of a White House effort to build momentum after Monday’s announcement of a five-day pause before deciding whether to strike Iran’s power infrastructure. It has been reported that the US has presented a 15-point peace plan, several elements of which Iran had previously signaled it could accept. Although it is still unclear who will attend any meetings, US officials are working to start talks with Iranian representatives on Thursday.
• While the White House has pushed for diplomacy, Iran has publicly rejected claims that it is willing to end the conflict. The failure to acknowledge talks comes as Iranian officials express distrust that the US, or even their own leadership, might use peace negotiations as a means to compromise their position or security. As a result, Iranian officials have stated they are not prepared to engage in negotiations as long as attacks continue and have warned that the Strait of Hormuz will remain closed.
• Despite Iranian resistance, there is growing international pressure to bring both sides to the negotiating table. China’s foreign minister, Wang Yi, has urged Iran to consider talks with the US, insisting the crisis should be resolved through diplomacy rather than force. At the same time, a group of Middle Eastern states, including Pakistan, Egypt, and Turkey, has moved to establish a backchannel between Washington and Tehran to facilitate potential negotiations.
• Even so, Iran has offered a limited concession, indicating it will allow non‑hostile vessels to transit the strait, amid reports it is charging fees of up to $2 million per voyage. This levy signals Tehran’s effort to assert de facto control over the waterway, while also suggesting that commercial shipments may face fewer outright blockages. On Tuesday, reports indicated that a Thai-flagged vessel successfully passed through the contested waters.
• Hopes of easing tensions have fueled a rebound in risk assets, with gold and silver prices recouping some of their recent losses. In the short term, we expect a fragile recovery that could strengthen over time as confidence grows that the conflict will end. This could lead market attention to shift from concerns about escalation to an assessment of the broader impact of the conflict. Looking ahead, investors may begin to favor companies that show earnings resilience and operational efficiency.

Fed Expectations: The sudden rise in energy and commodity prices has led to concerns that the Federal Reserve may need to make a hawkish pivot later this year. Earlier this week, Chicago Fed President Austan Goolsbee was the first to publicly state that tightening could be on the table. Speaking with CNBC, he said he could be open to a rate hike depending on how the conflict plays out. Although he also noted that rate cuts remain a possibility, his remarks show that inflation concerns are rising within the FOMC.

• Goolsbee’s comments suggest that the Fed’s focus may be shifting away from its maximum employment mandate in favor of price stability. Following the recent Fed meeting on March 17–18, Powell acknowledged that several board members could also see a rate hike in the future, though it is not the base case for the majority. However, he indicated the Fed is prepared to take appropriate action if inflationary pressures begin to build due to the Iran conflict.
• That said, even as the tone has shifted, the FOMC has also signaled that it is prepared to adopt a wait‑and‑see stance before pivoting toward rate hikes. On Tuesday, Fed Governor Michael Barr indicated that rates may need to be held steady for some time as the conflict unfolds, while Governor Stephen Miran suggested that although higher oil prices could push up goods and energy costs, he remains optimistic that the Fed could still cut rates several times this year.

• Markets are already leaning more hawkish, even as Fed officials remain non‑committal about how the Iran war will ultimately shape policy. The latest one‑month SOFR futures for December indicate that investors now expect the Fed to keep rates on hold, with some probability assigned to a hike before year‑end, whereas before the conflict, they had been pricing in as many as two cuts.
• A potential hawkish shift by the Federal Reserve is likely to remain a central theme even after the conflict ends, as the economy braces for renewed inflationary pressures in the coming months. For now, we remain skeptical that the Fed will be willing to vote for another rate hike, given the significant political pressure from the White House. That said, we have grown less optimistic about the Fed’s ability to cut rates without clear signs that the labor market outlook has begun to deteriorate.

 Pentagon Anthropic: A judge signaled that she may not side with the US government in its dispute with Anthropic. The judge overseeing the case stated that the Pentagon was using the removal of its contract as punishment for Anthropic taking its dispute public over the use of AI. The comments suggest that the government’s ability to award or withdraw contracts at will is likely to be taken up by the Supreme Court. The ongoing fight is expected to have implications for future public-private partnerships as the government gets more involved in the economy.

Chip Rivals: More companies are looking for ways to bypass major chipmakers by designing their own semiconductors. Arm appears to be making headway in this shift after announcing that it has developed its own chips, potentially allowing it to compete more directly with larger manufacturers. The company expects orders to rise following reported commitments from Meta and OpenAI. The emergence of new chip rivals is likely to accelerate as AI becomes a more prominent force in the global economy.

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