by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Good morning! The White House is once again using Friday to remind markets about its trade concerns. Today’s Comment will discuss how a provision in the tax bill could discourage foreign investment in the US, explain why the administration is crafting a backup plan for tariffs, and report on other latest market-moving developments. As always, we’ll also include a roundup of key domestic and international economic data.

Taxing Foreigners: A little-known provision within the tax bill has caused a stir on Wall Street due to its potential to hurt the US’s safe-haven status.

• Section 899 of the recently passed House legislation authorizes the US government to implement reciprocal tax measures against investors and corporations from countries found to maintain discriminatory tax practices targeting American entities. The provision’s broad scope could significantly affect both: (1) US-domiciled firms with substantial foreign ownership, and (2) multinational corporations maintaining operations or investment ties in the US.
• The measure appears primarily targeted at the European Union, which US officials have accused of maintaining discriminatory policies against American companies. The White House has repeatedly urged the EU to reform its Value-Added Tax (VAT) system, arguing it creates unfair trade advantages for member states. This tension has escalated as several EU countries (most recently Germany) have moved forward with proposed digital taxes that would disproportionately affect US tech giants like Meta and Google.

• However, the provision contains significant ambiguity regarding its application to US Treasury securities. While the legislation clearly subjects foreign holders of equities and corporate bonds to potential levies, it fails to clarify whether purchases of government debt — traditionally exempt from such taxation — would also become taxable. The lack of clarity could create an incentive for foreign investors to purchase even more US government bonds.
• This law essentially functions as a form of capital control. Its underlying rationale likely stems from a desire to pressure foreign elites into advocating for US interests, particularly regarding regulatory restrictions. By targeting influential individuals who comply with laws that disadvantage American companies, the US is effectively leveraging financial coercion. The potential impact is twofold: It could drive increased investment into US Treasurys, or it trigger capital outflows from equities.

Trade Developments: The Trump administration has received a reprieve from the courts on its tariffs but is already searching for a backup as it looks to regain leverage in trade talks.

• A US federal appeals court has lifted the hold on global tariffs, clearing the way for the White House to escalate the issue to the Supreme Court. This decision is expected to reinstate the president’s import tariffs, reinforcing his push to reshape US trade policy. However, the long-term viability of these levies remains uncertain. The reprieve came after two separate rulings deemed the administration’s approach as unlawful.
• As noted in yesterday’s comment, the president has options should the tariffs be deemed unconstitutional. The administration is exploring the use of the Trade Act of 1974, which permits temporary tariffs of up to 15% for 150 days to rectify trade imbalances. Additionally, the White House is preparing to leverage Section 301, which grants the US authority to investigate and retaliate against unfair trade practices. There have also been discussions about invoking the Smoot-Hawley Tariff Act of 1930 as a potential fallback.

• That said, the ruling has significantly impacted perceptions of the US’s capacity to negotiate effectively with its trading partners. While the US and the European Union have committed to ongoing dialogue in an effort to resolve their trade differences, discussions between the US and China have, by contrast, reportedly reached an impasse. Following the court’s decision, President Trump sharply criticized China for failing to meet its trade agreement commitments.
• The ongoing tariff dispute is likely to fuel further market uncertainty regarding future trade policy. Investors now face a dual challenge where they must not only assess whether new tariffs will be implemented, but also whether existing ones will remain in place. This persistent ambiguity will disproportionately pressure firms with significant trade exposure. Given these conditions, we maintain that the most compelling opportunities lie in companies with resilient earnings power and fortified supply chains.

Monetary Policy Dilemma: President Trump and Fed Chair Powell met this week for the first time since November 2019 to discuss the economy.

• During the meeting, President Trump pressed Chair Powell to cut interest rates at the upcoming FOMC meeting, arguing that the US should align with other central banks’ policies. However, the Fed chair avoided signaling any commitment to the president’s demands, instead emphasizing that the Fed’s decisions would remain data-dependent and based on economic developments.
• The challenge confronting the president and Federal Reserve officials is the impact of US tariffs on both the domestic and global economies. Tariffs, or import taxes, serve two main purposes: revenue generation and import restriction. The latter is arguably the more complex aspect. While US tariffs have the potential to inflate domestic prices by increasing the cost of imported goods or limiting supply, they can simultaneously lead to excess foreign capacity, thereby driving down prices abroad.
• This dynamic is likely to place the Federal Reserve at a disadvantage relative to its international peers. Assuming all other factors are constant, foreign central banks possess greater latitude to implement rate cuts because the decline in exports due to US tariffs has created a surplus of domestic supply, prompting them to stimulate demand. Conversely, the reduction in foreign imports means the Fed may need to maintain higher rates to prevent increased demand from exacerbating domestic supply chain constraints.
• The key uncertainty lies in how US businesses will adapt to tariffs. Some firms may attempt to pass through higher costs, which would reinforce the Fed’s current policy stance. Others may resort to workforce reductions to mitigate the financial impact. This divergence in responses makes unemployment the potential swing factor in the tariff policy calculus.
• We acknowledge the possibility of both higher inflation and higher unemployment, but we’re not convinced they’ll trend upward simultaneously. This phenomenon, known as stagflation, typically occurs during sharp increases in energy prices, which are currently trending downward. Given the hiring trends and the limited purchasing power of households since the pandemic, we believe a cooling labor market is the most likely scenario. Consequently, we think the Fed could still cut rates this year.

Demand Optimism: Despite recession concerns, there are still signs that households may not be changing their spending habits by much.

• Recent driving data indicates that Americans hit the road in greater numbers this holiday weekend. According to GasBuddy, gasoline consumption has increased by 2% compared to the previous year. This uptick suggests households may be shifting spending away from goods and toward services — a potential strategy to mitigate the impact of rising tariffs.
• The shift toward service-oriented spending is expected to bolster the economy amid ongoing uncertainty. This trend will likely persist, provided that businesses keep prices in check. As a result, an immediate recession seems unlikely.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Good morning! Markets are actively digesting this morning’s landmark court ruling on tariffs. Today’s Comment examines how the Trump administration might respond to this latest trade policy setback, discusses the market implications of Nvidia’s stronger-than-expected earnings, and reviews other notable news moving global markets. As always, we’ll wrap up with a comprehensive overview of today’s most important domestic and international economic data releases.

No TACO For Trump: A court ruling has delivered a major setback to the US president’s trade agenda, yet his supporters are pressuring him not to retreat.

• The US Court of International Trade ruled that the president lacked the authority to impose tariffs under the emergency economic powers legislation he cited. This decision will invalidate certain reciprocal tariffs enacted on April 2, while leaving in place sector-specific tariffs on automobiles and steel. Although the White House has stated it will appeal the ruling, the verdict raises doubts about the legality of his broader tariff strategy.
• The ruling is expected to halt 6.7% of levies announced this year. However, the president appears to have alternative options to circumvent the court’s decision. According to Goldman Sachs, the administration could implement Section 122 tariffs for up to 150 days as a replacement for reciprocal tariffs, while simultaneously applying Section 301 and 232 tariffs on a country-specific basis.
• That said, the ruling could place the White House in a difficult position as it seeks to negotiate trade agreements with other nations. In recent weeks, tariff threats have successfully pressured several countries into trade discussions. Notably, the European Union, which initially pushed for complete tariff elimination, has now softened its stance, seeking reduced tariffs in exchange for concessions in other areas.

• Additionally, Trump faces mounting pressure to maintain his stance, particularly given concerns over market stability. The White House was compelled on Wednesday to push back against claims that “Trump Always Chickens Out,” a narrative that belittles the so-called “Trump put,” the perception that the president will consistently safeguard equity markets.
• While the court’s decision represents a setback for the administration, it is unlikely to be the final word on the matter as the White House prepares its appeal. Investors should therefore view the tariff reversal with caution. Our primary focus will be on the president’s response, as he may use this ruling to reinforce his protectionist stance rather than retreat. Given the potential for increased volatility, we maintain that conservative investors should adopt a wait-and-see approach in the current environment.

AI Rally Continues: Big tech stocks rallied on Wednesday after the world’s leading chipmaker reported stronger-than-expected earnings, reinforcing confidence in the sector’s growth.

• Nvidia surpassed analyst expectations with a strong quarterly revenue of $44.1 billion, marking 70% year-over-year growth despite significant headwinds from US export controls. The results comfortably exceeded Wall Street’s $43.3 billion consensus estimate, demonstrating remarkable resilience in the face of geopolitical challenges. For the current quarter, the chipmaker issued bullish guidance of $45 billion in revenue while disclosing an anticipated $8 billion hit from ongoing China sales restrictions.
• The earnings beat is poised to reinvigorate confidence in the AI rally, which has been largely driven by the seven biggest tech giants propelling the S&P 500. Recent concerns over US trade restrictions, particularly on exports, had raised fears that tech earnings could suffer and potentially dampen investment enthusiasm. Yet, Nvidia’s robust results suggest that major players remain committed to AI investments and undeterred by global economic uncertainty.

• Despite reporting robust earnings, Nvidia raised alarms over potential new US export controls on China. In a direct appeal to President Trump, CEO Jensen Huang warned that existing restrictions could completely shut Nvidia out of the Chinese market — a devastating outcome for the chipmaker’s revenue. His plea follows reports that the Trump administration is considering expanded bans, including cutting off sales of critical chip design software to China.
• The strong earnings report indicates that high-quality risk assets will remain appealing to investors navigating ongoing economic uncertainty. Companies with robust earnings growth potential and minimal foreign supply chain exposure are particularly well-positioned in this environment. Additionally, firms aligned with government strategic priorities, such as AI, present compelling opportunities for investment.

FOMC Meeting Minutes: According to its meeting minutes, the Federal Reserve opted to hold interest rates steady as it continues to navigate the economic fallout from the trade war.

• During the FOMC meeting held on May 6-7, Fed officials acknowledged they might face difficult trade-offs when deciding which aspect of their dual mandate — price stability or full employment — to prioritize. Their unease stemmed from navigating turbulent financial market conditions, including heightened volatility in equities and bonds. Adding to their concerns was the dollar’s significant depreciation, which further complicated the economic outlook.
• On a positive note, Fed officials expressed cautious optimism that households could weather the impact of tariffs. While acknowledging rising delinquencies on auto and credit card loans, they noted that household balance sheets remain fundamentally strong. Additionally, some policymakers suggested that lower energy prices might help offset trade-related pressures. There was even hope that consumer spending could gradually shift from goods to services, further easing economic strains.
• On the other hand, Fed officials also highlighted several growing vulnerabilities in the economy. One key area of concern is rising leverage within the financial sector, with banks potentially exposed to interest rate risks and hedge funds carrying significant debt. Additionally, they expressed concerns about the weakening status of US assets as a safe haven, raising questions about the economy’s long-term stability.
• Regarding policy, there appears to be broad agreement that significant uncertainty will persist until the president finalizes tariff rates. The staff economic outlook projects inflation will prove transitory, with a temporary increase this year and next before returning to the 2% target by 2027. Additionally, staff estimates suggest the unemployment rate may rise above its natural level by year-end.
• The meeting minutes indicate that the central bank may refrain from cutting rates at its next meeting and could delay rate cuts this year if inflationary pressures persist. This stance would likely push bond yields higher while dampening bond prices. Moreover, elevated interest rates may weigh on equity markets, particularly riskier assets.

DOGE Future: Tesla CEO Elon Musk has officially stepped down from overseeing the cost-cutting initiative, though the future of his efforts remains uncertain. 

• The world’s richest man has stepped down from his role to dedicate more time to his business ventures. His position as a “special government employee” was capped at 130 days, meaning it was always expected to conclude by the end of the month. While leading the Department of Government Efficiency, he was tasked with identifying cost-saving measures to reduce government spending. While he successfully uncovered some inefficiencies, the effort fell far short of his ambitious $1 trillion savings target.
• However, he has submitted a list of $9.4 billion worth of proposed spending cuts to Congress, which must now decide whether to enact them into law. President Trump has urged lawmakers to prioritize these cuts, which include reduced funding for USAID and the Corporation for Public Broadcasting (CPB), the entity overseeing PBS and NPR.
• While Musk may be departing his government role, sustained efforts will still be needed to address the nation’s fiscal challenges. We believe the growing supply-demand imbalance in bond markets is exacerbating pressure on yields, particularly for long-term bonds. Consequently, we expect the DOGE initiative to persist in promoting fiscal discipline — a critical factor in restoring confidence among bond market participants.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Good morning! The market is currently paying close attention to the bond market and Nvidia’s earnings. Today’s Comment will talk about the unexpected jump in consumer sentiment and explore the factors behind this shift in optimism. We will also examine why King Charles’ speech added to US-Canada tensions and provide updates on other key financial reports. Finally, we’ll close with a summary of today’s major international and domestic data releases.

Confidence Bounce: Consumer sentiment rebounded in May, reflecting household relief amid progress in trade negotiations.

• The Conference Board’s Consumer Confidence Index significantly outperformed expectations in May, rising to 98.0 from a revised 85.7 in April. This notable increase was driven primarily by a dramatic improvement in consumer expectations, which surged 17.4 points from a historic low of 55.4 to 72.8. The Present Situation Index also showed strength, climbing from 131.1 to 135.9, suggesting households are growing less concerned about immediate recession risks.
• The recent improvement in consumer sentiment was largely driven by reduced concerns about potential tariffs fueling inflation. Notably, inflation expectations declined from 7.0% to 6.5%, reflecting growing confidence in price stability despite tariff concerns. The survey also revealed increased consumer willingness to make major purchases, with more respondents indicating plans to buy automobiles and take vacations within the next twelve months.

• While inflation expectations have moderated, lingering concerns about economic stability persist. The labor market indicators present a mixed picture. The share of respondents reporting jobs as “plentiful” edged up modestly from 31.2% to 31.8%, while those describing jobs as “hard to get” rose more significantly from 17.5% to 18.6%. This divergence suggests continued consumer skepticism about labor market strength, despite some positive signals.
• The latest Conference Board survey indicates consumers are increasingly attuned to economic shifts. While household spending is expected to remain strong if the economy continues its positive trend, a scenario where tariffs don’t spark inflation and the labor market softens could push the Federal Reserve to ease monetary policy.

The 51^st State? The king’s recent speech in front of the Canadian Parliament has brought renewed attention to the US threat of acquiring Canada.

• In his address, King Charles III emphasized that the nation faces grave threats to its democratic institutions, rule of law, and right to self-determination. Although he did not explicitly mention President Trump by name, the timing of these remarks is significant, as they coincide with the US president’s persistent efforts to bring the country under greater American influence. This speech will likely intensify ongoing debates about Canada’s relationship with its southern neighbor and the future of bilateral sovereignty issues.
• Discussions about reshaping the US-Canada bilateral relationship come as leaders from both nations seek to redefine their strategic partnership. The two countries explored collaborating on a joint missile defense system, dubbed the “Golden Iron Dome,” which would be capable of detecting, tracking, and intercepting attacks. While President Trump has threatened to charge Canada $61 billion for access to the system, its success would depend heavily on Canada’s radar coverage and Arctic airspace access.
• Rising tensions with its southern neighbor could further pressure Canadian equities. The country is already grappling with a weakening economic outlook, including slowing job growth, subdued business optimism, and a GDP contraction in Q1. A protracted dispute with its largest trading partner would only compound these challenges, adding fresh uncertainty to an already strained market environment.

• Despite escalating tensions between Canada and its largest trading partner, the country’s benchmark S&P/TSX Composite Index continues to trade near all-time highs — even outperforming the S&P 500 year-to-date. This resilience stems from the index’s heavy weighting in Energy and Financials, sectors relatively insulated from tariff risks. While economic pressures from trade disputes remain a concern, Canada’s market strength serves as a reminder that even in politically uncertain environments, pockets of opportunity can still emerge.

Japan’s Auction Blunder: Global bond yields rose following weak demand for longer-duration security issuance in Japan.

• Japan’s 40-year government bond auction drew its weakest demand since last July, despite offering higher yields. The bid-to-cover ratio — a key gauge of investor appetite — came in at 2.21, marking the second-lowest level since the pandemic. This tepid response underscores growing market reluctance to take on longer-duration risk, particularly in heavily indebted economies.
• The tepid demand for ultra-long bonds is increasing pressure on Japan’s Ministry of Finance to rebalance its issuance strategy toward shorter-dated securities. This shift would help contain long-term borrowing costs while meeting market demand, a move already showing some effect after Tuesday’s report about potential changes to the issuance mix helped ease 10-year JGB yields.
• The weak auction also presents new complications for the Bank of Japan’s normalization path. With investors showing limited appetite for duration risk, the central bank may need to adjust its balance sheet runoff plans to prevent excessive yield volatility. This development highlights the delicate policy coordination required between Japan’s fiscal and monetary authorities as they navigate an environment of rising global yields.
• The key trend we’re monitoring is the shift toward shorter-duration bond issuance among indebted developed countries. While this move helps alleviate yield pressures on longer-duration securities, it also increases the government’s exposure to rollover risk as bonds mature. This could pose challenges if unexpected shocks drive short-term rates higher. Although we do not anticipate this scenario materializing in the near term, we will closely track this dynamic.

Big Tech’s Litmus Test: The last Magnificent 7 company will report earnings this afternoon, in what could be the next major catalyst for equity markets.

• Nvidia’s upcoming quarterly earnings report represents far more than a routine corporate update — it will serve as the most consequential barometer of AI adoption and tech sector health. As the undisputed leader in AI accelerators, Nvidia has delivered eight consecutive quarters of earnings beats, transforming each report into a market-moving event that sets the tone for the entire technology ecosystem.
• The chipmaker’s unique position at the center of the AI infrastructure boom makes its financial performance particularly revealing. With every major cloud provider and tech giant racing to expand AI capabilities, Nvidia’s results will provide critical insight into whether corporate investment cycles remain intact despite macroeconomic pressures. Strong revenue growth and guidance would confirm sustained demand for AI infrastructure, while any weakness could signal broader enterprise spending pullbacks.
• Market implications extend well beyond the semiconductor sector. A bullish report could reignite the AI trade and potentially propel the S&P 500 above key psychological resistance at 6,000, as it would validate current growth expectations. Conversely, disappointing results might trigger a sector-wide repricing, particularly for high-multiple tech stocks that have benefited from the AI narrative.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with the positive news that President Trump has postponed his threatened additional tariff hikes on the European Union, and the EU has agreed to accelerate the negotiations for a US-EU trade deal. We next review several other international and US developments with the potential to affect the financial markets today, including a welcome pause in the sell-off of Japanese government bonds and a potentially important change in the asset allocation strategy of major US university endowments.

United States-European Union: President Trump on Sunday finally had an extended phone call with European Commission President von der Leyen, which itself was newsworthy after Trump and his administration had kept the European Union at arm’s length and sharply criticized it for months. Perhaps more important, Trump also agreed to push out his deadline to reach a US-EU trade deal and avoid massive new tariffs on the EU. The deadline is now July 9. The events point to a thaw in US-EU relations, giving a boost to US and foreign stocks today.

United States-Russia: After Russia on Sunday launched a huge missile and drone attack against about 30 Ukrainian cities, killing dozens, President Trump blasted President Putin on social media, saying, “I’ve always had a very good relationship with Vladimir Putin of Russia, but something has happened to him . . . . He has gone absolutely CRAZY! He is needlessly killing a lot of people, and I’m not just talking about soldiers.”

• The rare criticism of Putin could be a sign that Trump is finally recognizing the Russian leader’s uncompromising aggression and menace he poses to European countries. Reports today indicate Trump is even considering new US sanctions against Russia.
• All the same, even if that’s the case, it’s not entirely clear how Trump’s foreign policy would really change. For example, he could still wash his hands of the Russia-Ukraine war and further cut US support for Kyiv, putting more of the burden on Europe. Alternatively, he could conceivably swing toward more support for Kyiv, potentially helping improve the security situation in Europe.

Japan: After weeks of falling values and rising yields, Japanese government bonds with longer maturities are rallying strongly today, pushing yields lower. The shift came after the finance ministry took the rare step of canvassing primary dealers and other market participants for their views on issuance. The move suggests the ministry may be preparing to scale back supply, which could help put an end to the market’s recent volatility. However, issues such as the US-Japan trade war and reduced buying by the Bank of Japan could still be a concern.

Chinese Fiscal Policy: The Chinese government has green-lighted a new 767-kilometer canal to link Jiangxi province, a center for electric-vehicle manufacturing and rare earths production, with the coastal powerhouse of Zhejiang. The canal is part of a $44-billion mega project to provide low-cost freight transport via canal between Guangdong, Jiangxi, and Zhejiang. While it’s tempting to think China has already made all the high-return infrastructure investments it needs, the canal project is considered an important step in cutting China’s high freight costs.

Chinese Electric Vehicle Industry: EV giant BYD on Monday announced a series of deep, new price cuts, one of which would drop the domestic price of its cheapest model to just $7,770. The move is expected to worsen the on-going price war in China’s EV market, so Chinese EV stocks dropped sharply yesterday. The move could also incentivize Chinese manufacturers to boost their export efforts, pressuring foreign EV makers as well.

India: Monsoon rains hit the southernmost state of Kerela on Saturday, arriving eight days earlier than normal and marking the earliest monsoon in 16 years. If sustained, the early rains are expected to boost India’s agricultural output, help keep a lid on food prices, increase economic output, and potentially bolster political support for Prime Minister Modi. Also, any increase in Indian crop production could have some negative impact on the value of global agricultural commodities.

Eurozone: The hawkish head of Austria’s central bank, Robert Holzmann, said in an interview that he sees “no reason” for the European Central Bank to further cut interest rates in either June or July. Since Holzmann sits on the ECB’s policymaking committee, the statement suggests a high level of disagreement among ECB policymakers about how to best shield the eurozone economy from the US-EU trade war.

United Kingdom: In an interview, the chief of the government’s Debt Management Office, Jessica Pulay, said her agency is starting to reduce its heavy issuance of longer-dated obligations because of waning demand among institutional investors. Shifting issuance more toward shorter-duration debt would likely help to contain the UK’s rising interest costs, but it would also subject the government to more financial volatility and give investors more leverage to demand fiscal discipline.

• In any case, Pulay’s statement about waning demand for long-dated government debt appears to reflect a growing trend worldwide. For example, it’s consistent with the “buyer’s strike” hitting Japanese debt, as mentioned earlier in this Comment. It’s also consistent with the volatility in the US bond market after Moody’s recent cut to the US debt rating.
• More broadly, global investors’ growing skittishness about long government debt also probably reflects the increased uncertainty and transition risks as the world moves beyond globalization to the new era of greater geopolitical tension, risk, and economic change.

US Financial Markets: Major university endowments are reportedly mulling big changes in their investment strategies in response to the Republican tax and spending bill passed by the House last week. If passed into law, the bill would sharply boost the tax on endowments’ investment income. Endowment managers are therefore considering shifting billions of dollars of investments away from assets that generate short-term gains. Instead, they may allocate even more to private equity and debt, which don’t realize gains for years into the future.

US Pharmaceutical Industry: The Wall Street Journal today carries an article showing how the popular GLP-1 drugs for obesity and diabetes are increasingly being found effective in treating other conditions, including heart disease, kidney disease, liver disease, sleep apnea, arthritis, and even Alzheimer’s. With researchers continuing to find new uses for them, GLP-1 drugs could become an even more important part of the pharmaceutical industry’s health going forward. However, much will depend on the Trump administration’s regulation of the drugs.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Good morning! Financial markets are digesting the president’s latest comments on potential new tariffs. In sports, the Oklahoma City Thunder secured a 2-0 advantage in the Western Conference Finals against the Timberwolves. Today’s Comment focuses on the Federal Reserve’s recent court victory, important details emerging from the Republican tax bill proposal, and other market-moving news. We’ll conclude with our regular roundup of economic data releases from both domestic and international sources.

Fed Independence Win: The Supreme Court’s ruling is expected to reinforce market confidence in the central bank, potentially easing recent bond market jitters.

• The Supreme Court ruled that the president has the authority to dismiss the heads of independent agencies while a court case is pending. However, the decision explicitly excluded the Federal Reserve’s board, describing the central bank as a “uniquely structured, quasi-private entity” and thus outside the scope of the ruling. This outcome reinforces the view that the president lacks the power to remove the Federal Reserve’s chair, Jerome Powell.
• The ruling should reassure bond markets that the president cannot single-handedly control the Fed. Concerns had grown after the president repeatedly threatened to oust Fed Chair Powell for refusing to align interest rate decisions with White House demands. These threats spurred a bond sell-off as investors feared political interference in monetary policy, particularly the president’s push to lower rates simply to follow moves by other countries.

• The ruling further solidifies the central bank’s ability to sustain its moderately restrictive policy stance. Fed officials have repeatedly expressed hesitancy about cutting interest rates, warning that inflation could rebound by mid or late summer, keeping short-term rates elevated. Meanwhile, Federal Reserve Governor Chris Waller has dismissed speculation about expanding the Fed’s balance sheet to stabilize bond markets, instead maintaining its strategy of shrinking holdings to transition reserves from abundant to ample levels.
• In summary, the court’s decision to shield the Fed from presidential dismissal authority is ultimately market-positive but presents short-term uncertainties. While the ruling strengthens the central bank’s long-term credibility by cementing its political independence, it may paradoxically make the Fed more cautious about near-term market interventions. Policymakers could now require clearer signs of financial stress before acting after becoming wary of appearing politically influenced even when staying on the sidelines.

Republican Tax Bill: The GOP succeeded in passing its tax bill through the House, but there is still a strong chance the final legislation will differ from the current version.

• The bill passed by the narrowest possible margin, with a 215-214 vote. The legislation now heads to the Senate where bipartisan calls for changes are growing, particularly over proposed Medicaid cuts and the rollback of renewable energy tax incentives. At the same time, there does seem to be some concerns among moderate Republicans that the bill could hurt them in the mid-term election.
• That said, the House bill fulfills several of President Trump’s major campaign promises, including an extension of the corporate and individual tax cuts initially passed under his 2017 tax reform. The legislation also embraces more populist proposals, such as tax exemptions for tipped wages, overtime income, and auto loan interest. Additionally, the bill increases funding for immigration enforcement and border security while raising the SALT deduction cap from $10,000 to $40,000 for households earning $500,000 or less.

• The bill introduces significant changes to Medicaid, including stricter work requirements for able-bodied recipients, more frequent eligibility checks, and verification provisions to confirm beneficiaries’ legal status. It also reduces Medicaid funding for states that provide coverage to undocumented workers. Additionally, the bill imposes stricter work requirements on food programs like SNAP. It also eliminates energy tax breaks for consumers and phases out tax credits supporting green energy investments.
• While the final legislation may differ, we expect many of the tax benefits to remain largely intact. However, spending cuts could gain more attention as the Senate works to reduce the bill’s overall cost. As previously noted, we believe the tax package will be a net positive for equities. The proposed changes should help offset the impact of tariffs while encouraging greater private investment.

Trade Flows to Capital Flows: There are signs that some countries have started to take aim at foreign investments as they look to prevent market distortion.

• In response to Spain’s worsening housing crisis, the Socialist Party of Prime Minister Pedro Sánchez has introduced legislation that would impose a 100% tax on property purchases by non-EU buyers. While the proposal includes exemptions for foreign workers legally residing in Spain, its passage remains uncertain given the government’s slim parliamentary majority. If approved, the measure would take effect in January 2026.
• Spain’s focus on restricting foreign real estate investment may signal a shift in how governments view capital flows. While countries typically welcome beneficial investments like foreign direct investment for job creation and infrastructure, portfolio investments are increasingly scrutinized due to their links with asset bubbles and widening wealth gaps.
• While these measures for the Spain housing market specifically target the distortive effects of foreign capital inflows, they also underscore a fundamental tension in global economic governance. The challenge is particularly acute in trade relations with China, where the systematic recycling of export revenues into importing nations serves as an implicit currency stabilization mechanism. These permissive capital flow regimes have exacerbated structural imbalances in global trade.
• We do not anticipate that Spain’s measures will trigger widespread EU restrictions on foreign investment in financial assets, nor do we expect significant spillover into equity markets. However, these actions may signal an emerging trend as governments increasingly seek to shield domestic markets from distortive foreign capital flows. Over the long term, we expect countries will focus on developing domestic industrial capacity — a shift that could ultimately enhance the appeal of international investment opportunities.

Trade Hardline: While the market believes trade tensions are easing, Trump’s actions suggest that they could heat up again.

• President Trump has threatened to impose 25% tariffs on iPhones unless Apple shifts production back to the US. This comes as the tech giant plans to move much of its iPhone manufacturing from China to India. The escalation reflects the administration’s broader push to force companies to relocate supply chains to the US.
• The Trump administration has rejected the EU’s proposal for a mutual tariff reduction, warning that negotiations will stall unless the EU accepts stricter reciprocal duties. The remarks underscore how far apart the two sides remain in trade talks.
• We’ve noted the president’s strategic pattern of creating high expectations before negotiations, only to later secure a more favorable compromise. A prime example was his initial proposal of an 80% tariff floor rate ahead of China talks, which was subsequently reduced to 30% following discussions. Given this precedent, the current EU tariff threats likely serve as a tactical opening position rather than a definitive policy. We therefore recommend maintaining perspective and avoiding an overreaction to these developments.
• That said, the president’s recent remarks underscore how quickly the administration’s stance can shift from easing tensions to sudden cooling. As a result, we maintain that a “wait-and-see” approach remains prudent for conservative investors. However, those willing to take on risk may find opportunities by focusing on key factors such as strong earnings growth and minimal overseas supply chain exposure.

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