by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment begins with the recent downward payroll revisions and explains our sustained optimism regarding the market’s resilience. We then examine escalating tensions in the Middle East, the surge in AI-driven market enthusiasm, and the potential for a collaborative US-EU effort to hold India and China accountable for supporting Russia during the war in Ukraine. Finally, we provide a summary of key economic data releases to offer a comprehensive view of the current global financial landscape.

Payroll Revisions: A major government revision revealed that US employers hired 911,000 fewer workers in the 12 months leading up to March 2025 than was previously reported. This represents the largest downward revision in payrolls on record, indicating the economy actually added an average of just 74,000 jobs per month in 2024 — roughly half of the initially reported 147,000. This data suggests the labor market was significantly weaker than understood, a revelation that will likely add urgency to the Federal Reserve’s deliberations on interest rate cuts.

• The critical question raised by this data is whether the economy is sliding into a recession or merely experiencing a period of weakening growth. Currently, we lean toward a more optimistic interpretation that while economic momentum has undoubtedly slowed in recent months, it remains underpinned by resilient household consumption and robust investment spending, particularly within the technology sector.
• That said, even if our assessment is incorrect, this is not a time for complacency. History shows that markets can rise during a recession, particularly in the absence of a major shock. For example, the US recession technically began in December 2007, but the equity market did not fully capitulate until the collapse of Lehman Brothers in September 2008. Without such a defining crisis, it is unclear whether that period would have been perceived as a deep recession or merely a prolonged economic slowdown.
• This dynamic contrasts sharply with the March 2023 collapse of Silicon Valley Bank. A swift and coordinated regulatory response successfully contained the crisis and averted a broader contagion. Consequently, the S&P 500 rallied and went on to gain over 26% for the year. Therefore, we are watching for a similar catalytic event before materially changing our outlook. In the meantime, we continue to emphasize the importance of including value in portfolios as a way to balance risk.

Israel-Qatar: In a significant escalation of regional tensions, Qatari Prime Minister Sheikh Mohammed bin Abdulrahman al-Thani has called for a regional response against Israel following an attack in Doha that targeted Hamas leadership. This move comes just one week after Qatar warned that a potential Israeli takeover of the West Bank could jeopardize the Abraham Accords, the foundational agreements for Israel’s normalization with several Middle Eastern states.

• Although the White House was briefed on the incident, it has expressed clear frustration with Israel’s assertiveness. A cornerstone of US strategy to de-escalate tensions in the Middle East is the normalization of relations between Israel and the Gulf states. By executing a strike on the sovereign territory of a key regional partner without its consent, Israel risks causing those same Gulf nations to reconsider their decision to establish ties, thereby undermining a central US diplomatic achievement.
• While we expect cooler heads to prevail between Israel and regional Arab states, the risk of a broader conflict remains elevated. Following the attack, natural gas prices initially spiked but quickly reversed course, closing lower for the day. This market response suggests that investors are currently discounting the probability of a wider regional war. Nevertheless, we are monitoring the situation closely, as a significant escalation could trigger a flight to safety, particularly into assets like gold.

Tariff Case: The Supreme Court has agreed to fast-track a hearing to determine whether President Trump possesses the authority to implement tariffs without congressional approval. The court has consolidated two separate cases on the dispute: one involving an appeal of a federal ruling that found the president lacked such authority and another brought by two educational toy companies arguing that the tariffs violate the International Economic Powers Act.

• We do not believe this will stop the White House from issuing tariffs, as it retains other legal tools at its disposal to impose tariffs under certain circumstances.
• Nevertheless, the bond market is monitoring the situation closely. A ruling against the administration could force the return of collected tariff revenue, an outcome that would further weaken the US fiscal situation.

AI Optimism: Oracle Corporation’s stock surged to a record high following its earnings release, driven by an exceptionally aggressive outlook for its cloud business. This occurred despite the company missing its earnings per share (EPS) target. Investor enthusiasm was primarily fueled by a stunning increase in bookings (a measure of future revenue), which reached $455 billion for the quarter. The company also anticipates significant new contracts with other clients, potentially pushing its total future contractual obligations over $500 billion.

• This optimism is likely to provide a tailwind for the broader technology sector, underscoring the market’s robust faith in the long-term AI narrative.
• That said, the market response does show that investors are prioritizing future growth over current performance.

FOMC: A federal judge has granted a temporary restraining order blocking President Trump from firing Federal Reserve Governor Lisa Cook. The federal court ruling grants Governor Cook the ability to remain on the Federal Open Market Committee (FOMC) and participate in the upcoming policy meeting, where officials will determine whether they will cut rates. However, regardless of the lower court’s decision, the ultimate authority to fire a Fed governor will almost certainly be decided by the Supreme Court.

New Tariffs: The White House is pressuring the EU to impose a 100% tariff on goods from China and India. This aggressive push is based on the two countries’ continued support for Russia in the Ukraine war. The US has also stated its willingness to match any tariffs the EU implements, aiming to create a united front and force a swift end to the conflict. This move is part of an ongoing effort by the US to secure greater assistance from the EU in its foreign policy goals.

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