by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment begins with an analysis of the US pressure campaign on Iran, then examines the growing concerns surrounding private credit firms. We next explore signs of a “New Monroe Doctrine” emerging in South America and discuss speculation over the ECB president’s potential departure. We also include a summary of key economic data from the US and global markets.

Iran Pressure: While talks between the US and Iran over Tehran’s nuclear program are ongoing, the stakes for reaching a deal are rising. President Donald Trump warned on Thursday that Iran has “10 to 15 days” to agree to terms on its nuclear program, sharpening the diplomatic deadline. Adding further fuel to tensions, Washington has ordered its largest military buildup in the Middle East since the Iraq war, a move widely seen as preparation for potential action if diplomacy fails. The heightened military posture has increased the risk of open conflict.

• The latest US moves appear aimed at signaling to Iran that it has limited leverage at the negotiating table. The renewed talks are reportedly centered on Iran’s ballistic missile program, which Tehran sees as essential to its regional power projection, but which neighbors view as a serious security threat. Iran has indicated that it is unwilling to give up these capabilities, yet Washington seems intent on testing whether that position can be softened.
• That said, it remains unclear what level of force the US is prepared to employ against Iran. Reports suggest the administration may be favoring a limited strike as a catalyst to advance diplomatic talks, an initial attack could occur within days that would likely target military and government sites. Should that prove insufficient, the strategy could escalate into a broader campaign aimed at regime change.
• The threat of a potential conflict has already drawn international involvement. Russia has vowed to respond to any new US strikes against Iran, while both Moscow and Beijing have initiated joint military exercises with Tehran. These maneuvers, aimed at ensuring operational readiness, signal that both powers could provide strategic support should a full-scale conflict with the US erupt.
• While we remain cautiously optimistic that a full-scale conflict can be avoided, the margin for miscalculation remains high. Although Iran lacks the leverage to dictate terms, the US has little appetite for a repeat of the Iraq War — a scenario that could mirror the chaos of a potential regime collapse in Tehran. Given this backdrop, we believe rising geopolitical uncertainty will provide a significant tailwind for commodity prices and precious metals.

Private Credit Concerns: Financial stability concerns around private credit have intensified following fresh restrictions at a major debt fund. On Wednesday, Blue Owl permanently restricted withdrawals from its retail-focused private credit vehicle, underscoring mounting anxiety over weakening consumer loan performance and significant exposure to software companies seen as vulnerable to AI-driven disruption. Despite the recent scrutiny, there is little evidence so far that private credit funds are being forced into large write downs on their assets.

• That said, there is likely to be growing concern about the broader private credit market, increasing the odds that it becomes a target for tighter oversight. Recent commentary from Senator Elizabeth Warren and other lawmakers has emphasized the need for stronger safeguards around complex non-bank lending, while recent Fed meeting minutes flagged vulnerabilities in the “opaque” private credit sector and its exposure to higher risk borrowers.
• For now, we assess the risk of a private credit bubble triggering broad market turmoil as low. Yet, we doubt this is the last we will hear of underlying vulnerabilities, given the trajectory of consumer credit delinquencies and the structural threat AI poses to established players. Although we expect any fallout to be limited in scope, we believe increased international exposure could serve as a useful hedge against potential vulnerabilities in the US and technology sectors.

New Monroe Doctrine: President Santiago Peña of Paraguay has emerged as a supportive voice for US policy in South America. He characterized US actions regarding Venezuela as a necessary, if imperfect, step toward restoring democracy and expressed confidence in the country’s democratic prospects. Peña has also backed US stances on Israel and anti-cartel operations. These statements support our thesis that the United States is actively seeking to solidify its regional footprint and counter China’s deepening influence.

Lagarde to Stay? ECB President Christine Lagarde has pushed back against speculation that she could step down before her term expires in 2027, telling the Wall Street Journal that her baseline is to serve out her full mandate. While she stopped short of categorically ruling out an early exit, her comments suggest no decision has been taken to leave ahead of schedule. Any premature departure would give EU leaders a chance to install a successor who is likely to focus on preserving the integrity of the currency bloc while reaffirming the ECB’s commitment to price stability.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with analysis of the latest Federal Reserve meeting minutes. We then turn to the upcoming Supreme Court ruling on tariffs, followed by updates on Iran, the US administration’s efforts to circumvent EU content restrictions, and the IMF’s push for China to reduce state subsidies. We also include a summary of key economic data from the US and global markets.

FOMC Pivot? Federal Reserve officials signaled openness to a rate hike following their latest meeting. Minutes from the discussion revealed concern that tariffs may have contributed to the recent rise in core goods prices. While some officials expressed optimism that these pressures could ease, most participants cautioned that progress toward the inflation target is likely to be slower and more uneven than previously anticipated. This caution has led some policymakers to consider further rate increases if inflation remains elevated for longer than expected.

• The decision to raise rates reflects the Federal Reserve’s growing confidence in the broader economy and its effort to closely monitor evolving conditions. Officials noted that, although hiring remains soft, there are emerging signs that the labor market may be stabilizing. They also expressed confidence in the economy’s underlying resilience, adding that productivity could strengthen further as more firms adopt artificial intelligence technologies.
• Although a few participants raised the possibility of increasing the federal funds target range, there was little evidence that a move is imminent. Most officials emphasized that policy is not on a preset course, favoring a steady approach at current levels. However, the more hawkish members advocated for language that recognizes a “two-sided” policy path, leaving the door open to additional rate hikes if inflation remains above target.
• The Fed meeting minutes suggest that policymakers view the current federal funds target as being within the range of estimates of the neutral rate, giving them flexibility to take their time before deciding on further rate cuts. The minutes also indicate that officials are paying closer attention to financial stability, with several members highlighting vulnerabilities in private credit markets and in the debt financing of AI-related infrastructure as areas that warrant ongoing monitoring.
• While the minutes indicate that the FOMC is unlikely to cut rates anytime soon and remains noncommittal about the timing of any potential easing, markets appear to expect the first cut as early as June, with two reductions currently priced in for the year. Whether the market’s expectations prove accurate will likely influence the dollar’s performance, as much of its recent depreciation has been driven by widening interest rate differentials with other major economies.

• At this point, we tend to side with the market’s view that the central bank is likely to cut rates more than the minutes suggest. For one, there are increasing signs that inflation is steadily moving toward the Fed’s 2% target. Additionally, while the latest BLS payroll report continues to show labor market strength, the ADP private payroll data points to emerging weaknesses. Taken together, these factors support our view that the Federal Reserve’s rate-cutting cycle still has room to run.

Supreme Court Tariffs: The US Supreme Court is expected to come out with a new set of rulings starting Friday focused on tariffs. Justices are set to give rulings on Friday, Monday, and Tuesday, which could potentially rule on whether or not the White House has the authority to impose tariffs without congressional approval. The impact of the ruling could potentially overturn tariffs that were previously imposed by the government and could lead to uncertainty regarding trade policy.

• There is growing speculation that the Supreme Court may ultimately curb the White House’s ability to impose tariffs unilaterally under emergency powers. During oral arguments, conservative-leaning Justice Neil Gorsuch warned that the White House interpretation would create a “one-way ratchet” of authority from Congress to the president. He cautioned that allowing such broad tariff powers could effectively leave the president with near‑unchecked authority in this area.
• The potential overturning of these tariffs would be a setback for the White House’s trade agenda, though it is unlikely to be a fatal one. The legal challenge at hand centers on the president’s use of the International Emergency Economic Powers Act (IEEPA) to enact his “reciprocal tariffs.” However, this represents just one pillar of his trade policy, which has also relied on Section 232 for national security tariffs and Section 338 to counter discrimination against US commerce.

• However, the most significant challenge will likely concern how the government handles tariff revenues if those measures are ultimately ruled illegal. Numerous firms have already sued the government seeking refunds of duties paid under the contested tariffs, should they be invalidated. In addition, the loss of this revenue stream is likely to exacerbate concerns about the fiscal deficit, as tariffs have effectively functioned as an alternative source of federal income.
• Rolling back these tariffs would provide meaningful relief to the sectors most affected, particularly Consumer Staples and Consumer Discretionary, where margins have been under sustained pressure. This potential shift reinforces the case for diversification beyond AI‑related companies, as areas previously hurt by trade uncertainty may stand to benefit from greater clarity on policy direction.

Iran Conflict: Tensions between Tehran and Washington, which had previously appeared to be easing around potential nuclear talks, now seem to have stalled. Recent rhetoric has hardened on both sides, with Ayatollah Khamenei reportedly warning that Iran is prepared to target US ships and Washington responding by stepping up its military deployments in the region. While some of this brinkmanship likely reflects strategic posturing, the probability of miscalculation and a broader conflict has clearly risen.

Circumvent EU: The US appears to be taking steps that could undermine its allied governments in the EU. The White House is reportedly developing an online portal designed to allow users to bypass EU content restrictions, including those targeting material deemed by the bloc to be harmful — such as hate speech and terrorist-related content. The move comes as the US seeks to support the electoral appeal of right-wing parties in Europe. This development is likely to further strain transatlantic relations and could accelerate the EU shift toward strategic autonomy.

IMF Callout China: The International Monetary Fund has urged China to cut its industrial subsidies to 2% of GDP, roughly half of current levels. The organization criticized the excessive use of subsidies, warning that they may create spillover effects across the broader economy and contribute to China’s heavy reliance on exports. The IMF’s recommendation comes amid growing pressure from Western nations, particularly the United States, which argues that China’s industrial policies have created unfair market outcomes.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with our take on the EU’s efforts to safeguard its institutions from the far right. We then examine the escalating fight over data centers heading into the midterm elections. Next, we discuss how software companies are working to calm AI fears, signs of progress in Iran-US talks, and a possible tax on social media platforms. We close with a summary of key economic data from the US and global markets.

Far Right Fear: As Europe braces for a potential surge in far‑right influence, attention is increasingly turning to the guardians of its institutions. In a bid to shield the euro’s credibility from future populist governments, policymakers are reportedly weighing leadership changes at the European Central Bank and other key institutions. This kind of defensive maneuvering speaks to a deeper anxiety that the bloc’s political cohesion is eroding, casting fresh doubt over the single currency’s long‑term trajectory.

• A key sign of this preparation is the rumored early departure of ECB President Christine Lagarde. Although her term does not officially end until April 2027, there is growing speculation that she could step down sooner, allowing European leaders to install a firmly pro‑EU successor ahead of France’s national elections next year. While no timetable has been announced, expectations are coalescing around a possible exit as early as this summer.
• Her anticipated resignation comes amid mounting discontent with incumbent lawmakers, whose popularity has deteriorated across the European Union, particularly in France and Germany. The French prime minister’s approval rating has fallen to historic lows, while support for Germany’s ruling CDU/CSU has eroded as voters gravitate toward ascendant populist parties such as the AfD and the Left Party, raising the prospect that movements once seen as fringe could move firmly into the European mainstream in the years ahead.

• The mounting fears have led to a push to help make changes to central banks within countries as well. French Central Bank Governor François Villeroy de Galhau is already looking to step down before his term ends in October 2027. While Klaas Knot, the former Dutch central bank chief, is considered a frontrunner for ECB president, Bundesbank President Joachim Nagel is also a top contender, which is a scenario that would allow German Chancellor Friedrich Merz to appoint Nagel’s successor.
• The push to insulate the ECB from rising populist influence should help underpin the euro’s relatively strong performance against the dollar, for now. That could change, however, if right‑wing governments gain enough power to reshape the bank’s structure or dilute its price‑stability mandate — moves that would likely damage the ECB’s credibility and, over time, weigh on the currency.

Data Center Fight: As the midterm elections draw nearer, the rapid expansion of AI infrastructure is coming under heightened political scrutiny. A recent Politico/Public First survey found that nearly half of respondents believe data center development will emerge as a key campaign issue, reflecting growing public concern over the environmental and physical footprint of these facilities. While lawmakers tout such infrastructure as critical to “winning the AI race,” local communities are increasingly pushing back against the real-world costs of hosting it.

• According to the survey, more respondents favor data center construction than oppose it, provided there is no negative impact on their utility costs. Specifically, 37% of respondents supported it, 28% opposed it, and 28% remained undecided. However, a majority of those who initially backed construction stated they would reverse their position if the development resulted in a monthly bill increase of $25 or more.
• The rise of data center corridors follows a surge in infrastructure spending pledged by major tech companies. Currently, the highest concentrations are in Virginia, Texas, and California — states that have become primary targets for investment and are likely to serve as crucial battlegrounds for policy and voter influence.
• To prevent policy reversals, tech companies have begun engaging more directly in the political arena. The super PAC Leading the Future plans to invest heavily in election outcomes to ensure project continuity. Simultaneously, firms like Anthropic are taking proactive measures, such as pledging to cover electricity costs and grid upgrades to shield local communities from the infrastructure’s secondary impacts
• The upcoming midterm elections will likely provide significant insight into the direction of AI development as the industry pushes to expand capacity. While AI-related stocks maintain strong momentum and command a major share of the S&P 500, we believe overlooked sectors offer superior value. This is driven not only by a comparative lack of political risk but also by more attractive valuations.

AI Uncertainty: The market continues to grapple with growing uncertainty over how AI will ultimately affect corporate earnings. In response, a handful of software companies, including cybersecurity firm McAfee, have released earnings ahead of schedule to reassure investors and lenders that their businesses remain resilient to the newly deployed AI tools. Executives have stressed that they are still generating solid demand even as AI systems become more capable of replicating elements of the services and workflows they provide.

Iran Deal Progress: The two sides appear to be edging closer to a deal, even though key issues remain unresolved. Officials in Tehran say they have agreed with Washington on the broad guiding principles of an accord, signaling that a pathway to de‑escalation exists despite the absence of a finalized text. At the same time, Vice President JD Vance has highlighted remaining roadblocks, suggesting the US is still pressing for additional concessions. Any meaningful easing of tensions would likely reduce pressure on commodity prices.

Social Media Tax: Illinois is weighing a proposal to tax social media companies operating within the state. Under the plan, these platforms would pay a monthly fee based on the number of users whose data they collect, and they would be prohibited from passing the cost on to users. The measure is expected to generate roughly $200 million annually, helping to address the state’s budget shortfall. This proposed tax reinforces our long-standing view that investors should diversify into other sectors to reduce concentration risk.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with an overview of current dynamics in both the US stock market and the commercial office market. We next review other international and US developments that could affect the financial markets today, including a conciliatory speech by US Secretary of State Rubio at the Munich Security Conference over the long weekend and signs that Japanese Prime Minister Takaichi isn’t resisting further interest-rate hikes by the Bank of Japan.

US Stock Market: As of this writing, stock index futures are pointing to another sizable price decline in technology shares today, with many trading down more than 1%. One apparent factor is a new Bank of America survey showing that the share of major fund managers who believe companies are currently over-investing is now at a record high. The survey results will feed into growing concerns about a bubble in investment related to artificial intelligence. As a result, investors will likely continue to rotate into value sectors such as Consumer Staples.

US Commercial Office Market: According to new data from Trepp, the delinquency rate for office loans in commercial mortgage-backed securities climbed to a record 12.34% in January. As lenders increasingly conclude that today’s lower office demand is permanent, the data suggests they are abandoning their “extend and pretend” strategy that artificially held down delinquency figures over the last couple of years.

• All the same, the debt on some property types, including industrial buildings and grocery-anchored retail centers, continues to perform well, as those building benefit from steadier demand and more resilient cash flows.
• In any case, the high office delinquencies serve as a reminder that some sectors of the economy are facing increased stress, even if overall economic growth surprises to the upside.

US Financial Regulation: In a speech yesterday, Fed Vice Chair for Supervision Bowman said the central bank will adjust its rules to encourage banks to get more involved in mortgage origination and servicing, potentially reversing some of the migration of mortgage activity to non-banks over the past 15 years. The move is designed to boost the supply of mortgages and bring down mortgage costs. This adjustment would be on top of the administration’s broader action to deregulate the banking sector, which is expected to boost bank profits and stock values.

US Fiscal Policy: Congress on Friday failed to meet a deadline to pass a full-year funding bill for the Department of Homeland Security, leaving the agency in a technical shutdown. However, most of the department’s functions, such as the Transportation Security Administration’s security screenings at airports, will continue with workers being unpaid. For now at least, the limited governmental shutdown is expected to have little if any significant impact on the economy or financial markets.

US-European Security Policy: At the Munich Security Conference over the weekend, US Secretary of State Rubio delivered a relatively conciliatory speech aimed at assuring European leaders that Washington has no intention of abandoning them. The speech was reportedly a relief after the much more hard-hitting speech of Vice President Vance last year, but reports say many European leaders are still skeptical of US intentions given that Rubio also brought up several criticisms of Europe that Vance had made.

• At one level, Rubio’s relatively warm speech may simply reflect his personality versus that of Vance. Historically, Rubio has been much more supportive of traditional US foreign policy. Since other officials in the US administration remain much more hawkish, and since the Europeans can’t “unsee” US moves to date (such as the threat to take over Greenland), we suspect the Europeans will continue looking to rearm, boost economic growth, and fend for themselves.
• As we have argued in the past, adopting more stimulative economic policies and boosting defense spending will likely be positive for European stocks going forward, especially in the defense sector.
• All the same, we have also argued in the past that pushing the Europeans to fend for themselves is a risk, given that the effort will weaken US influence over the Europeans and spur them to take actions potentially at odds with US interests.
• For example, European leaders at the Munich conference openly discussed how they are starting to discuss developing an independent European nuclear arsenal. This is consistent with our view that the evolving US foreign policy could well spark a new, global nuclear arms race (which, incidentally, would likely be positive for uranium prices).

European Union-China: The European Commission has drafted new legislation to protect its key manufacturing industries from low-priced Chinese goods. One change would require electric vehicles to consist of at least 70% EU content to be eligible for public subsidies. Under another rule, at least 25% of products made from aluminum and 30% of plastics used for windows and doors in the construction sector must be manufactured in the EU to qualify for public subsidies or benefit from public contracts. The laws are likely to worsen EU-China trade tensions.

China: Late Friday, the Wall Street Journal carried an interesting article showing that Chinese state-owned companies have been actively selling down their positions in high-flying technology stocks. According to the article, the sales reflect government pressure to help prevent any destabilizing bubble in the stocks but allow for a “slow bull” market. The effort could potentially keep Chinese tech stocks looking attractive even if prices for US tech shares falter more substantially.

Japan: Prime Minister Takaichi and Bank of Japan Governor Ueda met briefly yesterday to discuss the country’s general economic and monetary situation, but Ueda later insisted to reporters that the prime minister didn’t make any particular request regarding monetary policy, just as she refrained from broaching the topic of interest rates in their initial meeting in November. If true, that suggests Takaichi is satisfied with the slow pace of BOJ rate hikes and implies that investors should expect more of the same so long as the Japanese economy continues on its current path.

• Separately, data yesterday showed Japanese gross domestic product grew at an annualized rate of just 0.2% in the fourth quarter of 2025, little more than one-tenth the expected growth rate. Since Japanese GDP contracted at a rate of 2.3% in the third quarter, the data suggests the economy barely avoided the conventional definition of recession in the second half of the year.
• All the same, Japanese GDP in full-year 2025 rose a healthy 1.1%, marking its best annual growth since 2022.

United Kingdom: In data released today, the national unemployment rate in the three months ended in December rose to a five-year high of 5.2%, up from 5.1% in the previous three-month period. Youth unemployment rose to 16.1%, the highest in more than a decade. The figures reflect the on-going slowdown in British economic growth, which is now widely expected to push the Bank of England to cut interest rates again as soon as March. In response, the pound has continued its recent depreciation, falling 0.7% so far today to $1.3539 per dollar.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

NOTE: There will be no Comment on Monday, February 16 due to the holiday.

Our Comment opens with our take on the recent “AI scare trade” and its role in amplifying market volatility. We then examine the EU’s push to reduce its security dependence on the United States. Next, we discuss White House pressure on firms to align their business models with its policy agenda, Kevin Warsh’s increasingly contentious confirmation battle, and Moscow’s bid to regain access to the US dollar system after the Ukraine conflict. We close with a summary of key economic data from the US and global markets.

AI Transition: AI may be entering a new phase in its product cycle. Renewed concerns about profitability across the tech sector sparked a broad equity sell‑off on Thursday, following Cisco’s earnings report that, despite solid sales, signaled margin pressure from rising memory‑chip costs. Investors also appear increasingly cautious about potential disruptions to established business models as AI‑driven efficiency gains reshape corporate operations. The retreat comes amid mounting doubts about the durability of the recent market rally.

• In its latest quarter, Cisco delivered a clear “double beat,” with revenue and earnings per share both coming in ahead of expectations, underscoring solid demand across its networking and AI‑infrastructure portfolio. The company also lifted its full‑year outlook, signaling confidence in its order pipeline. However, investors remain focused on signs that profit margins are being squeezed, as rising memory chip and other component costs weigh on gross margins and are expected to remain a headwind in coming quarters.

• These profitability and disruption fears are weighing not only on AI market leaders but also on established companies perceived to be vulnerable to replacement by emerging AI tools. The latest market move was triggered by former karaoke-equipment maker Algorhythm Holdings, now repositioned as an AI logistics firm, which announced a new AI tool designed to reduce “empty miles” and significantly boost productivity. The news sent trucking and logistics stocks into a steep decline.
• Growing anxiety about how AI will affect profitability across sectors has helped fuel a broad “AI scare trade” in equity markets, with investors dumping stocks seen as vulnerable to AI‑driven disruption or heavily exposed to AI‑related spending. The sell‑off has been most pronounced in the United States, where high‑profile tech names, elevated valuations, and rapid AI adoption have amplified concerns about earnings sustainability and competitive pressures.
• While we believe the AI trade may still have some momentum, activity over the last few months suggests the sector is moving closer to a maturity phase. As a result, we view the recent volatility in tech as part of a natural shakeout, with investors moving away from hype and beginning to distinguish the winners from the losers. This is why we advocate for portfolios to broaden their exposure, including increasing international allocations, which could help balance the specific US tech risks associated with this transition.

European Independence: There are growing signs that Europe is seeking to make itself less dependent on the United States for its security, with renewed debate over a more autonomous European defense posture. A new survey published this week shows that key NATO countries increasingly view the US as an unreliable ally and doubt that American power can still effectively deter their adversaries. This erosion of confidence has led the bloc to take steps to ramp up its defense capabilities.

• Europe’s push to shore up its own security is also spurring investment in advanced defense technology. France and Germany are in early talks with aerospace firm ArianeGroup about a proposed land‑based ballistic missile system intended to enhance Europe’s long‑range strike and deterrence capabilities. The company has also been in the spotlight for successfully flying the most powerful configuration of its Ariane 6 launcher, which recently lifted off under a European Space Agency mission.
• Additionally, the bloc may be beginning to rethink its stance on nuclear weapons. For the first time since the Cold War, European governments and militaries are quietly discussing how they might develop their own nuclear deterrent if US guarantees weaken. Against this backdrop, there is growing speculation that French President Emmanuel Macron will deliver a new speech outlining how France’s existing nuclear force could provide broader protection to Europe.
• Europe’s changing attitude toward its own defense underscores a broader fracturing of the global order. As the US pulls back from its traditional hegemonic role and broad security guarantees, more countries are likely to step up defense spending to protect themselves. In Europe in particular, years of underinvestment mean this rearmament cycle could provide a meaningful tailwind for global defense and aerospace firms.

White House Pressure: Washington continues to signal a growing willingness to pressure private firms to align with the federal agenda. On Thursday, White House advisor Peter Navarro urged JPMorgan Chase CEO Jamie Dimon to lower credit card interest rates as part of an effort to improve household affordability. Simultaneously, the Army chief of staff warned defense contractors that they must modernize their practices or risk losing government contracts. These moves underscore a shift toward a more interventionist approach to guiding the economy.

Warsh Confirmation: Kevin Warsh appears headed for a tougher‑than‑expected confirmation battle as he seeks to take over the Federal Reserve. Senator Thom Tillis (R-NC) has warned that he will withhold support unless the Justice Department drops its investigation into the Fed’s headquarters renovation, which he argues threatens the central bank’s independence. Because Tillis holds a pivotal seat on the Senate Banking Committee, his opposition could significantly complicate Warsh’s path to confirmation.

Trade Restrictions: The White House is reportedly considering narrowing the scope of its metal tariffs. The shift comes as businesses struggle to plan around complex, hard‑to‑model tariff formulas and as the EU presses for changes as part of trade negotiations with Washington. The policy has also faced mounting criticism because much of the burden has fallen on US firms and consumers. If the administration follows through, we expect trade policy to become less restrictive in the coming months, providing a modest tailwind for manufacturers.

Moscow Wants Dollars? Moscow has floated a proposal to rejoin the dollar-based financial system as part of a broader settlement to end the conflict in Ukraine. Under the plan, Russia and the US would pursue an economic partnership that prioritizes continued fossil fuel development over a rapid shift to renewables, alongside joint ventures in other sectors designed to generate substantial windfalls for US companies. Taken at face value, the initiative suggests Moscow is seeking to rebuild and deepen economic ties with Washington once the conflict is resolved.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment begins with our take on the latest jobs report, then turns to US trade policy and why we believe further tariff restrictions are unlikely. We next discuss the CBO’s updated fiscal deficit estimate, upcoming talks aimed at ending the conflict in Ukraine, and the first projects launched under the new Japan–US investment fund. We also include a summary of key economic data from the US and global markets.

 Labor Market Story: US employment data is sending mixed signals on the labor market. The BLS reported 130,000 jobs were added in January, a sharp rebound from December’s revised 48,000 gain. However, benchmark revisions revealed a far weaker labor market in 2025 as total job growth was slashed by 69% to just 181,000, while 2024 was revised down by 24%. The disconnect between the strong monthly print and the dramatic downgrades shows that while the labor market may be stabilizing, it remains on shakier ground than previously thought.

• The January report shows that job gains remain heavily concentrated in health‑related fields, with construction also beginning to rebound. Total private payrolls increased by 172,000, driven by a combined 124,000 new positions in health care and social assistance, while construction added 33,000 jobs, accounting for the bulk of new goods‑producing employment. By contrast, most other major sectors were little changed for the month, with notable job losses in the federal government and financial services.
• While most of the recent commentary has focused on the Tech sector’s role in the economy, far less attention has gone to the steady support coming from Health Care. In 2025, Health Care and social assistance accounted for the vast majority of net job gains. This reflects the sector’s relatively noncyclical demand profile, with resilient consumption and pockets of pricing power pointing to an industry that continues to expand even as more cyclical parts of the economy softened.

• A sharper pickup in construction hiring also points to firmer investment in the broader economy, supported by a mix of reshoring efforts and generous tax and industrial-policy incentives that are driving factory, infrastructure, and data center projects. These gains could signal the early stages of more broad‑based job growth in the months ahead, even if the evidence is still tentative.
• Looking ahead, we believe the sluggish job growth of last year is giving way to a more resilient 2026. Confidence is returning, and businesses are moving forward with investment plans that were previously on hold. We are also seeing the early stages of a major “sector rotation.” As the AI hype stabilizes, investors are seeking value in overlooked areas of the market. This shift suggests that 2026 will be the year the market rally finally broadens from the tech giants to the overall economy.

Trade Tensions: The White House is facing increasing pressure at home and abroad to soften its trade policy approach. In the US, lawmakers are pushing back against the president’s efforts to impose tariffs without congressional approval. At the same time, foreign leaders are expressing growing concern that a trade agreement is becoming politically risky in their own countries. Although these challenges have introduced some uncertainty, we remain confident that trade policy is unlikely to turn materially more restrictive in the coming months.

• The White House suffered two significant legislative setbacks this week regarding its trade strategy. On Wednesday, the House passed a bipartisan resolution to terminate the national emergency that was used to justify a 25% tariff on Canadian goods. This followed a Tuesday night defeat for GOP leadership, where three Republicans joined Democrats to block a procedural rule that would have prevented Congress from calling “snap votes” to repeal the president’s tariff powers until August.
• Additionally, questions are mounting over the implementation of recently announced trade deals. The White House has already eased its India fact sheet under pressure from New Delhi, shifting “commits” to “intends” on planned US purchases and removing references to agricultural pulses and digital tax changes. Meanwhile, the Indonesia framework appears to be back on track after coming under strain when Jakarta pushed for wording changes to make the deal more politically palatable.
• While these setbacks could still lead to marginal adjustments, we do not believe they signal a reversal of the broader shift toward a less restrictive trade stance. In our view, the White House appears to be moving away from escalating tariffs as its primary policy tool and is instead gravitating toward stabilizing rates at more moderate levels to ease pressure on consumers and businesses. As a result, although some countries may see their relative standing shift, we do not expect a return to the scale of disruption seen last year.
• As noted in our previous reports, an easing trade environment is likely to support a broader sector rotation. Last year, markets flocked to areas best positioned to navigate trade-related challenges; this year, we expect the focus to shift toward firms poised to benefit from the relaxation of those policies. Accordingly, we continue to see merit in adding exposure to non-AI-related sectors, which may finally receive a boost given their relatively attractive valuations.

 Deficit Expectations: The Congressional Budget Office (CBO) has raised its fiscal deficit projections, underscoring the growing urgency for policymakers to address the long-term debt trajectory. The nonpartisan agency now expects cumulative deficits from 2026 to 2035 to be roughly $1.4 trillion higher than forecast in January 2025, a revision driven largely by last year’s One Big Beautiful Bill Act and tighter immigration policies. Over time, larger deficits could potentially put upward pressure on longer-dated US government bond yields.

 Ukraine Update: Ukraine is preparing for another round of discussions on a possible settlement to its conflict with Russia. Ukrainian President Volodymyr Zelensky has indicated that negotiations have moved to the sensitive question of territory, including proposals related to a special economic zone in the eastern Donbas region, though both sides remain far apart and reluctant to make binding concessions. At this time, we continue to remain confident that the conflict between the sides appears to be coming to an end.

 Japan and US Fund: Washington and Tokyo are working to operationalize a joint investment fund aimed at developing strategic sectors in the US. Current discussions reportedly include three flagship projects: large‑scale data center infrastructure, a deep‑sea energy terminal in the US Southwest, and synthetic diamond production for semiconductor applications. The initiative illustrates how tariff and industrial policies are being used to attract foreign direct investment into strategically important industries and could provide an additional tailwind for markets.

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