by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with our views on rising concerns about AI‑related cybersecurity risks. We then turn to the UK elections, followed by brief discussions on the escalating tensions between the US and Iran, recent court rulings against universal tariffs, developments around the hantavirus, and the pickup in consumer credit. As always, we include an overview of recent domestic and international economic data.

 AI Oversight: AI advancement is accelerating faster than the government can control. The White House is currently weighing the development of a formal oversight process to monitor the latest generation of new AI models. This new initiative comes after the government was caught flat-footed by the development of Mythos, an AI model with cyber-hacking capabilities that could potentially threaten the nation’s digital infrastructure. The move also comes as the world is still trying to figure out how to contain the safety risks posed by such models.

• The decision to put some oversight in place comes as the power of AI has caught many government officials off guard. The major threat of these AI tools is their ability to find vulnerabilities independently, which has raised concerns that they could be used to disrupt the financial system, healthcare, and other vital sectors of the economy. As a result, there is fear that these models could potentially pose a systemic risk.
• The implementation of an oversight system highlights the severity of the risks, as the administration had initially been hesitant to impose restrictions on AI due to concerns that doing so could cost the US the AI race with China. The reversal is the latest indication that the White House may be looking to put in more guardrails to help regulators catch up and find the best way to contain some of these risks, while still promoting growth in the industry.
• Although it appears unlikely that the White House will pursue policies aimed at curtailing AI investment, the issue of regulation is likely to become increasingly prominent in the years ahead. A gradual expansion of guardrails could slow the pace of AI development and invite broader scrutiny, particularly around energy consumption and labor displacement. If this view proves correct, it may ultimately temper some of the upside growth potential currently embedded in large-cap technology valuations.
• While we continue to see strong AI-driven momentum supporting gains in technology and related equities, we expect volatility to increase over time. As the cycle matures, these stocks may become more sensitive to shifts in sentiment, leading to more frequent price swings. Against this backdrop, we believe investors should consider diversifying into value-oriented equities, which can serve as a buffer during periods of AI-related uncertainty.

 Outsiders Rise: UK local elections underscored the rise of fringe parties as voters continue to drift away from the traditional political establishment. On Thursday, voters overwhelmingly backed the Reform Party, which gained 311 seats and pushed a once marginal force into the political mainstream. The Labour Party, by contrast, suffered an embarrassing setback, losing 270 seats, the largest decline of any party. The rise of Reform and the weakness of Labour highlight a broader global trend of growing dissatisfaction with establishment parties.

• While the Labour Party avoided a worst‑case outcome, its seat losses underscore broad dissatisfaction with traditional parties. The Conservatives recorded the second‑largest setback, while the Liberal Democrats and the Green Party joined Reform in making gains on the political fringes. A recent YouGov poll suggests that this pushback is being driven by mounting socioeconomic concerns over underinvestment in public infrastructure, the rising cost of living, cuts to healthcare services, and immigration.
• The rise of fringe parties is not unique to the UK, as countries such as Germany and France have experienced similar political shifts. The move away from traditional parties could weigh on long‑term bond prices and the euro. While we believe fringe parties often have a louder bark than bite in terms of actual policy delivery, upcoming European elections could nevertheless create bouts of volatility in foreign developed financial markets.

 Iran-US: The ceasefire between the United States and Iran came under strain on Thursday after the two sides exchanged fire. The latest clashes began when Iran was accused of launching missiles and drones at a US destroyer transiting the Strait of Hormuz, an action Tehran said was in response to an earlier US strike on an Iranian tanker. Despite the escalation, the president has insisted that the ceasefire remains in effect as both parties continue to negotiate the terms of a potential peace agreement.

 Court Rules Against Tariffs: The Court of International Trade ruled that the president’s latest effort to allow for universal 10% tariffs was illegal. This ruling marks the latest blow to White House efforts to keep tariff rates in place to ensure that countries meet their obligations. However, the court did allow for the collection of tariffs to continue while the administration appeals the decision. The ongoing fight over tariffs is likely to lead to more uncertainty on trade, although the effects are likely to be more modest when compared to 2025.

 Hantavirus: The spread of a virus on a cruise ship has sparked concerns of a potential pandemic, although early indications suggest it will not resemble COVID-19. The White House has been briefed on the situation, especially given that several Americans were aboard the affected ship. To date, the virus remains well contained, though authorities are taking steps to track travelers from that cruise ship as a precautionary measure.

 Consumer Credit: In March, consumer credit rose at its fastest pace since 2022, as more households relied on debt to cope with the unexpected rise in gasoline prices. The sharp increase has led to concerns that Americans could start to pull back on spending, as their incomes are not rising as fast as their consumption. As we have mentioned in previous reports, credit remains a key support for the economy — as long as it is available, we believe the economy can continue to expand.

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