by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with new signs that the US will hold off on launching new military attacks against Iran, reducing the risk of new energy-supply disruptions. We next review several other international and US developments that could affect the financial markets today, including an update on the race to succeed Christine Lagarde as head of the European Central Bank and the latest on the big scandal at artificial intelligence giant Nvidia.

United States-Israel-Iran: President Trump over the weekend said it was “highly unlikely” that he would launch extensive new military strikes on Iran, despite previous hints and a buildup of US forces in the region that indicated he was preparing for it. Of course, the statement may be misdirection meant to preserve surprise, but investors today are taking the statement as a sign of reduced risk. In response, energy prices are falling, with near Brent crude oil futures currently down 3.6% to $94.80 per barrel. The drop in energy prices is also helping give a boost to stock prices.

US Politics: President Trump on Friday said Deputy Chief of Staff Stephen Miller will take over as chief of staff, elevating a long-time loyalist and architect of his immigration crackdown. The move to replace the more centrist Susie Wiles suggests Trump may be gearing up for more ideological battles with the incoming Democratic majorities in the House of Representatives and the Senate. If so, it might portend more political and policy uncertainty, which would probably not be favorable for stock values.

US Labor Policy: Despite Miller’s elevation to chief of staff, President Trump said in a Sunday interview that his crackdown on immigrants may have been “too tough,” as officials deported “people that had good jobs.” He also offered to work with Democrats on an amnesty deal for migrants, adding, “There’s a large part of the country that think that they should be allowed to stay if they’re good people.”

• The president’s conciliatory statement on immigration, coming just after he named the immigration hawk Miller as chief of staff, suggests he is still deciding whether to approach the new Democratic majorities in Congress by doubling down on his policies or seeking compromise.
• In any case, if the administration eases up on its immigration raids, it might help job growth, but it could also put some upward pressure on the unemployment rate again.

US Artificial Intelligence Industry: After reports that Nvidia chief executive Jensen Huang has been having an affair with a woman believed to be an asset for China’s Ministry of State Security, the company said it will launch an investigation into the scandal. According to the firm, the probe will be run by a committee of outside directors assisted by outside counsel. The firm said it has no reason to believe either its secrets or national security were compromised, and it assured investors that Huang will stay on as CEO while the probe continues.

• Despite an apology by Huang and the board’s quick action in launching its investigation, the scandal will likely keep a cloud over Nvidia’s stock price in the near term. As of this writing, Nvidia is down 5.5% at $176.45 in extended-market trading.
• Importantly, once the Democrats take control of the House and Senate in the coming weeks, there will probably be a high risk of intensive congressional scrutiny into Nvidia and the implications of its business in China. Such investigations could also uncover concerns about other key US companies involved in artificial intelligence, putting a cloud over them as well.

Eurozone: In the race to name a replacement for outgoing European Central Bank President Lagarde, the Netherlands has nominated its former central bank chief, Klaas Knot, and Spain has nominated its former central bank leader, Pablo Hernández de Cos. Other contenders may still arise, but for now it appears that Knot and Hernández de Cos are the leading contenders. With Executive Board member Isabel Schnabel and Chief Economist Philip Lane also set to leave the ECB in early 2027, investors should brace for important changes in ECB monetary policies.

European Defense Industry: Reports today say a Dutch startup company, Onodrim, founded by former Palantir employees, has raised $300 million at a $1.3-billion valuation as part of its plan to build up Europe’s defense industrial base by buying critical suppliers and helping them grow. Even though some investors have cooled their optimism about European defense stocks as the region’s fiscal pressures threaten to slow the growth of military budgets, the establishment of Onodrim suggests the Europeans are continuing to look for ways to rearm.

Israel: On Saturday, President Herzog chose center-right politician Gadi Eisenkot to try to form a new governing coalition after the indecisive national election last month. Herzog’s decision reportedly reflects his talks with members of parliament, who believe Eisenkot would have a better chance of getting a majority of the new Knesset than Netanyahu would. Nevertheless, the political future in Israel remains unsettled, which could be a headwind for Israeli stock prices in the near term.

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