by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with an analysis of why markets remain resilient despite ongoing economic headwinds. We then turn to developments in the status of the nuclear program negotiations with Iran, followed by a discussion of the potential US withdrawal from the USMCA and rising tensions between the White House and the EU. We also include a summary of key economic data from the US and global markets.

Consumer Credit: Delinquency rates reached their highest level in nearly a decade during the fourth quarter, according to the latest Household Debt and Credit Report from the New York Fed. The overall delinquency rate rose to 4.8% of all outstanding debt. While student loans and mortgage delinquencies were the main contributors, credit card and auto loan delinquencies also saw notable increases. This rise in missed payments underscores how equity markets can continue climbing even amid growing signs of financial strain in the broader economy.

• The disconnect between the stock market and the real economy is primarily a result of sector composition. Throughout much of 2025, market enthusiasm was concentrated in AI-related firms. These companies largely bypassed the inflationary pressure of trade policy due to preferential tariff exemptions and utilized tax incentives to fuel the AI momentum carried over from the previous year.
• However, this momentum did not lift all boats. Cyclical sectors and consumer-facing firms have struggled as lower-income households, which are facing stagnant real wages and job insecurity, pulled back on discretionary spending. This sentiment was echoed in the Conference Board’s Consumer Confidence Index that recently plummeted to 84.5, its lowest reading since 2014.
• We suspect this divergence stems from pervasive uncertainty. Shifting tariff policies made long-term corporate planning difficult, leading to a wait-and-see approach in the labor market. While mass layoffs were avoided, hiring slowed, disproportionately impacting younger and lower-income workers. This labor stagnation likely exacerbated the repayment struggles identified by the New York Fed.
• Despite these headwinds, we believe the tide is turning for the overall economy. As the “tariff fog” begins to lift, small business surveys are showing a sharp uptick in real sales volume expectations, suggesting a renewed willingness to commit capital. We are already seeing this transition reflected in the markets: the Consumer Staples sector has significantly outpaced the NASDAQ year-to-date by rising 12.5%. This rotation suggests that the market rally may finally broaden beyond Tech and into the bedrock of the domestic economy.

 Iran Target Change: Israeli Prime Minister Benjamin Netanyahu is set to meet President Trump in Washington today to discuss the escalating tensions with Iran. The meeting follows the president’s recent statement that he is considering deploying a second aircraft carrier to the region to reinforce the “armada” already on standby, should diplomatic talks regarding Iran’s nuclear and weapons programs fail. Netanyahu is expected to urge the US to adopt a red-line policy that includes the demilitarization of Iran’s ballistic missile program as a condition for any deal.

• Growing US pressure to curb Iran’s missile program is likely to raise tensions in negotiations between Washington and Tehran. Iran has consistently insisted that talks be restricted to its nuclear program, maintaining that it has the right to enrich uranium for civilian use and to develop ballistic missiles for its defense.
• Israel has pushed to ensure that Iran cannot pose a major military threat, particularly through its nuclear and missile programs. Although Israeli officials describe last year’s US and Israeli strikes on Iran’s facilities as operationally successful, they have repeatedly warned that Iran remains highly dangerous and that it is working to rapidly rebuild key parts of its arsenal.
• Still, there is hope that talks can deliver a strong outcome and stave off escalation. Iran indicated Tuesday it is open to widening negotiations beyond its nuclear program, though it offered no specifics. If uranium enrichment and ballistic missiles are off limits, this could point to potential curbs on Iran’s proxy networks, another major sticking point in the process.
• While we remain confident that current tensions will not escalate into direct military conflict, the risk profile is undeniably elevated. In the event of an exchange, we anticipate a swift rotation out of risk assets and into established safe havens. Despite recent volatility in gold and silver, we expect that asset class to see increased crowding as investors seek a reliable hedge against heightening geopolitical uncertainty.

 No More UMSCA: The president is said to be leaning in favor of withdrawing from the US-Mexico-Canada trade agreement, which he himself brokered. He has reportedly tasked his aides with presenting arguments against such a withdrawal. This development comes amid persistent friction between the White House and its North American partners, with Mexico over cartel-related security concerns and with Canada over its accommodation of Chinese economic interests. A US exit from the pact would likely exacerbate market uncertainty.

Alphabet Bond Sales: Google’s parent company has entered the bond market to strengthen its liquidity position amid significant investments in artificial intelligence. The firm is raising capital across multiple currencies and varying maturities, with plans that include a sterling-denominated 100-year bond. On Monday, Alphabet announced it had secured more than $32 billion within 24 hours. The magnitude of the offering, coupled with robust demand for Tech sector debt, points to a possible crowding out of other corporate borrowers.

Trump Buys Coal: The White House is preparing to expand federal support for coal‑fired power, including using government funds and long‑term power purchase agreements to keep selected plants running that might otherwise retire. This direct intervention comes as the US seeks to shield parts of the domestic coal sector from competitive pressure, even as market forces increasingly favor cheaper natural gas and renewable energy. The proposal is another reminder of the government’s increasingly active role in the economy.

EU Pivot: French President Emmanuel Macron has accused the United States of pursuing an anti-EU agenda by asserting in a recent speech that the White House’s broader objective is to dismantle the European bloc. His remarks underscore mounting tensions between the transatlantic allies. In response, the EU is expected to pursue greater strategic autonomy, aiming to reduce its reliance on the US in both trade and defense.

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