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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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with news that the White House this week will launch a major rollback of environmental regulations. We next review several other international and US developments that could affect the financial markets today, including an announcement of performance reviews for US defense contractors and growing investability issues for the Indonesian stock market.

US Environmental Policy: In an exclusive report this morning, the Wall Street Journal says the Trump administration this week will repeal the 2009 scientific finding that serves as the legal basis for federal greenhouse-gas regulation. The move will reverse the “endangerment finding” under which the federal government has limited emissions from power plants and autos. It will also end the regulatory requirements to measure, report, and certify compliance with emission standards.

• According to EPA chief Lee Zeldin, “This amounts to the largest act of deregulation in the history of the United States.”
• Whether or not that’s true, we would agree that the planned change, if implemented as reported, would be a significant deregulation with potentially far-reaching economic impacts.
• Given the US’s large political constituency favoring policies to address climate change, especially among younger voters, the move could also increase polarization and affect the midterm Congressional elections in November.

US Housing Policy: Lawmakers are reportedly refusing to include the administration’s proposed ban on institutional investors buying single-family homes in either of the two major housing bills currently making their way through Congress. The ban is generally opposed by free-market advocates, the financial industry, and the housing industry. Therefore, lawmakers reportedly may fear that tacking it onto either of the housing bills would scuttle the legislation that they have spent months developing. For now, financial and housing interests appear to be having their way.

US Defense Industry: Late last week, the Pentagon reportedly sent a letter to major defense contractors warning them to brace for sweeping performance reviews to identify companies that aren’t fulfilling their contracts. The reviews apparently are to implement President Trump’s January order threatening to cancel the contracts of underperforming defense companies that buy back their shares or pay dividends.

• The administration’s approach to the defense industry has been complex. Shortly after President Trump’s second inauguration last year, for example, he ordered significant cuts to the defense budget. The new order demonstrates his intent to squeeze efficiencies, improvement in quality, and faster turnaround times for weapons purchases — all at the expense of defense industry investors, if necessary. On the other hand, the president has recently called for a massive 50% increase in US military spending.
• As our longtime readers know, we have had a positive view of global defense stocks for the last few years. Because of the administration’s tough stance toward the defense industry, we have been more positive on defense firms outside the US. The Pentagon’s new warning seems to validate that stance. All the same, we are closely watching to gauge whether a big increase in the defense budget will offset any of the financial challenges implied by the tougher contract scrutiny.

United States-Taiwan: The Financial Times late yesterday scooped that the White House’s forthcoming tariff plan for advanced computer chips will include exemptions for chips from Taiwan Semiconductor Manufacturing Co. based on how much the firm invests in new US fabrication facilities. The plan would aim to strike a balance between imposing tariffs to encourage domestic chip manufacturing and removing obstacles to US hyperscalers building new data centers for artificial intelligence.

United States-Canada: In a post on social media yesterday, President Trump said he will block the opening of the new Gordie Howe International Bridge linking Canada and Detroit unless the US “is fully compensated for everything we have given them, and also, importantly, Canada treats the United States with the Fairness and Respect that we deserve.”

• The bridge, which is reportedly close to completion and has been paid for fully by Canada, was supported by the president during his first term as a way to relieve congestion in the vital US-Canada trade corridor.
• The president’s last-minute demands likely constitute an effort to squeeze concessions from the Canadian government ahead of this year’s renegotiation of the USMCA trade agreement, despite the risk of worsening frictions between the US and its longstanding ally.

United States-Cuba: The Cuban government has reportedly told international airlines that it won’t be able to supply them with jet fuel starting today. As a result, Air Canada has announced that it will suspend flights to the island, and other foreign airlines are likely to be affected as well. The disruption suggests that the US effort to cut fuel supplies to the island are having their intended effect of strangling Cuba’s economy. However, it is still too early to know if the effort will force political change in Havana as intended.

China: The China Media Project, a research group, has issued a report showing that Alibaba’s popular Qwen model has been built to say only positive things about China. The report is the latest in a series examining how China’s increasingly popular open-source AI models have been manipulated for apparently political purposes. As China’s models become more widely used, the result is likely to be a skewed portrayal of China around the globe.

Indonesia: Two weeks after index provider MSCI said it will downgrade Indonesia to a “frontier market” from an “emerging market,” over investability and transparency issues, index provider FTSE Russell today said it has postponed a review and update of its Indonesia exposures over uncertainty in determining the free float of the country’s stocks. The blemishes on the Indonesian stock market threaten to limit how much it can benefit from investors’ growing interest in international stocks.

United Kingdom: Following our note yesterday about Prime Minister Starmer being pressed to resign over scandals including the naming of an Epstein associate as ambassador to the US, a meeting of Labour Party lawmakers yesterday reportedly offered him strong support, reducing the risk of a forced resignation for the time being. Nevertheless, Starmer’s political position continues to weaken, suggesting it will be increasingly difficult for him to drive policy initiatives in the near term.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with some quick notes on the monumental election in Japan yesterday. We next review several other international and US developments with the potential to affect the financial markets today, including a recap of elections in Thailand and Portugal, growing signs that UK Prime Minister Starmer may need to resign, and new data confirming that US software firms are facing increased financial stress.

Japan: In elections yesterday, the ruling Liberal Democratic Party of Prime Minister Takaichi won in a landslide, securing an estimated 316 of the 465 seats in the lower house, up from 198 seats previously. This marks the first time since World War II that a party has won a 2/3 super majority in the Diet. The conservative Takaichi will also have support of her coalition partner, the Japan Innovation Party. The result is likely to be positive for Japanese stocks and the yen, as it supports Takaichi’s plan for more stimulative fiscal and monetary policies.

• Indeed, Japanese stocks are soaring so far this morning, with the Nikkei 225 price index up about 3.9% to a new record high.
• The yen has strengthened about 0.8% to 155.99 per dollar ($0.0064).

Thailand: In another election at the weekend, the conservative Bhumjaithai Party came out on top with an estimated 194 seats in the 500-seat legislature, while the progressive People’s Party will end up with only about 115. The results mark a dramatic return to conservatism after many years of liberal rule in Thailand.

Portugal: In yet another weekend election, Socialist António José Seguro won the presidency with approximately 65% of the vote, holding off right-wing nationalist André Ventura. All the same, the presence of the far-right Ventura on the ballot is being taken as a warning that populist conservatives have a following in Portugal and could drive policy to the right in the coming years.

United Kingdom: Prime Minister Starmer has now lost two high-level aides over their part in recommending that he name Lord Peter Mandelson as UK ambassador to the US — a toxic nomination given Mandelson’s prominent place in the Epstein files recently released by the Justice Department. Today’s resignation was from Tim Allan, who was Starmer’s communication director. Just one day earlier, Morgan McSweeney resigned as chief of staff. As a result, Starmer is coming under increasing political pressure to resign.

• Even though Starmer had already sacked Mandelson, the new staff resignations are adding to the political pressure from a series of scandals and policy missteps.
• Nevertheless, the potential exit of the Labour Party prime minister has so far been taken in stride by investors, with UK stock indexes and the pound continuing to appreciate. Those trends suggest investors could well look favorably on a political change in the UK, despite some short-term volatility if Starmer is forced to resign.

US Immigration Policy: According to the Financial Times, the US Embassy in London and other embassies around the world have begun to deny visas to even top business executives on the basis of past arrests for relatively minor criminal infractions, such as barfights and marijuana possession. Some visas to visit the US have reportedly been denied even for minor arrests as far back as the 1970s.

• Of course, the administration’s barriers to trade, technology, and capital flows are much higher in profile.
• Nevertheless, the new restrictions would presumably slow cross-border economic activity, including the inbound investment that the White House is seeking.

US Software Industry: New research from Axios shows that an increasing share of the loans backing software firms are trading at “distressed” levels, or below 80 cents on the dollar. The data indicates that $25 billion in software loan volume was marked at distressed levels by the end of January, more than double what it was in December. While technology leaders have begun to push back on the recent concerns that artificial intelligence will devastate software companies, these hard data points would suggest that real problems exist.

Chinese Food Policy: New data shows the proportion of soybean meal in domestically produced animal feed stood at 13.4% in 2025, unchanged from the previous year despite government efforts to replace the largely imported material with other sources of protein. The government’s effort aims to make China less reliant on foreign food supplies, but the new figures suggest the country remains quite reliant on supplies from the US and Brazil, giving them some leverage in trade negotiations and other disputes.

Chinese Demographics: As the country continues struggling to arrest its steep drop in birth rates, which has led to an aging population and outright population declines, the government has reportedly imposed a 13% value-added tax on condoms and other contraceptives, ending their previous tax-free status. However, we haven’t seen the intimate details of the change, so we won’t comment further.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment begins with an analysis of TrumpRx and its potential implications for future government involvement in the economy. We then examine why Cuba is prepared to reopen talks with the United States, how rising tech spending is unsettling investors, and what’s behind Washington’s quiet efforts to ease tensions with North Korea. We round out the piece with a summary of key economic data from the US and global markets.

Fed Intervention: The White House has launched its first official online pharmacy, TrumpRx.gov, in a direct bid to lower prescription drug costs for Americans. The platform allows consumers to purchase medications at discounted rates, marking the administration’s most high-profile effort to tackle healthcare affordability through direct negotiations with pharmaceutical companies. While the initiative represents a tangible win for household budgets, it also highlights the federal government’s expanding influence within private markets and the broader economy.

• The TrumpRx initiative illustrates the effectiveness of governmental pressure in extracting concessions from drug manufacturers. Through the “most favored nation” executive order, the administration pushed companies — including Eli Lilly, Novo Nordisk, and Pfizer — to align US drug prices with the lower rates offered abroad. A central strategy was the threat of imposing tariffs of up to 100% on pharmaceutical imports, which prompted companies to agree to the price discounts.
• Furthermore, TrumpRx challenges pharmacy benefit managers, which often act as costly middlemen by capturing rebates and spreads while passing limited savings to patients. The government’s direct-to-consumer platform provides a transparent alternative, bypassing PBMs and insuring delivery of manufacturer discounts directly to households. This launch is just one day after Congress passed and President Trump signed a bipartisan spending bill with reforms to curb PBM power.
• The TrumpRx launch signals a broader strategy of using tariff threats as high-stakes leverage to restructure key US industries. This carrot-and-stick approach has already compelled automakers like Ford and GM, plus tech giants such as Apple, to accelerate reshoring of manufacturing and supply chains. Now it’s rippling into housing, where major builders are pitching a one-million-unit “Trump Homes” program to secure tariff relief on critical imported materials like lumber and steel.
• The government’s expanding economic footprint presents a dual-edged reality. On one hand, it offers market stability and shields strategically vital sectors, such as pharmaceuticals, semiconductors, and energy, from global volatility. On the other hand, it creates a “compliance-first” environment where industries that do not align with federal mandates face significant punitive measures.
• In the long run, this shift presents a fundamental challenge to the doctrine of shareholder primacy. For decades, corporate strategy prioritized short-term stock valuations above all else. Today, however, survival increasingly depends on national alignment and domestic investment more than on growth potential alone. We maintain a strong view that this new paradigm favors assets like precious metals, which are inherently harder to regulate and control within such a constrained environment.

Cuba’s Breaking Point: The head of the Cuban government has expressed readiness to hold talks with the United States. While making clear that Cuba does not intend to alter its political system, the government is prepared to engage in dialogue to improve bilateral relations. This push for dialogue coincides with an acute energy crisis in Cuba, triggered by a US-led oil embargo following its recent intervention in Venezuela. Talks between the two sides appear to be part of a larger US trend of forcing neighboring countries into its sphere of influence.

US-Russia New START: The United States and Russia are negotiating an agreement to extend the New START nuclear arms control treaty. Although the treaty was set to expire this week, both sides are actively seeking an extension, as neither appears willing to let it lapse. These talks are occurring amidst heightened tensions between Russia and the West over the war in Ukraine, a conflict during which Russia has issued threats of nuclear weapons use. An extension would help reduce the risk of a nuclear exchange between the world’s two largest nuclear powers.

Amazon Sell-off: The world’s largest online retailer saw its shares sell off after announcing a major ramp-up in capital expenditure. On Thursday, the company revealed plans to invest $200 billion in AI, data centers, satellites, and other large-scale projects. The move faced immediate investor pushback, driven by concerns that the massive spending may not translate into future profitability. The sell-off highlights the market’s growing sensitivity toward “build at all costs” models in the tech sector.

Japan Elections: The Asian nation is set to hold snap elections this weekend that will determine whether Prime Minister Sanae Takaichi retains her position and secures a mandate to advance her policy agenda. She remains highly popular, with recent polls indicating her party could capture more than 60% of the vote. A decisive victory could renew downward pressure on the yen as investors grow increasingly concerned about inflationary risks tied to expanding government debt.

Calming North Korea: The US plans to restore humanitarian aid to North Korea, a move intended to de-escalate recent tensions and maintain diplomatic relations. This outreach comes as Pyongyang accelerates its weapons program, which it frames as a deterrent against potential regime change. Washington also aims to prevent North Korea from deepening its strategic reliance on Russia and China. Despite these maneuvers, we assess that North Korea remains an underpriced geopolitical risk in global markets.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with our perspective on the recent market unwind and the key factors driving it. We then review Treasury Secretary Scott Bessent’s testimony before Congress and the implications for policy and markets. Next, we discuss Vice President JD Vance’s push to establish a floor on strategic mineral reserves and President Macron’s advocacy for a stronger euro. We round out the piece with a summary of key economic data from the US and global markets.

The Market Unwind: Several asset classes that saw sharp run-ups recently have begun pulling back as investors reassess global risk sentiment. Over the past two weeks, volatility has spiked in precious metals. Silver, which had recently surged past $100 per ounce, has now retreated toward $70. Domestic equities have similarly cooled amid a broad sell-off in major tech names. This shift reflects a “reality check” on AI hype, evolving expectations for central bank policy, and lingering geopolitical tensions.​

The AI Factor This sharp sell-off in tech stocks reflects growing investor “capex fatigue,” with many questioning whether the massive build-out will deliver high-margin returns. On Wednesday, despite Alphabet’s strong Q4 earnings, shares fell after management stated that 2026 capital expenditures will nearly double 2025 levels. The reaction underscores investor impatience for tangible results over further spending.

The Warsh Factor The nomination of Kevin Warsh to take over as Federal Reserve chair has triggered a sharp unwinding of the currency-debasement trade, fueled by renewed confidence in the Fed’s independence. Although President Trump emphasized that he would not have chosen Warsh if rate hikes were on the table, markets have interpreted the pick as a shift toward a more disciplined balance sheet policy. Investors now anticipate a less accommodative Fed under Warsh than previously expected.

Geopolitics Factor The easing of geopolitical tensions abroad has also fueled the retreat from safe-haven assets. US and Chinese leaders spoke ahead of scheduled negotiations on Wednesday, discussing trade and the war in Ukraine, which sparked optimism for constructive talks. Additionally, after recent signs of escalation, the US and Iran appear set to meet on Friday for nuclear discussions.

The recent unwinding of some positions may prove temporary, as we believe key underlying themes such as the expanding influence of AI, sustained central bank purchases of precious metals, and ongoing global fragmentation into regional blocs will remain intact despite recent volatility. Nevertheless, we maintain that the most prudent defense against these shifts is to ensure broad diversification across sectors (reducing overexposure to technology) and geographies, which should contribute to a more resilient and balanced portfolio.

Bessent Testifies: On Thursday, Treasury Secretary Scott Bessent met with lawmakers to discuss the state of the economy and the White House agenda. Over the three hours of testimony, remarks covered the role of the Federal Reserve, the impact of tariffs, US crypto policy, as well as other topics. While the testimony was at times very testy, particularly with Democratic lawmakers, it had no material impact on the markets. That said, his remarks provided key insights into the administration’s economic agenda.

Fed Independence Bessent’s comments suggest that while the White House publicly supports Federal Reserve independence, it may simultaneously seek to rein it in. He specifically targeted the Fed’s credibility, arguing for increased accountability after the central bank allowed inflation to exceed its targets and faced scrutiny over renovation funding. His critique appears to signal a push for greater executive oversight of the central bank.

Tariffs Additionally, Bessent’s testimony signaled that the White House is doubling down on its trade agenda rather than retreating. When challenged on a 2024 note where he previously characterized tariffs as inflationary, he pivoted, citing a San Francisco Federal Reserve study that suggests tariffs do not drive broad-based inflation. By reframing tariffs as a tool for economic resilience, his comments suggest the administration remains open to further trade duties if it deems it necessary.

Cryptocurrency Lastly, Bessent suggested that the administration may not prioritize the protection of crypto investors. When asked if he would intervene to support bitcoin, he clarified that the Treasury would not influence markets to artificially boost prices, noting that it lacks the authority to use public funds for such a bailout. These comments likely reflect the administration’s narrow focus on stablecoins — a preference largely driven by their utility in absorbing short-duration government debt.

Based on the Treasury secretary’s comments, it appears that the White House intends to remain actively engaged in managing the economy. This is likely to include using targeted trade restrictions to support reshoring, keeping the Federal Reserve operating within defined limits, and narrowing the administration’s crypto agenda toward stablecoins rather than the broader digital asset class. As a result, we continue to believe that firms broadly aligned with the White House’s policy priorities could perform well in this environment.

Vance Price Floor: At a ministerial meeting on critical minerals, the vice president endorsed the creation of a preferential trade zone. This proposal includes a price floor designed to insulate domestic markets from predatory practices, specifically “dumping” by nations like China, which often price out local competitors. This initiative underscores a growing global trend toward economic blocs as a primary defense against foreign industrial competition.

Strong Euro Policy: French President Emmanuel Macron is expected to advocate for euro appreciation against the dollar at next week’s EU summit, arguing it would enhance economic resilience and the currency’s global standing. While his specific policy proposals remain unclear, his position echoes the White House’s long-held view that the euro is undervalued, potentially opening the door to coordinated efforts to bolster it. If Macron secures support for this initiative, it should prove favorable for European equities.

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