by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment begins with a look at the White House’s intensifying efforts to reshape the Federal Reserve. We also analyze why the de-escalation over Greenland has not improved US-EU relations. Further analysis explores why investors are discounting corporate earnings beats, the IRGC’s consolidation of power amid Iran’s internal unrest, and the growing trade friction between the US and South Korea. As always, we conclude with a comprehensive roundup of essential economic data from the US and global markets.

The Fed’s Future: The future of the Federal Reserve took center stage on Wednesday as the administration moved to reshape the FOMC. The Supreme Court began hearing arguments on whether the president holds the authority to dismiss Fed Governor Lisa Cook following allegations of mortgage fraud. Simultaneously, the president reaffirmed his search for a successor to current Chair Jerome Powell. These developments are critical, as both outcomes will likely redefine the executive branch’s influence over independent monetary policy.

• The Supreme Court appeared skeptical of the White House’s claim that it has the authority to fire Governor Cook. Several conservative justices questioned whether such a dismissal could occur without providing Cook proper due process. The most prominent critic was Justice Kavanaugh, who suggested that the government’s argument would essentially allow a president to “dig up” accusations of wrongdoing as a pretext for removing any Federal Reserve official.
• Although the president’s power to remove members of the Federal Reserve Board remains a subject of debate, his search for a new Fed chair continues. Earlier this month, the president indicated that he is leaning against nominating Kevin Hassett. Now, it appears former Fed Governor Kevin Warsh may also be losing favor. Warsh’s advocacy for the Fed to maintain a small balance sheet places him in direct opposition to the president, who is seeking ways for the Fed to implement more accommodative monetary policy.
• The appointment of a new Fed chair won’t necessarily end Jerome Powell’s influence, as his separate term as a governor continues through 2028. While the president is expected to push for a full resignation, Powell has remained non-committal. Tensions reached a boiling point this week when Powell accused the administration of weaponizing a DOJ probe into Fed renovations as a legal pretext to force him out of the central bank.
• Despite the administration’s aggressive attempt to remake the Board of Governors, judicial skepticism suggests that the president’s influence will remain bounded by law. This check on executive power is critical for restoring trust in the Fed’s mandate. Provided that the central bank preserves its decision-making independence, the resulting policy certainty should support the greenback and temper recent spikes in market volatility.

Greenland Tensions Ease: President Trump has rescinded his threat to impose sweeping tariffs on European goods, effectively de-escalating a tense transatlantic standoff. The announcement followed a high-stakes meeting with NATO Secretary General Mark Rutte, during which the two established a strategic “framework” for bolstered US influence in Greenland and the Arctic in which the US would gain mining rights and station missiles in the region. While this agreement suggests that the immediate crisis has peaked, the underlying diplomatic friction remains.

• Following his meeting with President Trump, Secretary General Rutte clarified that the new framework focuses on regional security rather than Greenland’s sovereignty. He noted that the arrangement largely mirrors the terms established with White House officials prior to the president’s arrival. Rutte further elaborated that the agreement grants the US greater latitude to defend the semi-autonomous territory than was originally provided for under the 1951 Defense of Greenland treaty.
• While the agreement has assuaged fears of a US attempt to acquire territory from a NATO ally, it has simultaneously raised concerns about the international order breaking down. On Thursday, German Chancellor Friedrich Merz warned that Europe must prepare to become more independent and competitive as it positions itself to compete with the US. He emphasized the removal of bureaucratic hurdles to help companies operate and the establishment of a Capital Markets Union to draw more foreign investment.
• Modernizing EU operations is essential for competitiveness but faces a notoriously slow timeline. The bloc’s tendency to stall on trade deals was highlighted this week when the European Parliament referred the hard-won Mercosur agreement with South American nations to the ECJ. By seeking a judicial opinion before ratification, the EU risks a multi-year delay, underscoring how domestic pressures and legal cautiousness continue to hamper its ability to act quickly to address threats.
• The removal of the “Greenland risk” is a clear win for European stocks in the near term. However, the path toward true European independence from the US is fraught with structural challenges. We continue to see value in the region, especially if leaders move forward with a Capital Markets Union to unlock domestic investment. Although the implementation of such reforms will likely take longer than anticipated, the risk-adjusted returns for long-term holders appear favorable.

High Investor Expectations: Geopolitical uncertainty is overshadowing corporate fundamentals, leading to the worst stock reactions to earnings beats in nearly a decade. Bloomberg reports that the relative performance of firms surpassing expectations is at a low not seen since 2017. Investors are clearly looking past current profits to focus on forward-looking risks, suggesting that the momentum for traditional market leaders is fading. In this environment, we recommend increasing exposure to more value stocks.

Iranians Military Rise: The Islamic Revolutionary Guard Corps (IRGC) appears to be consolidating its power within the country. Its rising influence coincides with a surge of political unrest during which military forces have killed protesters. This consolidation has raised concerns that the IRGC’s leadership could effectively take control of the government, potentially heralding a new regime. So far, it is unclear how the US will react, but it has shown a willingness to confront any regime that might restart the country’s controversial nuclear program.

Silicon Valley Takes on Seoul: Silicon Valley investment firms are reportedly calling for diplomatic intervention to protect Coupang from an escalating regulatory crackdown in South Korea. Although headquartered in Seattle, the e-commerce giant faces intense scrutiny from Korean authorities following a massive data breach disclosed in November, which compromised the personal information of 33 million customers. Investors are concerned that the investigation is due to the government’s outsized response and is rooted in protectionism.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment begins with a deep dive into the volatility hitting the Japanese bond market. We then provide an update on the US-EU standoff over Greenland and the potential for a new round of US trade talks with China. Further analysis covers concerns regarding US tech leadership and today’s pivotal Supreme Court hearing on Federal Reserve independence. As usual, the report includes a roundup of essential economic data from the US and abroad.

Japan Bond Yields: Rising supply in the Japanese debt market is acting as a catalyst for a wider retreat from sovereign bonds. The market’s weakness stems from Prime Minister Sanae Takaichi’s decision to dissolve parliament for a February 8 election; a strong mandate would likely clear the path for a massive fiscal expansion. Since she took office in October, fears of uncurbed spending have weighed on investor appetite for long-dated Japanese Government Bonds (JGBs), a sentiment that is now beginning to infect the perceived credibility of other sovereign issuers.

• JGBs found some reprieve amid speculation of coordinated intervention by the government and the Bank of Japan. On Wednesday, the BoJ executed its scheduled bond-buying operations, providing much-needed liquidity. Meanwhile, pressure is mounting on the Ministry of Finance to alleviate supply concerns by either increasing purchases of long-dated bonds or reducing the issuance of 40-year securities.
• The spillover from surging Japanese bond yields has impacted both international markets and the domestic currency. US Treasury Secretary Scott Bessent noted that he is monitoring the fallout closely, as the situation has exerted upward pressure on US Treasury yields. Following high-level talks between the two nations, Japanese Finance Minister Satsuki Katayama announced that the US had signaled its support for currency intervention to stabilize the yen, which recently hit the critical threshold of 160 per dollar.
• The simultaneous occurrence of currency depreciation and rising government bond yields is generally viewed as a signal of deteriorating financial conditions. This “twin-track” weakness suggests that Japan must now rebuild market confidence through one of three difficult paths: achieving significantly stronger economic growth, implementing fiscal austerity, or shortening the duration of its bond issuance.

• Japan, like other major economies, may rely on reducing the average maturity of its government bonds to alleviate pressure on long-term yields. This strategy could appeal to investors wary of duration risk given the scale of anticipated debt issuance. However, it would also increase rollover risks for the government and potentially constrain the central bank’s ability to raise interest rates in the future, thereby opening the door to financial repression via higher inflation.
• The current environment of elevated government spending and political uncertainty continues to support precious metals as a portfolio hedge. We expect this dynamic to persist in the near term. However, once these macro concerns begin to recede, we anticipate a phase of price consolidation in metals, followed by a probable rotation of capital back into equities as investors seek renewed exposure to risk assets.

Europe Reaction: On Tuesday, markets sold off as escalating transatlantic tensions fueled concerns over trade friction between the US and the EU. During the Davos summit, several European leaders spoke candidly about shifting relationship dynamics. French President Emmanuel Macron accused the US of attempting to “subordinate” Europe, while EU Chief Ursula von der Leyen warned that the relationship would not return to its former state. Despite this rhetoric, there are strong indications that cooler heads will prevail.

• Market participants are increasingly concerned that the ongoing dispute over Greenland could jeopardize the EU-US trade agreement established last July. In response, the White House has announced a meeting with European counterparts to further discuss the matter. US officials expressed a commitment to reaching a “reasonable resolution” and cautioned the EU to weigh its options carefully, warning that premature retaliation could escalate the conflict and further destabilize trade relations.
• Meanwhile, a consensus on a retaliation plan has yet to emerge within Europe. While French President Emmanuel Macron suggested the possible activation of the EU’s anti-coercion tool, German Chancellor Friedrich Merz tempered those remarks, stating a clear preference for avoiding escalation with the US. Simultaneously, Italian Prime Minister Giorgia Meloni advocated for open dialogue, attributing the friction to what she described as poor communication from her American counterparts.
• Although a full-scale trade war isn’t a certainty, the White House is clearly using its economic weight to force a resolution on Greenland. President Trump has signaled that his strategy may expand beyond tariffs to secure the territory, a move that has met fierce resistance in Europe. President Macron has already pushed back, stating flatly that France will not permit the region to be bullied.
• While uncertainty remains high, we recommend staying the course in the markets. History shows that equities are resilient during trade negotiations, especially given the administration’s tendency to pivot when markets show signs of strain. We favor a diversified approach, gaining exposure to value stocks as a way to mitigate volatility. This strategy should limit some of the downside risks.

US-China Trade Talks: Trade tensions between the world’s two largest economies are showing signs of easing. On Tuesday, US Trade Representative Jamieson Greer hinted at a potential new round of negotiations with China, focused initially on expanding trade in non-sensitive goods. This development follows a Monday meeting between US Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng. A positive trade agreement would likely provide a significant boost to global risk assets.

US Tech Gap Closing: The CEO of Google DeepMind has noted that China’s top AI firms currently trail leading Western labs by about six months. This gap persists despite China developing unconventional methods to advance its models after US trade restrictions cut off access to key Western technologies. The intensifying competition is expected to drive greater investment in the AI sector as the United States works to maintain its technological lead.

Supreme Court Hearings: The US Supreme Court is set to hear a landmark case regarding the president’s authority to dismiss Federal Reserve Governor Lisa Cook. The ruling will determine whether the president can remove a Federal Reserve Board member based on allegations alone, or if the “for cause” protections within the Federal Reserve Act prevail. The case stems from accusations made by FHFA Head Bill Pulte, who alleged that Cook falsified documents to secure favorable loans — a claim Cook has denied while presenting evidence to the contrary.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with the latest on the Greenland purchase dispute, which has driven down asset values around the globe. We next review several other international and US developments with the potential to affect the financial markets today, including more evidence that re-armament is likely to boost the broader European economy and signs of weakening economic growth in China.

United States-Europe: President Trump said on Saturday that he will impose an additional 10% import tariff on all goods from Denmark, Norway, Sweden, France, Germany, the Netherlands, the United Kingdom, and Finland, effective February 1, to punish them for opposing his plan for the US to purchase Greenland. He also vowed to hike the tariffs further to 25% on June 1, which he stated would remain in place until a deal is reached.

• Trump’s anger at the Europeans was apparently sparked by a tiny deployment of Danish, German, French, British, and Finnish troops to Greenland last week to prep for military exercises designed to demonstrate to Trump that Europe can, indeed, help defend the island as he has demanded. Press reports suggest Trump misinterpreted the deployment as the Europeans thumbing their noses at him. The president later linked his tariff threat to his anger at not being awarded the Nobel Peace Prize.
• In response, legislators in the European Parliament have announced that they will delay approving the US-European Union trade deal reached last summer, which would cut tariffs on US goods flowing to the EU and EU goods going to the US.
• Earlier today, President Trump said he has agreed to discuss the crisis with various European leaders this week in Davos, Switzerland, where he is attending the annual conference of the World Economic Forum.
• The rekindling of trade tensions and the risk of further disruptions — potentially including military conflict — rattled global financial markets yesterday even as the US was closed for the Martin Luther King Day holiday. So far this morning, US stock index future prices are down more than 1.5%, European stock prices are down almost as much, the yield on 10-year Treasury notes has jumped to 4.2870%, and the dollar is down 0.3%.

United Kingdom: In parliamentary testimony today, Bank of England Governor Bailey warned that the US leadership’s threat to annex Greenland and end the Federal Reserve’s independence could pose substantial threats to Britain’s financial stability. Bailey appeared to be saying that dramatic moves in asset prices or changes in trade and investment flows have the potential to disrupt credit and payment flows in the UK, which could weigh on British stock values.

France-Ukraine: French automaker Renault today confirmed that it has teamed up with defense firm Turgis Gaillard to produce drones for Ukraine at two of its manufacturing sites. The report follows previous news that some civilian manufacturers in Germany have also taken on defense work recently. In our view, these developments illustrate how Europe’s sudden re-armament effort is likely to benefit the broader economy, including by making use of excess civilian production capacity.

Portugal: In Sunday’s first-round presidential election, António José Seguro of the center-left Socialist Party came in first with just over 31% of the vote. The result marked an upset for the expected winner, André Ventura of the far-right Chega party, who came in second with about 25% of the vote. Some observers are taking the result as a sign that support for the far right in Europe may be hitting a ceiling. Seguro and Ventura will now face each other in a runoff election on February 8, with Seguro expected to win.

Japan: Prime Minister Takaichi yesterday confirmed she will call parliamentary elections for February 8 to capitalize on her high support in opinion polls and boost her coalition’s control of the Diet. A strong win by the coalition could embolden Takaichi to push through tax cuts and spending hikes aimed at boosting economic growth. Since that would likely expand the budget deficit and boost debt issuance, Japanese government bond yields are surging today, with the yield on 10-year JGBs touching 2.330% — the highest since February 1999.

Chinese Economic Growth: The National Bureau of Statistics yesterday said China’s gross domestic product for the full-year 2025 was up 5.0% from the previous year, after stripping out price changes. That met the government’s target for the year, but GDP in the fourth quarter was up just 4.5% year-over-year, suggesting the economy was losing momentum in late 2025. The data also showed that the economy remains unbalanced, with strong growth in net exports partially offset by weak growth in domestic consumption and investment.

Chinese Population Growth: The National Bureau of Statistics also said yesterday that births in China totaled just 7.92 million, down 17.0% from the 9.54 million in 2024. That marked the lowest birth total since records began in 1949 and broke the previous record low set in 2023. Coupled with a rising death rate as the population ages, that meant that China’s total population fell by 3.39 million in 2025 to 1.4049 billion. As we have argued before, China’s poor demographics have become a key structural headwind for its economy and financial markets.

Chinese Gold Demand: With average rates on one-year deposits now down to just 0.95%, major domestic and foreign banks operating in China are reportedly expanding their offerings of gold-linked structured products with expected annual returns of 1% to 5%. The development suggests rising Chinese demand could now be contributing more significantly to the current upswing in global gold prices. If Chinese demand continues to rise, it would help boost prices for the yellow metal even further.

Indonesia: According to press reports based on confidential sources, President Prabowo has nominated his nephew to join Bank Indonesia’s board of governors, raising concerns about the central bank’s independence. As in other countries in which leaders are working to seize control over monetary policy, the risk for investors is that the central bank will cut interest rates sharply to boost economic growth and generate support for the country’s leaders, despite the risk of igniting consumer price inflation and undermining the value of the currency.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Note: Due to the holiday, there will be no Comment on Monday, January 19.

Our Comment begins by examining the resurgence of enthusiasm around artificial intelligence. We then analyze key domestic and international developments, including new signals from Federal Reserve officials on potential interest rate cuts, efforts by Canada and the European Union to diversify trade partnerships, and a proposal to advance Ukraine’s EU membership. We also explore a potential tax policy change that could affect sovereign wealth funds. The report concludes with a roundup of essential economic data from the US and abroad.

Chip Demand: AI stocks found fresh momentum following a stellar performance from TSMC. As the world’s leading foundry, TSMC’s ability to “drastically beat” expectations serves as a validation of the ongoing AI buildout. The company’s upgraded 2026 revenue outlook of 30% and its massive $52–$56 billion capital expenditure budget suggest that the hardware cycle is far from over. This guidance has bolstered confidence in the sector, proving that demand remains robust despite broader macroeconomic uncertainty.

• The robust results have helped soothe investor concerns regarding AI fatigue, which had begun to weigh on the market after two years of exponential growth. The company’s increased spending guidance serves as a powerful vote of confidence, suggesting that the infrastructure cycle is still in its expansionary phase rather than nearing a peak.
• Additionally, the capital expenditure from TSMC and other technology heavyweights is expected to provide a significant tailwind for the broader economy. As noted in our latest Asset Allocation Bi-Weekly Report, economic growth has become increasingly reliant on AI investment, which served as a crucial stabilizer during the uncertainties of 2025. This sustained spending provides strong evidence that the current expansion could accelerate throughout the year.
• Nevertheless, significant headwinds remain that could dampen this momentum, particularly as AI infrastructure becomes an increasingly sensitive political issue. Developers are struggling with data center buildouts due to acute shortages of power and critical components. Simultaneously, firms are facing growing a political push to pay a premium for energy usage, as regulators seek to mitigate the upward pressure that industrial demand is placing on household utility costs.
• The AI-driven bull market still shows strength, yet the need for portfolio balance is increasing. We have noted a recent shift toward broader market participation, which helps alleviate concerns regarding extreme sector concentration. This rotation is uncovering opportunities in quality companies that were previously overshadowed by AI. As such, we suggest investors look toward these “undervalued” segments to build a more resilient, diversified portfolio.

Fed Talk: Despite positive economic signals, key Fed officials are tempering expectations for near-term rate cuts. On Thursday, Atlanta’s Raphael Bostic and Kansas City’s Jeffrey Schmid stressed the need for ongoing restrictive policy amid lingering inflation. Conversely, Chicago’s Austan Goolsbee reiterated the 2% inflation goal but indicated potential future easing if the cooling trends continue. The comments precede a standard pre-meeting media blackout before the FOMC convenes on January 26.

• The latest data suggests a shift in the Federal Reserve’s priorities. With inflation showing signs of stabilizing, the focus is turning toward the maximum employment side of their mandate. Recent reports underscore this resilience: Initial jobless claims fell to a low of 199,000 last week, while the Chicago and Philadelphia Fed surveys both pointed to accelerating economic activity. These figures suggest the economy may be heating up again, complicating the need for future rate cuts
• At the same time, concerns are mounting over the reliability of the latest inflation figures. Although the CPI has shown improvement, critics argue the data may be skewed. Because of the government shutdown, some categories, such as shelter costs, were simply carried over from the prior month rather than updated with new data. This “downward bias” suggests that inflation might actually be higher than the current reports indicate.
• Market focus has shifted squarely onto the Fed as fears mount over AI-related spending and political overreach. Any suggestion that the White House is successfully pressuring the Fed to prioritize lower rates over price stability has provided a floor for benchmark yields. This market-led pushback has forced the administration to reaffirm Chair Powell’s position, yet the broader question of the Fed’s long-term independence continues to drive volatility.
• Due to an improving economic outlook and persistent uncertainty regarding inflation, Fed officials are likely to remain hesitant to lower the federal funds target at their next meeting. While we anticipate multiple rate cuts this year, we expect the timing to shift toward the second half of 2026, potentially following the appointment of a new Fed chair. However, this outlook remains contingent on the labor market as any significant signs of deterioration could accelerate the timeline for easing.

Canada Pivots to China: Canadian Prime Minister Mark Carney met with President Xi Jinping in Beijing this week, signaling a strategic effort to reduce Canada’s economic dependence on the United States. During the visit, the two leaders pledged to establish a high-level dialogue encompassing trade in oil and gas, as well as investments in nuclear and clean technology. Carney’s decision to pivot toward China underscores a growing trend of middle powers seeking greater autonomy by balancing their relationships between Washington and Beijing.

EU-Lite: The EU is drafting a proposal to streamline Ukraine’s accession process by bypassing certain stringent criteria. This framework, dubbed “enlargement lite,” would establish a two-tier system allowing smaller or conflict-affected nations to join the bloc with modified requirements. While designed to facilitate a peace settlement by satisfying President Zelenskyy’s domestic mandate, the move has rattled markets. Investors are concerned that a multi-speed Europe could dilute the bloc’s institutional integrity and complicate future fiscal integration.

Mercosur Outrage: The US has criticized a pending trade agreement between the European Union and South American nations as unfair. The deal is expected to be signed this weekend and would reduce tariffs while significantly boosting trade, particularly in meats and cheese. US officials argue that the agreement would grant the EU a monopoly over certain products, harming American farmers. This development is likely to heighten transatlantic tensions, especially at a time when the US has been seeking to strengthen its own influence in South America.

Foreign Taxes: The United States is considering changes to its tax code that would increase the tax liability of the US investments in sovereign wealth funds and certain public pension funds. This measure represents a further effort by the administration to deter countries from devaluing their currencies by limiting their ability to recycle dollar surpluses back into the United States as investments. Such a policy could place downward pressure on the dollar’s value and potentially reduce overall foreign holdings of US assets.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment begins with an analysis of the White House’s discussions on Greenland and their implications for NATO’s future. We then transition to other developments, including a breakdown of the latest Fed Beige Book and the de-escalation of tensions between the US and Iran. Additionally, we provide a brief overview of the recent decline in silver prices. The report also includes a roundup of essential domestic and international data.

Greenland Talks: Tensions between the United States and its NATO allies have escalated as the White House continues to pursue the acquisition of Greenland. On Thursday, foreign ministers from Denmark and Greenland met with US officials to discuss Arctic security concerns. While the meeting established a formal dialogue, significant disagreements remain. In a sign of sharply deteriorating relations following the visit, NATO deployed its navy to the waters surrounding Greenland.

• The primary disagreement centers on the US rationale for the takeover. The White House claims the move would enhance security for all NATO allies; however, the logic is questionable. While ownership might slightly improve the US’s ability to counter Russian and Chinese threats, the 1951 defense treaty already provides the US with the necessary access to defend the region.
• A more plausible explanation for the US action is a deep-seated distrust of multilateral organizations, particularly NATO. The White House has long criticized the alliance over chronic underinvestment in defense by member states and clear deficits in military readiness for a major conflict. Consequently, US leadership doubts that these allies would fulfill their treaty obligations to defend the United States in the event of an attack.
• Under this view, the US may perceive Greenland as a de facto protectorate, despite it being under Danish sovereignty and the NATO security umbrella. This perception has likely fostered a sense of entitlement toward the territory and its strategic assets, particularly its vast reserves of rare earth elements.
• In short, the US push to acquire Greenland may signal a broader departure from the traditional framework of alliance building toward a foreign policy defined by territorial and resource accumulation. Consequently, this move represents a more assertive — and perhaps unilateral — America than the world has encountered in recent decades.
• The fracturing of relationships with European allies represents a pivotal shift in foreign policy, perhaps signaling a transition from a benevolent to a malevolent hegemon, which we’ve written on in the past. This adjustment suggests a future where the US prioritizes resource security over diplomatic alliances, a move likely to drive a surge in the demand for industrial commodities over the coming years.

Beige Book: The Federal Reserve’s latest summary of regional economic conditions shows a slight rebound in sentiment following a period of pessimism from respondents. According to the Beige Book, a majority of districts reported that growth has accelerated from “slight” to “moderate,” while the remaining regions saw no change and one noted a marginal decline. This upswing in sentiment, emerging in the wake of the government shutdown, may signal a shift in momentum after a year characterized by persistent uncertainty.

• The improvement in economic activity appears to be driven by increased consumer spending. Much of this surge followed the end of the government shutdown, with the holiday season providing additional momentum. However, the rise in purchases appears largely concentrated among high-income households, while low-income households continue to show signs of growing price sensitivity.
• Improved sentiment has also translated into a more stable employment outlook. Most districts reported that employment levels remained unchanged from the previous period, an improvement over November’s survey, which had indicated that employment was in decline. Contributing factors include firms’ strategic shifts from aggressively limiting headcount to now prioritizing the use of temporary workers and AI implementation.
• Despite an overall positive report, price pressures remain a focal point of concern. A majority of districts reported moderate cost increases, largely attributed to ongoing tariff anxieties. As pre-tariff inventories are exhausted, an increasing number of firms have expressed a willingness to pass these costs through to the consumer. Conversely, sectors such as retail remain hesitant, fearing a pullback from price-sensitive customers.
• The rise in optimism appears to be part of a broader trend, as firms begin to look beyond immediate tariff concerns to focus on future growth. Provided there are no material changes to regulation or fiscal policy, this change should bolster the prospects for a stronger economy. While it is too soon to recommend an increase in risk tolerance, these conditions could significantly enhance the investment climate, provided this sentiment persists.

Iran Strike Avoided: Tensions between Iran and the US have slightly eased following pledges from Tehran to halt protester executions. On Wednesday, the White House signaled it would withhold planned military strikes in response to these assurances, a move that coincided with the reopening of Iranian airspace. This cautious de-escalation comes as the Iranian regime continues its crackdown on domestic protests now entering their third week. While this easement has calmed global markets and lowered commodity prices, the risk of renewed conflict remains significant.

Data Center Consumption: PJM Interconnection, the largest US grid operator, has lowered its 2027 peak power demand forecast from 164 to 160 gigawatts. This revision serves as a reality check for the “AI boom,” as PJM cited a lack of firm construction commitments or electrical service agreements for many projected data centers. The new outlook is likely to pressure energy companies whose valuations have rallied on near-term AI energy demand.

Silver Prices Decline: The White House has deferred the imposition of new tariffs on silver, a move expected to alleviate immediate price pressures on the metal. This decision follows a November directive to study silver’s national security implications under Section 232. While the president has not ruled out future duties, he has signaled a shift toward protecting domestic producers through price floors rather than broad-based tariffs. This pivot has already begun to cool “bubble” concerns that had previously sent silver prices to record highs.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with an analysis of the president’s pressure campaign on Iran, highlighting its significance for US foreign policy. We then examine key domestic initiatives, including the White House’s push to cap credit card interest rates and improve home affordability, as well as the notable geopolitical effort to acquire Greenland. We also address the global implications of China’s record trade surplus. Lastly, the report includes a roundup of essential domestic and international data.

Trouble for Iran? As protests in Iran continue, the United States appears to be positioning itself as a potential enforcer should the government’s crackdown become extreme. On Tuesday, the White House encouraged protesters to maintain pressure on the current regime and to occupy key institutions. Additionally, it offered assurances of US backing, suggesting possible intervention if Ayatollah Khamenei does not curb the violence. These comments signal another step in the president’s pivot toward a more assertive foreign policy.

• By challenging the internal stability of Tehran, President Trump is accelerating the erosion of China and Russia’s strategic reach. The recent capture of Nicolás Maduro served as the catalyst, throwing the stability of anti-US regimes into doubt. As Iran struggles to contain a brutal wave of domestic protests, Cuba stands as the next likely domino to fall, leaving the Sino-Russian alliance with fewer reliable footholds in the Western Hemisphere and the Middle East.
• Washington’s effort to flip key regional allies of China and Russia is gaining momentum. Following the ouster of Maduro, the president is balancing relations with the interim Venezuelan leadership and the Machado-led opposition to ensure a pro-US transition. These diplomatic inroads are mirrored in the Caucasus, where a new 49-year security corridor has been established, and in the Middle East, where the administration is directly engaging with the exiled former crown prince of Iran amid nationwide unrest.
• While the US has achieved recent strategic successes, these gains are not without risks. Russia, for example, has intensified its campaign in Ukraine in response to these advances and may feel emboldened to challenge NATO more directly after the conflict concludes. Meanwhile, China appears to be leveraging its influence by pressuring countries, such as Australia and Brazil, into aligning more closely with its geopolitical orbit.
• Recent US foreign policy moves, including its pointed comments on Iran, highlight a broader strategy of countering Russian and Chinese influence through expanded power projection. In our view, such actions risk provoking retaliatory measures from Moscow and Beijing, both of which are intent on solidifying their international standing. While we do not consider direct war likely, we recognize a clear pathway for miscalculation that could escalate into conflict.

Wall Street Responds: On Tuesday, the White House escalated its pressure on banks, using social media to demand they impose a one-year, 10% cap on credit card interest rates. He warned that institutions failing to comply by January 20 could face punishment, without citing a legal basis for the threat. This aggressive directive represents the latest in a series of populist economic interventions, including recent moves in housing policy, designed to deliver immediate consumer relief and improve the party’s electoral prospects ahead of the 2026 midterms.

• The president’s timing targets major banks just as they prepare to release their earnings reports. Revenue from credit card swipe fees has become a cornerstone of bank profits, driven by the widespread extension of household credit. While these fees have boosted profit margins, they have also fueled rising consumer debt and a surge in delinquencies — a trend that has now sparked calls for government intervention.
• While industry leaders have signaled their intent to contest the cap through aggressive lobbying and judicial challenges, emerging reports suggest the sector is already exploring strategic concessions. Potential compromises include a voluntary expansion of the 36% Military Lending Act (MLA) cap to all consumers and the introduction of a temporary one-year promotional rates to satisfy the White House.

• To further pressure the banks, the president has signaled his support for the Credit Card Competition Act. This legislation would require banks, specifically those with assets over $100 billion, to ensure that every credit card offers a payment network option beyond just Visa and Mastercard. This would grant merchants a choice of competing networks for processing transactions.
• Though the president’s formal power to act against financial institutions is limited, his public intimidation campaign is effectively testing the limits of unilateral executive action. If successful, it would likely embolden the White House to issue further directives, fueling an interventionist populist agenda that bypasses institutional norms and permanently expands the scope of presidential authority.
• The White House’s growing assertiveness is creating significant uncertainty for firms. This environment may compel companies to reconsider future plans as they work to ensure compliance and avoid regulatory entanglements. Consequently, equity market risks are becoming more elevated, underscoring the value of maintaining a well-diversified portfolio with exposure to both value and quality factors.

Homebuilders Under Fire: The White House has publicly criticized homebuilders for failing to sufficiently lower housing costs. The Federal Housing Finance Agency has specifically accused these companies of intentionally keeping prices elevated at the expense of potential buyers, citing their use of stock buybacks as evidence of their capacity to reduce home prices. This coordinated criticism signals to the industry that they are expected to prioritize affordability over excessive profits.

Greenland Talks: The United States continues to advocate within NATO for its ambition to annex Greenland. While the territory is already part of the alliance through Denmark, the White House has suggested that control by the US would enhance its strategic protection. These comments follow statements from Greenland’s leaders reaffirming their preference to remain under Danish sovereignty and are likely to raise questions about Washington’s commitment to NATO’s foundational principles.

China Surplus Rises: China’s trade surplus shattered records in 2025, punching through the $1 trillion ceiling for the first time to reach $1.19 trillion. This milestone confirms that manufacturers have successfully bypassed the 20% slump in US trade by pivoting toward the EU and ASEAN regions. While this shift highlights China’s increasing independence from US consumer demand, the massive global imbalance is fueling international concerns over industrial overcapacity, likely leading to a new wave of reciprocal tariffs from non-US nations in 2026.

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