Equities have continued to advance despite elevated oil prices, Trump’s trade policies, military conflicts, geopolitical uncertainty, a strong US dollar, higher interest rates and persistent inflation.

Summary

Investors traditionally turn to bonds for certainty, capital preservation and protection against equity-market volatility. Yet duration risk, inflation and currency fluctuations can undermine each of these objectives. The past five years have delivered a powerful reminder that earning a predictable coupon does not necessarily translate into preserving wealth, particularly in real terms.

The global economy remains resilient, although the investment environment is becoming increasingly complex. The US continues to demonstrate robust demand alongside persistent inflationary pressures. September’s Consumer Price Index (CPI) report reinforced this tension, with headline inflation accelerating to 3.7% year on year, up from 3.4% in August and above market expectations of 3.6%. This marked the 66th consecutive month of inflation exceeding 2%, highlighting the challenge facing the Federal Reserve as it balances price stability with economic growth.

Meanwhile, the next major constraint on the AI investment boom may have less to do with technological capability or demand and more to do with access to capital. CoreWeave’s recent share-price weakness illustrates the financing pressures confronting capital-intensive AI infrastructure providers. The challenge is straightforward: revenues are contracted for future delivery, while the substantial costs of constructing data centres and acquiring GPUs must be funded upfront. I would not be surprised to see Nvidia extend further financial support to CoreWeave, potentially through debt instruments with attached warrants. Such an arrangement could ease CoreWeave’s funding pressures while reinforcing Nvidia’s broader AI infrastructure ecosystem. The implications extend beyond any single company, raising important questions about financing, profitability and the sustainability of AI-related capital expenditure.

Against this backdrop, the current equity bull market is celebrating its fourth anniversary. Depending on your perspective and, more importantly, your portfolio positioning, the past four years have been either exceptionally rewarding or a series of missed opportunities. Equities have continued to advance despite elevated oil prices, Trump’s trade policies, military conflicts, geopolitical uncertainty, a strong US dollar, higher interest rates and persistent inflation. Few would have predicted such resilience against this combination of economic and political challenges.

Yet four years into the rally, the S&P 500 continues to demonstrate remarkable strength. For investors, however, the more relevant question is no longer how far equities have already risen, but whether the conditions supporting this bull market can sustain further gains, and where the next opportunities may emerge.

Bonds: Safe from Default, but Not from Inflation

Regular readers will know that I have consistently made the case for equities since launching this newsletter more than 15 years ago. My preference has never been to take risk indiscriminately, but to pursue equity returns through disciplined risk management and carefully structured downside protection. This is why structured equity notes have frequently featured in my investment approach.

And there is another way to think about them: As an alternative to conventional bonds for investors seeking a degree of downside protection without giving up all the potential for equity-linked returns.

Consider the chart below from Gavekal Research.

Since 2020, US consumer prices have risen by approximately +28-29%. Yet 7-10-year US government bonds, measured in US dollars, have delivered virtually no cumulative return. German government bonds have lost around -12%, while Japanese government bonds have lost more than -40%.

Only Chinese government bonds have comfortably outpaced US inflation in this comparison, returning approximately +37-38%.

Japan’s severe dollar-denominated loss was amplified by yen depreciation. In local currency, the loss was materially smaller, but still negative. Germany’s result was broadly similar in euros and dollars, while China’s bonds delivered a positive return in renminbi as well as dollars.

The conclusion is important: Protecting your capital from default is not the same as protecting its purchasing power. A bond may repay every dollar promised and still leave an investor materially poorer in real terms.

Investors often buy bonds for certainty, capital preservation and protection against equity market volatility. But duration risk, inflation and currency movements can undermine all three. The experience of the past five years has been a powerful reminder that receiving your coupons does not guarantee that your wealth has been preserved in real terms.

This is why I have long argued that the statement “equities are risky” needs qualification. Equities certainly carry risk. But risk is not determined by the asset class alone; it also depends on the price you pay, what you own, how you structure the investment, your time horizon and how you manage the downside.

A diversified portfolio of equities, held without leverage and combined with an appropriate degree of downside protection, can offer a very different risk-return profile from an unprotected equity position. Structured equity notes can be one way of implementing that approach, allowing investors to participate in specified equity-market outcomes while incorporating contractual protection features, subject to their terms.

The point is not that bonds have no place in a portfolio, or that equities are always superior. It is that safety should be measured by the outcome you achieve, not simply by the label attached to an asset.

After more than 15 years of advocating a disciplined, risk-managed approach to equities, my conviction remains unchanged: it is not enough to ask how much risk an investment carries. We should also ask what risk we are taking by avoiding it.

Moving on to the economy.

The global economy remains resilient, but the investment environment is becoming more complicated.

Energy-market disruption is renewing inflation concerns, central banks are reluctant to declare victory over price pressures, and elevated government borrowing is pushing up the cost of capital. At the same time, (some) doubts are emerging about how much of the enormous investment in AI infrastructure will translate into sustainable profits.

The IMF’s latest outlook puts global growth at +3.1% for 2026, while warning that geopolitical shocks, high borrowing requirements, and depleted policy buffers could test the economy’s resilience.

The US economy is showing an uncomfortable combination of resilient demand and persistent price pressures. September’s ISM services survey eased to 54.9 from 55.4, but new orders remained strong at 59.8 and the prices-paid index rose to 74.0, its highest level since July 2022.

The Fed raised its target rate by 25 basis points to +3.75-4% at its September meeting. The policy debate is now whether to wait for clearer evidence that inflation is contained or tighten further if price pressures persist.

Markets and the Economy

The September CPI report was the focus for markets this week, with headline inflation rising to +3.7% year on year from +3.4% in August, above the+ 3.6% consensus.

This marks the 66th consecutive month that headline CPI has remained above the Fed’s +2% target. Yet the current streak pales in comparison with the two longer episodes of above-target inflation, lasting 129 and 242 months respectively, which together spanned February 1966 to October 1997– with only a ten-month interruption.

These were hardly disastrous decades for equities: over the entire period, including the months when inflation dipped below +2%, the S&P 500 rose more than ninefold, delivering an annualised gain of approximately +7.5%, broadly in line with its long-run historical return.

White House NEC Director Kevin Hassett called the core inflation print “a blip,” attributing the headline acceleration to energy, and said more data is needed before the Fed acts and Fed Vice Chair Michelle Bowman reiterated she sees no urgent need for further rate hikes, noting the Fed has “some time to wait and see.”

The latest report does, however, complicate the near-term outlook. Monthly headline CPI rose +0.6%, driven largely by a +9.1% jump in gasoline prices, while core CPI increased +0.3% month on month and +2.6% year on year, both firmer than expected.

The distinction matters: An energy-driven spike may prove temporary, but persistent core inflation would make it harder for the Fed to ease policy.

The historical lesson is not that inflation is harmless, but that inflation above +2% does not automatically spell trouble for equities. The more important questions are whether price pressures broaden, how the Fed responds, and whether corporate earnings can continue to support valuations.

The next bottleneck in the AI buildout may not be demand or technology, but the cost and availability of financing. CoreWeave’s share-price weakness and reports of its borrowing costs reaching yields of around 15% highlight the growing pressure on capital-intensive neoclouds as competition for funding intensifies.

The business faces a classic cash-flow mismatch: revenues are contracted for future delivery, while the costs of building data centres and acquiring GPUs must be funded today. I wouldn’t be surprised if Nvidia provides further financial support to CoreWeave, potentially through bonds with attached warrants. Such a move could ease funding pressure on CRWV while strengthening the broader AI infrastructure ecosystem.

Ultimately, who provides the bridge financing? Likely candidates include hyperscalers and semiconductor companies – the very players that need this capacity.

Yes, the circularity is obvious, but it shouldn’t distract us from the underlying economics.

Neoclouds effectively provide hyperscalers with additional AI computing capacity without requiring them to own all the infrastructure on their own balance sheets, giving the latter a commercial incentive to help their partners scale.

The bigger questions remain: Is demand for AI real? And will we return to working and using software as we did before AI?

My answers are yes to the first and no to the second. The AI buildout is therefore not merely a technology story; it is increasingly a financing story. The critical question is whether future cash flows will justify today’s enormous capital commitments — and who will fund the gap in the meantime.

Some big birthday wishes are in order this month as the current bull market celebrates its fourth birthday.

Depending on your perspective, this bull market has been either remarkably resilient or downright oblivious. It has powered ahead despite a formidable quadruple threat: elevated oil prices, Trump’s trade war and real war, geopolitical tensions, a strong dollar, rising interest rates and above target inflation. Yet here we are, four years on, with the S&P 500 having delivered an impressive rally.

The current bull now joins the ranks of some legendary predecessors, most notably the 12-year rally from 1987 to 2000 and the 11-year bull market from 2009 to 2020. The table below compares the performance of the current bull market during its first four years with that of the eight previous bull markets that lasted at least four years.

But the more interesting question is not how far from the market has already climbed. How much further could it go?

History offers an encouraging, if nuanced, answer.

Looking at the performance of the eight previous bull markets from their fourth anniversary to their eventual peak, the best of the rally was already behind most of them: in six out of eight cases, gains from the four-year mark to the peak were smaller than those achieved during the first four years.

There were, however, two spectacular exceptions. The bull markets of 1949–1956 and 1987–2000 both delivered another 100% or more after their fourth anniversaries. The 2009–2020 bull market also ultimately gained more than 100% beyond its fourth anniversary, demonstrating just how long and powerful a rally can become.

Across the eight completed bull markets, the median gain from the fourth anniversary to the eventual peak was +37.7%. Only two recorded additional gains of less than +25%.

In other words, the strength of a bull market during its first four years has told us remarkably little about how much further it has left to run.

Of course, historical averages are not forecasts. Every bull market has its own economic, monetary and valuation backdrop. The current rally must still contend with above target inflation, high interest rates, geopolitical uncertainty, and the question of whether earnings growth – particularly from AI-related investment, can justify and under pin more upside.

But history does challenge one common investor instinct: Selling simply because markets have risen for several years.

The bull market deserves its birthday cake. Whether it gets another slice depends on the fundamentals. But if history is any guide, turning four is no reason to assume the party is over.

The third-quarter earnings season unofficially kicked off this Tuesday with the big-bank Goldman Sachs, JP Morgan, Citi, Wells Fargo reporting.

The earnings were mixed, but broadly supported by strong capital-markets activity.

• Goldman Sachs was the standout, with EPS of $17.01 versus $12.86 expected, driven by a 72% surge in equities trading revenue and a 21% rise in investment-banking fees
• Citi also beat expectations, with net income up around +40%, supported by growth in services, wealth management, and investment banking, although credit-card profitability weakened
• Wells Fargo narrowly beat on EPS at $1.87, but revenue and net interest income missed forecasts, highlighting pressure on traditional banking margins
• JPMorgan disappointed on headline earnings, with reported EPS of $5.57 affected by $658m in securities losses, despite strong equity trading and investment-banking performance

Overall, trading and dealmaking are providing a significant earnings tailwind, but deposit costs, consumer credit quality and the sustainability of trading revenues remain key risks.

For the third-quarter earnings, analysts are painting a rosy picture.

FactSet estimates S&P 500 earnings will grow +29.6% year on year in Q3, marking a third consecutive quarter of growth above 25%, well ahead of the +12.6% average quarterly growth rate cited over the past decade.

Corporate guidance is equally upbeat: A record 72 companies have issued positive earnings preannouncements, against just 44 negative ones, below the 10-year average of 57.

Analysts have raised the expected growth rate from +26.7% at the start of the quarter, with technology and energy among the key drivers. The optimism is striking -but how broad and sustainable is it when so many rests on a handful of sectors?

We will find out over the next couple of quarters.

Markets are trading nervously, increasingly at the mercy of headlines rather than fundamentals.

On Monday, speaking at the DBS Asia Future Forward conference in Singapore, Broadcom CEO Hock Tan argued that investors were misreading OpenAI’s fundamentals by reacting to short-term data points rather than its longer-term potential.

Tan bluntly stated that the market had misinterpreted the company, OpenAI, because its underlying fundamentals remained strong. Investors who sell based on a single short-term data point, he argued, are “essentially no different from people gambling in a casino.”

Tan was defending OpenAI against negative interpretations of its revenue outlook. Yet the remarks were spun into a broader warning about AI, adding to nervous sentiment and his “casino” analogy was directed at investors setting extreme expectations without fully understanding what they were buying – not a blanket dismissal of AI or its investment potential. Yet the remarks were spun into a broader warning about AI, adding to nervous sentiment.

On Tuesday, South Korea’s tech-heavy KOSPI fell -5.5%, while Samsung Electronics dropped -7.4% and SK Hynix -10%

In headline-driven markets, nuance is often the first casualty, and volatility the immediate consequence.

For 17 years, Qatar was the world’s largest LNG exporter. Then the US took the #1 spot in 2023 and has since widened the gap dramatically.

In 2025, the US accounted for 25% of global LNG exports versus 19% for Qatar.

Then came the Iran war.

In August, US LNG accounted for roughly 31% of global exports, while Qatar’s share collapsed to around 4%, as the war and the closure of the Strait of Hormuz disrupted Qatari shipments.

America’s LNG dominance is becoming a major geopolitical advantage. Energy security is geopolitics.

The November 3 US midterms are shaping up to be a significant test of Donald Trump’s US presidency.

Democrats have opened a lead of around 9 percentage points in the generic congressional ballot, while Trump’s approval rating has fallen to the high 30s.

Cost-of-living pressures, energy prices, and voter frustration with the administration are weighing on Republicans. Democrats appear well positioned to challenge for control of the House, while the Senate contest remains more finely balanced, with several Republican-held seats becoming competitive.

For markets, the key question is whether a Democratic victory in the House – potentially both chambers – would constrain Trump’s policy agenda.

A divided Congress could complicate the passage of tax, spending, and fiscal legislation, while intensifying political scrutiny of the administration.

Republicans retain a substantial fundraising advantage, and national polling does not necessarily translate into seat gains, particularly in the Senate, where state-level dynamics matter more. With just over two weeks to go, the election adds another source of uncertainty for investors already navigating inflation, interest rates, and geopolitical risk.

However, here is an important seasonality chart that you must look at besides the earnings expectation data I laid out above. Historically, the S&P 500 has averaged a +6.6% gain in the fourth quarter of US midterm election years- the strongest of the four stages of the presidential cycle.

It is an encouraging seasonal tailwind, but not a forecast: interest rates, earnings and valuations will ultimately matter more than the electoral calendar.

That said, midterm years such as 2018 and 2022 saw significant market weakness, driven largely by monetary tightening and broader macroeconomic headwinds.

This time, however, we may have passed the most aggressive phase of monetary tightening, while resilient corporate earnings have helped underpin equity valuations.

If inflation comes down, and earnings growth holds up, the historical tendency for midterm-year markets to strengthen in Q4 could provide an additional tailwind – though much will depend on the trajectory of interest rates and realised earnings growth.

For tailored strategies, stock-specific ideas, or structured solutions, please reach out to your relationship manager.

 
Best wishes,

Manish Singh, CFA

Can Treasury support market liquidity without artificially suppressing borrowing costs? Manish Singh looks at the implications for yields, fiscal policy and risk assets.

Summary

Bond buybacks are a curve-flattening tool, supporting long-dated bond prices and reducing the term premium at the long end of the curve. More importantly, they reinforce the view that the US Treasury has several levers available to influence long-term yields without requiring the Federal Reserve to resort to quantitative easing or formal yield curve control. Politically, the move is somewhat awkward for Treasury Secretary Scott Bessent, who previously criticised Janet Yellen for altering Treasury issuance to ease financial conditions, arguing that it blurred the line between fiscal and monetary policy. Circumstances, however, have a habit of testing previously held convictions.

Whether Bessent’s strategy succeeds remains to be seen. But for perhaps the first time in decades, the world’s largest bond market is being managed by someone who has spent a career trading it. That is a significant shift, and one that markets may not yet fully appreciate.

A 4% to 4.5% 10-year Treasury yield is not necessarily a problem. It can be a feature of a healthy economy, while imposing useful discipline by making excessive government borrowing more expensive. Treasury buybacks should improve market liquidity and help prevent disorderly moves in yields. They should not be used to engineer artificially low borrowing costs. If buybacks become a mechanism for suppressing yields, they risk encouraging even greater fiscal profligacy.

More broadly, the message from the past four weeks of economic data is reassuring. The US economy is proving more resilient than the pessimists expected, while inflation is becoming less threatening than the hawks feared. Equity markets have historically struggled when inflation accelerates alongside weakening growth, the classic stagflation scenario, or when recession causes corporate earnings to collapse. Today’s data suggest neither is the most likely outcome.

Instead, earnings growth is increasingly being supported by investment, productivity gains and artificial intelligence rather than an overstretched consumer. For risk assets, and equities in particular, that remains a constructive backdrop.

Bessent Buys the Long End. Is the Market Listening?

Every US Treasury Secretary inherits the Treasury bond market.

Few try to trade it.

Scott Bessent is different.

For perhaps the first time in modern Treasury history, the United States has a Treasury Secretary who spent four decades as a global macro investor, trading bonds, currencies, and interest rates at the highest level. Before entering government, Bessent was a partner and Chief Investment Officer at Soros Fund Management and later founded Key Square Capital. His career was built on understanding liquidity, market psychology, and the interaction between fiscal and monetary policy – not writing academic papers about them.

That distinction matters.

The obvious historical comparison is Alexander Hamilton.

Hamilton was America’s first Treasury Secretary, but more importantly he was America’s first debt manager.

The United States emerged from the Revolutionary War effectively bankrupt. States had accumulated separate debts, federal obligations traded at distressed prices, and confidence in American credit barely existed. Hamilton’s genius was recognising that public credit was itself a national asset.

His famous maxim still resonates today: “A national debt, if it is not excessive, will be to us a national blessing.”

Hamilton did not mean debt was inherently good. He meant that a well-managed government bond market creates credibility, lowers borrowing costs and provides the financial foundation upon which capital markets develop. The US Treasury market exists today, largely because Hamilton deliberately created one.

One of the most interesting developments in global markets this month has not been a Federal Reserve decision or an inflation print. It has been the US Treasury market, where Bessent has suggested using buybacks of long-dated bonds as part of a broader debt management strategy.

The policy itself is relatively straightforward. The reaction to it has been anything but.

US Treasury Yield: 10-Year, 20-Year & 30-Year (Aug 2025- Aug 2026)

Source: Bloomberg

Within hours of Bessent announcing an expansion of Treasury buybacks in the 10–30-year sector, headlines declared the policy a failure because long-end yields had barely moved. The Financial Times suggested the intervention had “failed to soothe investors.”

That conclusion struck me as extraordinary.

The 10-year Treasury yield had moved by only a handful of basis points. Anyone who has traded bonds understands that Treasury yields fluctuate throughout the trading day as liquidity ebbs and flows. Four or five basis points tells you remarkably little about whether a policy has succeeded or failed. Yet in today’s media environment, every market tick is expected to fit a ready-made narrative.

This is not occurring in a vacuum.

Relations between Bessent and sections of the financial press have become increasingly strained. Bessent has openly criticised what he calls “steno journalism,” reporting that simply repeats prevailing narratives without analysing the underlying policy.

Whether one agrees with his criticism or not, it has clearly become personal. Every Treasury announcement is now met with a degree of scepticism that sometimes borders on hostility.

Markets benefit from scepticism, but they suffer when scepticism becomes confirmation bias.

One comment from Bessent has largely been ignored. He remarked that Treasury possesses “asymmetric information.”

That is an important observation.

Debt management decisions are informed by information about issuance calendars, dealer balance sheets, funding conditions, foreign official demand, and market functioning that is simply unavailable to outside observers. Investors often assume policymakers are reacting to markets. Policymakers are frequently acting on information markets have not yet incorporated.

Bessent has previously hinted that coordinated action between the United States and Japan in stabilising USD/JPY precisely demonstrated this point. Public markets only discover such coordination after the fact.

Perhaps the most revealing episode came from social media. Bessent explained that Treasury intended to purchase up to $4 billion per operation. Within hours this became distorted into a claim that Treasury would purchase only $4 billion of Treasuries in total.

The distinction is enormous. Yet that nuance disappeared almost immediately. Memes circulated showing a tiny truck attempting to fill a gigantic hole labelled “$40 trillion US debt.” It was clever, gained enormous traction across social media, but it was also wrong.

This illustrates one of the defining characteristics of modern financial markets. Information no longer competes on accuracy. It competes on shareability.

The bond buyback strategy itself deserves more attention than the headlines. Treasury is effectively issuing shorter-dated securities while repurchasing discounted long-dated bonds.

Consider one simple example:

• The Treasury 4% bond maturing in November 2052 has recently traded around 82 cents on the dollar, with approximately $64 billion outstanding.
• If Treasury repurchases the entire issue at market prices, it will require roughly $52 billion of newly issued short-dated debt to retire $64 billion of face value.
• Back-of-the-envelope arithmetic suggests that around $12 billion of outstanding principal disappears through the transaction before accounting for coupons, accrued interest and issuance mechanics.

Equally important, the operation improves liquidity in older, less actively traded securities while concentrating issuance into benchmark maturities that trade more efficiently. This is debt management, not a monetary policy or Quantitative Easing (QE) on the sly as some have called it.

Much of the commentary has focused on whether long-end yields fell immediately after the announcement. That misses the point entirely.

Treasury is attempting to improve the structure of government financing, enhance liquidity and reduce refinancing costs over time, not engineer a dramatic overnight collapse in yields.

Markets rarely reward thoughtful policy instantly. Nor should they.

Perhaps the most important lesson has little to do with bonds.

It concerns information. Today’s markets are increasingly shaped by headlines, social media, and memes. Nuance disappears and the context is often lost as interpretation overtakes facts.

As investors, we therefore have a responsibility to go back to primary sources. Listen to speeches. Read transcripts. Examine Treasury announcements. Separate what policymakers said from what social media claims they meant. The gap between those two things has never been wider. And in markets, that gap increasingly creates opportunity.

In my opinion, as I have been saying for a few months now – inflation is not a problem, bond yields are not a problem and the debt management that Bessent is undertaking is a smart move. Bond buybacks are a curve-flattening tool, supporting long-dated bond prices and reducing the long-end term premium. It reinforces the view that the US Treasury has several levers to influence long-term yields without the Fed resorting to quantitative easing or formal yield curve control. Politically, the move is awkward for Bessent, who previously criticised Janet Yellen for altering Treasury issuance to ease financial conditions, arguing that it blurred the line between fiscal and monetary policy. But you do what you have got to do.

Whether Bessent’s strategy succeeds remains to be seen. But for perhaps the first time in decades, the world’s largest bond market is being managed by someone who has spent a lifetime trading it. That is a significant shift, and one that markets may not yet fully appreciate.

Markets and the Economy

Inflation concerns this summer have largely centred on one question: Would the Iran conflict send oil prices soaring by disrupting the Strait of Hormuz?

So why hasn’t oil spiked as much as many feared?

One important reason is that the US military has quietly kept oil flowing through the Strait of Hormuz. As reported by Axios, according to US officials, 15–20 tankers have been transiting the southern shipping lane each night, allowing around 10 million barrels of oil per day (mbpd), roughly half of pre-war volumes, to reach global markets. Add to that 4-5 mbpd transported through Saudi pipelines and you begin to understand why the oil price spike has been contained. As I regularly remind readers of this newsletter, always look for the reaction function. A knee jerk reaction to risk is almost always the wrong instinct and it clouds judgement.

The operation has helped cushion the biggest inflation risk from the conflict: A sharp supply shock in crude oil.

It’s a reminder that markets don’t just react to wars. They react to whether supply is disrupted. So far, despite the conflict, a significant share of Gulf oil exports has continued to flow, helping to keep a lid on energy prices and, by extension, inflation expectations.

Asset class and Index performance – as of Aug 24, 2026

Source: Bloomberg

Before I talk about equities, for the first time in quite a while, Bitcoin ETF ($IBIT) topped the weekly asset class performance table, surging +22.6% while the Nasdaq 100 ($QQQ) fell -2.4%.

That’s worth paying attention to.

For much of the past two years, Bitcoin has largely traded as a high-beta technology asset. Last week, it began to behave differently.

The timing is very interesting.

The GENIUS Act provides the first comprehensive federal framework for dollar-backed stablecoins. On its own, it isn’t a Bitcoin or crypto bill. But it legitimises a broader digital asset ecosystem by giving banks, payment companies, and institutions greater regulatory clarity.

History suggests that when the infrastructure becomes investable, capital follows.

The market may be starting to look beyond Bitcoin as a speculative asset and towards Bitcoin as part of an emerging digital financial system.

If that’s right, last week’s divergence from tech wasn’t just a strong week for Bitcoin. It may have been an early signal that the next phase of institutional adoption has begun.

On to the US economy and equities

Over the past month, investors have been bombarded with economic releases—CPI, retail sales, GDP revisions, inflation expectations, and labour market data. Taken individually, the numbers appear mixed. Viewed together, however, they paint a remarkably consistent picture (summary table below).

In my opinion, the US economy is slowing, but it is not stalling and it’s cooling gracefully.

The big picture on US macro data: The US economy is cooling gracefully

That distinction is critical because equity markets do not require booming growth. They require an economy that continues to expand without reigniting inflation.

The inflation story has become increasingly encouraging. Headline CPI eased to +3.4% year-on-year (YoY), while core inflation remained contained at +2.5%, suggesting underlying price pressures continue to moderate despite higher oil prices resulting from geopolitical tensions. Earlier PCE readings also showed inflation easing from spring highs, with July’s report out later this week expected to reinforce that trend. While inflation remains above the Federal Reserve’s +2% target, the direction of travel is becoming more favourable.

Consumer spending has softened but remains far from recessionary. July retail sales declined, although much of the weakness reflected calendar effects following Amazon Prime Day shifting into June. Strip out those distortions and underlying spending remains resilient, particularly in restaurants, clothing, and services. Household demand may be cooling but it isn’t collapsing.

The composition of economic growth is also changing.

Consumer spending is no longer carrying the economy alone. Instead, investment -particularly in AI infrastructure, technology and government-supported capital expenditure, is becoming a larger contributor to GDP. That transition is healthier than many appreciate because investment expands productive capacity rather than simply fuelling consumption. Over time, that can support further consumer spending as jobs are created and wages are earned and spent.

Meanwhile, inflation expectations remain reasonably anchored. This leaves investors facing an unusual backdrop.

• Growth is moderating
• Inflation is gradually easing
• Corporate investment remains strong
• The labour market is cooling without showing signs of distress

That combination is far more consistent with a mid-cycle slowdown than the beginning of a recession.

For equities, this matters enormously. Equity markets have historically struggled when inflation accelerates alongside weakening growth, classic stagflation, or, when recession causes earnings to collapse. Today’s data suggest neither scenario is the most likely outcome.

Instead, earnings growth is increasingly being supported by investment, productivity improvements, and artificial intelligence rather than an overstretched consumer.

The principal risk remains the bond market. Long-term Treasury yields continue to reflect concerns over fiscal deficits, Treasury issuance, and the supply of government debt. Higher real yields can compress equity valuations even if earnings remain healthy. That explains why equity markets have become increasingly sensitive to movements in the long end of the Treasury curve.

In the 24 midterm election years since 1928, the S&P 500 has, on average, been essentially flat through August, posting a modest 0.5% decline year-to-date. By contrast, in the 74 non-midterm years, the index has delivered a much stronger average gain of 8.2% over the same period.

However, the pattern reverses in the final four months of the year. From September through December, the S&P 500 has averaged a 4.2% gain in midterm years, compared with just 1.15% in non-midterm years (chart below).

Source: Bespoke Investment Group

In other words, midterm years tend to underperform early in the year but significantly outperform into year-end, making the September–December period one of the strongest seasonal windows in the four-year presidential cycle.

Overall, the message from the last four weeks of economic data is reassuring. The US economy is proving more resilient than the pessimists expected, while inflation is becoming less threatening than the hawks feared.

For risk assets, and equities in particular, that remains a constructive backdrop.

The market is no longer pricing perfection; it is pricing resilience.

The path to the S&P 500 at 8,000 and NASDAQ 100 at 30,000 remains intact, but it will not be linear. Periods of volatility, consolidation, and drawdowns are inevitable as we saw in June-July.

This is precisely the type of environment where structured strategies become relevant. Properly deployed, they allow investors to navigate volatility, define entry levels, and generate returns even in sideways markets. For tailored strategies, stock-specific ideas, or structured solutions, please reach out to your relationship manager.

 
Best wishes,

Manish Singh, CFA

The Chair of the US Federal Reserve, Kevin Warsh seems to be saying – stop looking to the Fed for forecasts and start focusing on the data.

Summary

Federal Reserve Chairman Kevin Warsh has inherited what many would argue is the most over-communicated institution in modern financial history. For much of the past decade, markets devoted as much attention to interpreting the Federal Reserve’s language, dot plots, speeches and forward guidance as they did to analysing the underlying economic data itself. Under Chairman Warsh, that dynamic appears to be changing.

In a world where economic indicators are often noisy, heavily revised and occasionally contradictory, the temptation for central bankers to over-explain and over-guide has been considerable. Warsh appears determined not merely to resist that temptation, but to reverse it altogether. Perhaps the most revealing aspect of this week’s FOMC meeting was his decision not to submit his own projections to the Fed’s “dot plot”, while encouraging other Committee members to continue doing so. This was no oversight. Warsh has repeatedly argued that dot plots are a flawed communication tool, that forward guidance can unnecessarily constrain policymakers, and that the Fed has spent much of the past decade over-promising and under-delivering on transparency. His absence from the projections was itself a powerful statement of intent. The message to markets was clear: stop looking to the Fed for forecasts and start focusing on the data.

Versailles has a complicated history when it comes to international agreements. It is therefore fitting that the newly signed U.S.-Iran accord should emerge from the same venue. The last truly consequential agreement signed at Versailles was the Treaty of 1919, celebrated at the time but viewed far less favourably by history. Whether the latest agreement proves more durable remains to be seen, but its geopolitical implications could be significant for both energy markets and investor sentiment.

There are also reasons to believe inflation may continue to ease without further aggressive policy intervention. Historically, Google searches for the term “inflation” have tended to peak roughly six months ahead of CPI readings. Search interest reached a five-year high in March, suggesting inflation could peak around September if that historical relationship holds. Our base case remains for an extended policy pause, with the first rate cut potentially arriving in October or December should inflation prove more persistent than expected.

The broader investment backdrop remains constructive. Economic growth continues to demonstrate resilience, inflation is gradually moderating, and the labour market, while slowing, is not showing signs of significant deterioration. The path towards an S&P 500 at 8,000 and a Nasdaq 100 at 30,000 is unlikely to be linear. Periodic corrections and extended periods of consolidation should be expected. Nevertheless, the longer-term outlook for risk assets remains favourable.

The Warsh Fed: Less Guidance, More Judgment

The U.S. Federal Open Market Committee (FOMC), under its new Chair Kevin Warsh, met this week and left the Federal Funds Target Rate unchanged at 3.75%.

The decision itself was not the most interesting part of the meeting. The statement was.

At just 162 words, it was the shortest FOMC statement since 2007. To find anything similarly concise, you would have to go back to the Alan Greenspan era in the early 2000s.

That brevity appears deliberate.

Warsh has inherited what many would argue became the most over-communicated institution in modern financial history. Over the past decade, markets often spent more time interpreting the Federal Reserve’s (Fed) ‘s language, dot plots, speeches, and forward guidance than they did analyse the underlying economic data.

The new approach seems to be the opposite.

Rather than pre-judging the economy, guiding markets toward a particular outcome, or signalling future policy moves months in advance, the Warsh Fed appears intent on restoring economic data as the primary signal.

The message is straightforward: Don’t look to us for clues about what comes next -look to the data. We will be doing the same.

It is a notable shift from recent years, when a single speech or phrase from the Fed Chair could move markets regardless of what the incoming data was saying. In a world where economic indicators can be noisy, revised, and sometimes contradictory, the temptation to over-communicate became overwhelming. Fed Chair Warsh appears determined to not just resist that temptation but to reverse that trend of overcommunication.

On data, he was equally direct: “Most of the data that central bankers consume come with old-fashioned survey methods – a national account of what the US economy looks like that looks very little like the US economy in 2026. Survey methods that don’t have response rates that we need, asking questions that might have been applicable a generation ago that are less applicable now.”

The Fed has been making trillion-dollar decisions with instruments built for a different economy. Warsh is saying that plainly and publicly. That alone is a departure.

There is something refreshing about a central bank that is trying to make itself less important and the data more important. I’d urge you to watch the full 45 minutes of the press conference.
It was brilliant.

US Federal Reserve Chairman Kevin Warsh at the FOMC press conference on June 17, 2026

Source: US Federal Reserve

The FOMC statement itself was a masterclass in saying very little. Growth was described as “solid.” Productivity was “strong.” Job gains had “kept pace.” Unemployment was little changed. Inflation remained “elevated,” though pressure was attributed largely to “certain sectors, including energy.”

On a natural language processing scorecard, the statement managed to sound both hawkish and dovish at the same time—either a feat of careful ambiguity or a document intentionally engineered to reveal as little as possible. I suspect it’s the latter and that was likely the point.

If the FOMC statement told investors almost nothing, the Summary of Economic Projections (SEP) told a rather different story.

The median FOMC participant now expects one rate hike this year. Core inflation is forecast at +3.3%, remaining above target not only this year but into 2027. Unemployment forecasts were revised lower, and the projected policy path for 2026 and 2027 shifted by a cumulative 50 basis points.

The dots, in other words, were hawkish.

Perhaps the most revealing detail was that Warsh himself declined to submit projections to the SEP, while encouraging other members to continue doing so.

That was not an oversight.

Warsh has repeatedly suggested that dot plots are a flawed communication tool, that forward guidance often boxes policymakers into commitments they later regret, and that the Fed has spent the past decade over-promising and under-delivering on transparency. His absence from the projections, was itself a statement of intent.

The message to the market was clear: Stop looking to the Fed for predictions about the future and start looking at the data.

That philosophy extended beyond the statement.

Warsh announced five task forces to review Fed communications, the balance sheet, data sourcing, productivity and labour market measurement, and the inflation framework. Notably, he ruled out reconsidering the Fed’s +2% inflation target before the reviews had even begun.

The task forces may be entirely genuine. They may also serve as the mechanism through which Warsh pursues a deeper institutional redesign of the Fed. My interpretation, however, is somewhat different. By sending major questions to committees and review groups, Warsh is signalling to existing FOMC members that he is not planning a sudden overhaul.

Nothing changes immediately. Everything goes through a process. That approach buys time, builds consensus, and reassures colleagues who may be wary of rapid change. If Warsh wants to reshape how the Fed communicates and operates, he will need the broader FOMC on side. Committees provide a way to move the conversation forward without forcing immediate decisions.

Viewed in that light, these announcements amount to something much larger than a routine policy meeting. They suggest a Chair focused not simply on interest rates, but on gradually reshaping the institution itself.

Forward guidance is being de-emphasised. Verbose statements are disappearing. The Chair has personally abstained from the dot plot. Internal reviews are underway across nearly every major aspect of the institution’s communication and analytical framework. This is not tinkering around the edges. It is a structural review of how the Federal Reserve thinks, speaks, and acts.

The irony is exquisite: The most significant shift in Fed communication philosophy in two decades was delivered in just 162 words.

Greenspan would probably have approved. The dot plot almost certainly would not have survived his tenure.

Less guidance, more judgment and more attention to economic data and less attention to central bankers trying to forecast the future.

After a decade in which markets often reacted more to Fed rhetoric than to economic reality, that may be the most important policy change of all.

The reporters gathered at Fed press conference were demonstrably frustrated that Warsh wouldn’t give them the forward guidance headline.

That frustration is precisely the point. Journalists who covered the Fed under Jerome Powell and Janet Yellen learned to listen for the coded signals, parse the adjectives, and write the market-moving headline.

Warsh is withdrawing that service. If you want to write about where rates are going, look at the data, build an argument, and write like an analyst. The Fed is no longer in the business of doing that work for you.

Welcome to a new Fed. Welcome to the Warsh Fed.

Markets and the Economy

Versailles has a complicated history when it comes to international agreements. It is therefore fitting that a new U.S.-Iran agreement has been signed there of all places.

The last truly famous document signed at Versailles was the Treaty of 1919. It was celebrated at the time. History has since delivered a rather different verdict..

This latest agreement is not technically a treaty but rather a Memorandum of Understanding (MoU). Investors may prefer to think of it as a Letter of Intent (LOI). The challenge, as always with LOIs, is determining what the real intent is and whether it ultimately translates into action.

For now, two immediate positives stand out: A reduction in geopolitical tension and the reopening of the Strait of Hormuz.

The latter matters enormously. Roughly a fifth of global oil trade passes through the Strait, making it one of the most strategically important waterways on earth. The first captain willing to sail a fully loaded container ship through Hormuz after the reopening deserves a trophy larger than the World Cup.

Longer term, however, I suspect the agreement may accelerate a trend that was already underway: A global reappraisal of security guarantees.

Over the next decade, I would not be surprised to see a significant increase in defence spending, including renewed debates around nuclear deterrence in countries that currently lack it. From East Asia to the Middle East, many U.S. allies will increasingly ask themselves whether external security guarantees are sufficient in an era of shifting geopolitical priorities.

The most memorable moment, however, came after the signing ceremony.

Trump finished signing. Macron leaned over and said, “Good job.” The room applauded.

Then Trump turned directly toward the cameras, made a deliberate hand gesture, and delivered his entire market assessment in four words:

“Oil down. Stocks up.”

That was it.

No lengthy diplomatic statement. No strategic doctrine. No detailed geopolitical analysis.

Just four words.

Whether one views him primarily as President, negotiator, or market participant, it was a reminder that Trump often sees world events through an investor’s lens – it was a reminder that Trump often sees world events through an investor’s lens. At that moment, the foreign policy briefing and the market commentary became one and the same.

Oil down. Stocks up. The Portfolio Manager-in-Chief had spoken.

US President Donald J. Trump signs the Iran Memorandum of Understanding, Versailles, June 17, 2026

Source: White House

SpaceX is now a public company. The company claims perhaps the largest actionable Total Addressable Market in history: $28.5 trillion.

The rockets, satellites and launch infrastructure are what made SpaceX famous. They also made Elon Musk one of the great innovators of our time.

But look closely at the numbers.

• Enterprise AI applications account for $22.7 trillion of the claimed TAM. That is roughly 80% of the total.
• Space itself—the business SpaceX is best known for—accounts for just $370 billion, or around 1.3%.
• Add Starlink broadband and mobile, and the businesses generating real revenue and profit today still represent less than 7% of the TAM being presented to investors.

In other words, if you are buying SPCX, you are not simply buying a rocket company. You are buying an AI enterprise software company that happens to own the world’s best rocket business.

That distinction matters.

The AI segment—xAI, X, Grok and Colossus compute – is currently losing around $6.4 billion a year. Starlink is the only profitable segment.

Source: SpaceX S-1 document for IPO, June 2026

The valuation is equally demanding.

At a $1.75 trillion valuation, SpaceX trades at roughly 70x forward revenue. For context, the median technology company trades around 3x, Tesla around 14x, and NVIDIA around 18x.

There is no question the company has extraordinary assets. Starlink has a powerful moat. Starship could change the economics of space. Grok reportedly has 117 million monthly active users and is scaling quickly. But the stock is asking investors to price a vast amount of future revenue today.

In June 2026, this is still a company losing $4.3 billion per quarter, with 80% of its claimed TAM tied to businesses that have little to do with rockets or satellites.

So, the question is simple: Is SPCX the next Mag 8 name, or the most spectacular amount of pixie dust ever packaged in a prospectus?

Let’s see where the stock is trading when various lockups start expiring from mid-August.

Turning to broader equity markets and looking at Indian equities which we don’t do much often in these pages unless I have a lesson to share.

When every investor is overweight the same story, ask yourself a simple question:
Who’s left to buy?

Two years ago, India was the world’s favourite equity market. Every institutional investor wanted exposure. The narrative was irresistible: demographics, digitisation, manufacturing growth, and the “China alternative.”

By mid-2024, MSCI India was trading at more than a 100% premium to the broader Emerging Markets index – the widest valuation gap versus Asia-Pacific peers in two decades.
Consensus was unanimous.
Then reality arrived.

MSCI India is down -4.4% year-to-date in 2026 and has delivered just +3.3% cumulatively across 2025 and 2026. It ranks last in the MSCI universe, with every major peer outperforming, some by more than 70 percentage points.

Global Equity Index Performance (2026 YTD and 2025-26 YTD)

For dollar-based investors, the picture is even worse. The rupee has fallen more than -9% against the dollar over the past year, turning a modest local-market decline into something much closer to a -15% drawdown.

So, what went wrong?

Arguably, very little.

India remains India. Bureaucracy has improved but remains burdensome. Reforms continue, but more slowly than hoped. Policy uncertainty still appears from time to time. None of this is particularly new.

What changed was the price investors were willing to pay.

At around 24x forward earnings—roughly 27% above its own long-term average -the market had already priced in near-perfect execution of a decade-long growth story.
Markets don’t reward stories. They reward positive surprises.

And when expectations become extreme, even good outcomes can disappoint.

As capital rotated into China’s recovery, AI infrastructure, and other emerging markets, India’s premium left investors with little margin for error.

The lesson extends far beyond India.

Narrative is not valuation. Consensus is not a margin of safety. And the most crowded trade rarely ends well.

India may still prove to be a generational investment opportunity. But a great story and a great investment are not the same thing.

The price you pay determines the return you get, not the narrative and not the consensus, and certainly not the slides in the pitch deck.

In the US, going back to 1930, every Federal Reserve Chair has seen stocks decline during the first three months of their tenure, including Eugene Meyer, who served through the depths of the Great Depression. The question now is whether Kevin Warsh will be the exception.

Recent developments may improve his odds.

President Trump announced the recent deal with Iran, and over the past four weeks, the economic data has painted a clear picture.

The U.S. economy remains resilient. Retail sales surprised to the upside, rising +0.9% in May.
The labour market remains healthy, with unemployment around 4.3% and jobless claims near historical lows.

Consumer sentiment has improved modestly as fuel prices eased.

The challenge remains inflation, with headline CPI back above+ 4% and the Fed’s own forecasts showing inflation remaining above target into 2027.

The economy is not weak enough to justify rate cuts today. But neither is it overheating enough to justify rate hikes.

That is why the growing discussion around further tightening looks misplaced.
Raising rates into an oil-driven supply shock does not solve the underlying problem; it risks slowing growth while having limited impact on the source of inflation.

The Fed made a major analytical mistake in 2021 by holding onto the “transitory” narrative for too long. The danger now is overcorrecting and tightening policy simply to prove that lesson has been learned.

There are reasons to believe inflation may cool on its own.

Historically, Google searches for “inflation” have tended to peak roughly six months before CPI. Search activity reached its highest level in five years in March (chart above). If that relationship holds, inflation could peak around September.

My base case remains unchanged. No rate hike and no rate cut at the next two FOMC meetings. The most likely outcome is a prolonged pause, with the first potential rate cut coming at the October meeting – or perhaps December if inflation proves more stubborn than expected.

For now, patience is the correct policy. The Fed’s job is not to react to every headline but to determine whether today’s inflation pressures are temporary or persistent.

Warsh’s first major test may not be whether he can defeat inflation. It may be whether he can avoid fighting the last inflation battle all over again.

Bottom line: Growth is still solid, inflation will cool opening path to at least one rate cut this year, and the labour market is bending, not breaking.

The journey to the S&P 500 at 8,000 and the Nasdaq 100 at 30,000 will not be linear. Periodic selloffs and extended sideways phases are inevitable along the way.

That’s precisely where equity structured products come into their own. Used thoughtfully, they are an effective way to navigate and potentially monetize-higher volatility. These strategies can offer partial capital protection, help define disciplined entry levels, and generate returns even when markets move sideways or pull back.

For tailored ideas, stock-specific structures, or deeper insights, please reach out to me or your dedicated relationship manager.

 
Best wishes,

Manish Singh, CFA

Extreme outcomes are easy to imagine and often dominate attention in uncertain times—but they rarely fully materialize.

Summary

The S&P 500 move since late February may be one of the clearest recent examples of a pattern inversion: Stairs down, elevator up. From the lows triggered by the Iran conflict, the index has now recovered to a fresh all-time high.

The biggest risk in this environment is not the market itself. It is the reaction to it. You do not need to predict volatility to build wealth. You need the discipline to stay invested through it. Every cycle carries its own narrative; the behavioural errors tend to be identical across all of them. Investors reprice fear too aggressively, exit at the wrong moment, and return too late.

What investors consistently get wrong is not the event, but the reaction function. The tendency is to focus on what should happen: markets should fall further, risks should be repriced more aggressively, geopolitics should matter for longer. But “should” reflects bias, not probability. Markets price the distribution of outcomes, not the most emotionally compelling one. Extreme scenarios dominate attention in periods of elevated uncertainty. They rarely play out in full. Meanwhile, the market adapts, discounts, and moves forward even when the underlying situation remains unresolved.

The recovery in equities has been notable, but not excessive.

Despite rallying more than +11% from recent lows, the S&P 500 is up only around +3% year-to-date. The NASDAQ has outperformed, rising approximately +17% from the lows and around +4% on the year. What stands out is the absence of positioning excess. A classic FOMO phase, characterised by aggressive inflows and broad retail participation, has not materialised. If geopolitical risk continues to fade and earnings hold, that phase may still be ahead of us.

Markets don’t wait for peace. They just move on

One year on from “Liberation Day,” the lesson remains as relevant as ever: Markets react violently to shocks – but they don’t stay there for long.

When President Donald Trump stepped into the Rose Garden on April 2 last year, the S&P 500 was already under pressure. Investors expected tariffs and expected near-term pain, but they also believed it would be manageable. The index closed less than -2% down that day, reflecting a consensus that the risk was understood and largely priced in. Within 48 hours, that assumption was shattered. The S&P 500 fell roughly -10%, not because tariffs were introduced, but because they were far more aggressive than anticipated. It wasn’t the event itself – it was the gap between expectation and reality.

Fast forward to today, and the parallels are striking.

In late February, if you had asked investors to model a scenario where the US and Israel attack Iran, retaliation spreads across the Gulf, drones and missiles strike major regional players, and the Strait of Hormuz effectively shuts down – collapsing ship traffic from around 130 vessels a day to single digits -the overwhelming consensus would have been clear. Equities would be down 20–30%, with a prolonged recovery ahead.

That’s not what happened.

S&P 500 and start of the Iran conflict (27/02)

Source: Bloomberg

The actual drawdown in the S&P 500 was closer to -9%, at its worst. Seven weeks on, the market is at a new all-time high. This is even though the conflict remains unresolved, tensions are still elevated, and oil prices have moved meaningfully higher.

This is the uncomfortable truth about markets: They don’t wait for clarity, and they certainly don’t wait for resolution. They reprice quickly, adjust positioning, and move on. The initial reaction is driven by fear and uncertainty, but once the worst-case scenarios are partially discounted and not immediately realised, markets stabilise far faster than expected.

We’re all familiar with the saying that markets “take the stairs up and the elevator down.” This time, it’s been the reverse (see chart above). As market structure evolves, so do the patterns. This may well be one of the clearest examples yet of stairs down, elevator up, with the S&P 500 now back at a fresh all-time high.

The biggest risk today isn’t the market; it’s how one reacts to it.

You don’t need to predict volatility; to create wealth, you need to have the behavioural resilience to survive it.

Every cycle feels unique, every risk feels unique and different, more often than not, the behavioural mistakes many make are the same old – reprice fear way too high, abandon and come back too late.

Don’t get scared out of your trades.

What investors consistently get wrong is not the event itself, but the reaction function. There is a tendency to focus on what should happen – markets should fall further, risks should be repriced more aggressively, geopolitics should matter for longer. But “should” is simply a reflection of bias. Markets don’t reward that. They price probabilities, not opinions.

Extreme outcomes are easy to imagine and tend to dominate attention, particularly in periods of heightened uncertainty. But they rarely play out in full. Meanwhile, the market is constantly adapting, discounting a range of outcomes and moving forward even as the underlying situation remains unresolved.

The implication is straightforward. If you remain fearful for longer than the market does, you are likely to miss the recovery. The objective is not to predict every shock, but to construct portfolios that can withstand them—protecting downside without sacrificing participation in the upside.

Different backdrop. Same conclusion.

Markets don’t wait for peace. They just move on.

Schrödinger Strait

In the thought experiment proposed by Erwin Schrödinger, the renowned physicist, a cat confined in a box is both alive and dead until the box it’s in is opened – a provocation meant to illustrate the peculiar logic of quantum mechanics. Applied, loosely to today’s maritime tensions in the Strait of Hormuz, the idea captures a disquieting truth: The Strait of Hormuz is at once open and closed.

Formally, if you believe both the US and Iran, the Strait has been restored to normal traffic. In practice, however, the picture is murkier.

Risk premia rise and fall with each incident. Tankers carrying oil and gas adjust routes, and schedules. Insurers recalibrate exposure and recalculate premiums.

Naval escorts (or blockades) become more visible. None of this amount to closure. Yet neither does it resemble normality.

The Strait exists in a condition akin to Schrödinger’s cat: Open in law, constrained in behaviour.

That said, such ambiguity is not accidental; it is instrumental.

For Iran the ability to unsettle the Strait without crossing the threshold of outright disruption, offers leverage at a tolerable cost.

For the US, the imperative is to deter escalation without overcommitting.

The result is a managed instability – volatile enough to command attention, contained enough to avoid catastrophe, “harmless” enough to give risk assets a relief and boost like we have seen over the last ten days.

Iran conflict and the region around the Strait of Hormuz

As one would imagine, the economic consequences are subtle but significant.

Energy markets price in probability rather than fact. Insurance costs, freight rates and hedging strategies all reflect a spectrum of possible outcomes, not a settled state. In effect, the strait’s uncertainty becomes a tax on global trade the longer it continues.

So far the market seems to think or at least believe a resolution is in sight. What it may get is another extension of ceasefire and not a final deal.

I was on CNBC earlier this week and as I said on the show, the present situation in the Strait is a ceasefire, not a solution. I do not expect a deal, I don’t think anyone does.
We will likely see an extension of the ceasefire.

For now, the Strait of Hormuz remains navigable. But it is no longer straightforward. Like Schrödinger’s cat, its status depends on perspective – simultaneously open and closed, stable and fragile.

The world may continue to trade through it. Yet it does so in a state of suspended certainty, where perception carries as much weight as reality.

As for President Trump and his recent posts and public statements, in my view he has lost a notable degree of support both at home and abroad since the conflict began. His tendency to alternate between provocative rhetoric and more conciliatory messaging, particularly on social media, doesn’t convey calculated unpredictability. Rather, it gives the impression of reactivity and uncertainty. From a strategic perspective, that’s a vulnerability others can exploit. A leader who changes tone frequently, reacts emotionally to unfolding events rather than shaping them, and resists informed counsel is unlikely to force meaningful concessions. More often, such a leader can be outmanoeuvred and outlasted.

Iran, for its part, doesn’t appear intimidated. If anything, it seems to have assessed the situation carefully and adapted. Leaders who respond to every news cycle are easier to read, easier to influence, and easier to wear down in negotiations. A deal will likely emerge—Iran has clear incentives, particularly around oil exports—but it may not be on the stringent terms Trump sought.

We can all rejoice when this is over, and S&P 500 scales to 8,000.

Markets and the Economy

Kevin Warsh’s confirmation hearing to lead the US Federal Reserve (Fed) began this week, before the Senate Banking Committee and while the nomination has cleared procedural hurdles, the path to full confirmation remains finely balanced.

The constraint is not ideological, but arithmetic. Republicans hold a narrow 13–11 majority on the Committee. However, Senator Thom Tillis (R-NC), has indicated he will block the nomination pending the resolution of a federal probe into outgoing Fed Chair Jerome Powell. Should Tillis join all 11 Democrats in opposition, the vote would deadlock at 12–12, effectively halting the nomination. Warsh advances only if Tillis abstains or votes “present” – a precarious position for a nominee expected to unify his own party.

Democrats, for their part, have shown little appetite to provide a path forward. Senator Elizabeth Warren (D-MA), has raised fresh concerns regarding Warsh’s ethics disclosures, particularly around potential conflicts of interest. His personal wealth – estimated between $131 million and $209 million – makes him the wealthiest nominee in Federal Reserve history, with holdings spanning private assets such as SpaceX, prediction markets like Polymarket, and cryptocurrencies. The optics alone ensure scrutiny will remain elevated.

Two parallel narratives are unfolding. The first is political: Whether Warsh aligns with the Trump administration’s preference for lower interest rates or maintains the Fed’s institutional independence. The expectation is that he adheres to orthodoxy, but the question itself will linger over the proceedings.

The second, and more consequential, is balance-sheet policy. Warsh has been a long-standing critic of the Fed’s $6.7 trillion balance sheet – the legacy of successive rounds of quantitative easing. His approach to unwinding that portfolio, and the implications for funding markets, liquidity, and financial stability, will be central. This is not a theoretical debate; it is one that will shape the cost and availability of capital for years.

Away from Washington, the more important macro development is unfolding quietly within the banking system.

After nearly two years of stagnation, U.S. bank balance sheets are expanding again. From January 2024 through late 2025, loan growth was either negative or running at its slowest pace since the aftermath of the Global Financial Crisis. That regime has now shifted.

Recent bank earnings flagged a clear reacceleration in both loan and deposit growth — a trend confirmed by the Federal Reserve’s H.8 data, which tracks commercial bank activity in near real time.

5-year chart: Percent change (YoY) in US Commercial and Industrial loans

The composition of that growth is critical.

Deposits are once again expanding, but unlike the 2020–21 period, this is not being driven by central bank liquidity. Then, balance sheet expansion was a byproduct of aggressive quantitative easing, with liquidity largely recycling into reserves and government securities. As policy reversed through quantitative tightening and higher rates, that excess liquidity was withdrawn.

Today, the mechanism is fundamentally different.

Deposit growth is now being driven by credit creation. Loan growth has accelerated meaningfully, with core lending expanding at an annualised pace of more than 8% over the past three months. Within that, commercial and industrial (C&I) lending has been particularly strong, running above 20% annualised.

This matters because C&I lending is directly linked to real economic activity – funding working capital, capital expenditure, and inventory accumulation. In other words, this is not passive balance sheet expansion; it is an active impulse to nominal GDP.

The implication is straightforward: Financial conditions may not be as restrictive as headline policy rates suggest.

The shift from liquidity-driven to credit-driven growth carries different market implications.
On the one hand, it is supportive. Strong credit creation sustains spending, investment, and earnings, reinforcing the current growth cycle and underpinning risk assets.

On the other hand, it raises familiar late-cycle questions. Credit expansions at this stage of the cycle often coincide with rising leverage and a gradual build-up of financial vulnerabilities — particularly when increasingly intermediated through private credit and less transparent channels.

The balance, for now, remains constructive. Liquidity is still growing, but it is being created endogenously by the private sector rather than injected by central banks. That is a powerful, but ultimately more fragile, form of support.

Against this backdrop, geopolitical risk remains elevated but is being treated by markets with characteristic detachment.

History provides a consistent pattern. Since the Attack on Pearl Harbor, major geopolitical shocks – wars, terrorist attacks, invasions – have triggered an initial drawdown in equities, typically in the range of 2–5% over the first month as uncertainty is priced.

What follows is more instructive.

S&P 500 performance after major geopolitical events

Source: ChatGPT

By three months, markets tend to stabilise and recover as clarity improves and policy responses emerge. By six months, gains often move into mid-to-high single digits. One year on, equities are typically meaningfully higher, frequently delivering double-digit returns as attention returns to earnings, growth, and liquidity.

The exceptions are equally revealing. The Yom Kippur War coincided with an oil embargo and a broader inflation shock, leading to a prolonged market downturn. Similarly, the aftermath of the September 11, attacks was compounded by an already weakening economic backdrop.

The lesson is clear: Markets are less sensitive to geopolitical events themselves, than to the macroeconomic conditions in which they occur.

Put differently, conflicts rarely derail equities unless they trigger something larger – an inflation shock, a recession, or a tightening in financial conditions.

The recovery in equities has been notable, but not excessive.

Despite a rally of more than +11% from recent lows, the S&P 500 is only up around +3% year-to-date. The tech-heavy NASDAQ has outperformed, rising approximately +17% from the lows and around +4% on the year.

What is striking is the absence of broad-based positioning excess. A classic “FOMO” phase – characterised by aggressive inflows and retail participation – has yet to materialise. That may yet emerge if geopolitical risks continue to fade and earnings remain resilient.

Global Equity Index Performance (2026 YTD, since March 30 to YTD and 2025-26 YTD)

US equities remain supported by a macro environment that is neither too hot nor too cold.

Growth continues at a modest pace, inflation has moderated significantly from its peak, and the labour market — at least on the surface — remains intact. This combination has underpinned the current rally and justified elevated valuations, particularly in quality growth and AI-linked sectors.

However, the underlying picture is more nuanced.

Growth has slowed from last year’s pace, hiring momentum has weakened, and a “jobless growth” dynamic is emerging. Inflation, particularly core, remains sufficiently sticky to keep the Federal Reserve cautious, maintaining a restrictive policy stance.

This creates a narrow path forward.

Earnings can continue to support markets if growth does not deteriorate sharply. But further valuation expansion becomes increasingly difficult in an environment where liquidity is constrained, and the cost of capital remains elevated.

The path to the S&P 500 at 8,000 and NASDAQ 100 at 30,000 remains intact, but it will not be linear. Periods of volatility, consolidation, and drawdowns are inevitable.

This is precisely the type of environment where structured strategies become relevant. Properly deployed, they allow investors to navigate volatility, define entry levels, and generate returns even in sideways markets.

The broader conclusion remains unchanged: Upside is intact, but increasingly dependent on earnings delivery rather than multiple expansion. Downside risks remain contained in the absence of a sharp deterioration in growth.

Staying long equities remains the core trade.

The next key inflection point lies externally. The upcoming Trump–Xi meeting in May will be critical, particularly for Chinese equities, which have lagged the global rally over the past two years.

For tailored strategies, stock-specific ideas, or structured solutions, please reach out to your relationship manager.

 
Best wishes,

Manish Singh, CFA

AI capex arms race continues to accelerate. The companies that build and supply compute will dictate access, pricing, and deployment speed.

Summary

Are Big Tech’s vast AI capital expenditure programmes laying the foundations for a genuine productivity surge, or sowing the seeds of the next bubble? Each new spending announcement still triggers reflexive comparisons to the dot-com era, yet those analogies increasingly miss the point. AI has transformed compute from a utility into a strategic asset. Strategic assets are never about shared access. They are about control.

The companies that build and supply compute infrastructure will dictate access, pricing, and deployment speed. Control the bottleneck and you control the economics of the entire ecosystem layered on top. That reality explains why the AI capex arms race continues to accelerate, and why simplistic bubble comparisons fail to capture the scale of what is unfolding. This is no longer about individual winners or losers. OpenAI’s eventual fate matters far less than the structural shift now underway.

The investment framework around capex is changing. Markets currently focus on hyperscaler margins and near-term free cash flow. That focus will move toward a more consequential divide: companies with secured compute access versus those forced to rent capacity, absorb hyperscaler margins, and operate with structurally higher costs. In an AI-driven economy, control of compute is not optional. It is decisive.

Against this backdrop, changes at the Federal Reserve and a renewed policy push toward deregulation and growth signal a potential inflection point for the US economy. A break from the long-standing 2–3% growth regime toward a more durable, productivity-led expansion now looks plausible. A 5% GDP quarter within the next year no longer feels far-fetched.

The Dow approaching 50,000 reflects this transition. It speaks less to narrow tech exuberance and more to a broadening rotation into banks, industrials, and consumers. Tech leadership may pause, but the baton is moving through the real economy before cycling back. That rotation does not signal risk aversion. It marks a bull market functioning as it should.

The Next Economy Runs on Compute – and Big Tech Knows It

Over the past three months, markets and geopolitics have been driven by a volatile mix of AI euphoria – and AI fear – alongside fiscal uncertainty and rising geopolitical risk.

Global equities have been repeatedly jolted by one central question: Are Big Tech’s massive AI capital spending plans, laying the foundations for the next productivity boom, or inflating the next capex bubble?

Each new spending announcement has been met with suspicion, with comparisons to the dot-com era drawn reflexively-even when those parallels feel increasingly forced.

This week’s catalyst came from comments by US investor Michael Burry, responding to Alphabet issuance of a 100-year bond.

Burry warned: “Last time this happened was Motorola in 1997.”

It’s a clever line – -but it rests on an outdated framework. The Motorola comparison says less about Alphabet’s fragility, and more about the limits of applying legacy tech analogies to a compute-driven world.

Source: Michael Burry on X

Motorola in 1997, was a one-product company riding a fading cycle, with no ecosystem, eroding pricing power, and distribution about to be commoditized.

Alphabet today is the inverse. It sits on over $120bn in cash, generates approximately $75bn in annual free cash flow, and saw more than $100bn of demand for a bond deal initially sized at $15bn. Even after expanding long-term debt to approximately $46.5bn, Alphabet’s debt-to-cash ratio remains comfortably below 0.5x.

This isn’t survival financing. It’s infrastructure financing.

The market is missing the bigger point. AI has turned compute into a strategic asset, not a utility. And strategic assets are never about shared access –they’re about control.

Alphabet isn’t issuing century debt because it’s desperate; it’s laying the rails of the next economic system. It could retire a meaningful portion of its debt tomorrow without breaking stride.

This is now a race for compute. Full stop.

The companies that matter most – Microsoft, Amazon, NVIDIA, and Google – won’t just supply compute. They’ll control access, pricing, and deployment speed. When you own the choke point, you own the economics of the ecosystem built on top of it.

This is why the AI capex arms race is accelerating — and why comparisons to past bubbles miss the scale.

Capex estimates for the Big Four hyperscalers – Microsoft, Meta, Alphabet, and Amazon – have surged to approximately $610bn for 2026, up from $359bn in 2025 (see chart below). That’s not incremental spending. That’s a structural reallocation of capital toward compute, power, and infrastructure.

For context, Bloomberg estimates that 21 of America’s largest industrial companies combined-including automakers, railroads, defence contractors, telecoms, logistics firms, Exxon Mobil, Intel, Walmart, and the companies formerly known as GE-will spend just $180bn on capex in 2026. Big Tech alone is outspending the rest of industrial America by more than 3x.

And before panic sets in, some perspective matters. Hyperscalers are currently reinvesting about 60% of operating cash flow into data centres and capex. Two years ago, that figure was 33%. From 2017–2022, it averaged 27%. Crucially, today’s spending intensity remains well below the 140% of cash flow telecom companies burned through at the peak of the 2001 fibre bubble.

As Brad Gerstner of Altimeter Capital put it: “Think of it as digging a gold mine. You have to spend a lot of money before you get the gold out. These guys are digging the biggest gold mine in the history of software. The real question is whether you believe Andy Jassy, Mark Zuckerberg, Sundar, and Jensen-or think there’s no gold at the bottom.”

That’s the trade. Either this is reckless overbuild-or the upfront cost of controlling the most valuable infrastructure layer of the next economy.

Today, markets obsess over hyperscaler margins and free cash flow. Tomorrow, the focus will be on companies without secured compute access-those renting capacity, inheriting hyperscaler margins, and operating at structurally higher cost.

The cloud worked when compute was cheap. AI has ended that era.

A tech re-rating is underway, but it won’t be uniform. Firms with genuine AI and infrastructure control will benefit disproportionately. Software remains in price discovery. European and emerging-market tech firms without compute ownership face structural de-rating risk. If you sit downstream of someone else’s infrastructure, your margins sit downstream too.

This isn’t about one bond deal-or even one company. It’s about who controls the machines the next economy runs on.

AI turns compute into a strategic weapon. And weapons, historically, are never about shared access.

They’re about control.

Most people are still operating on scarcity logic, in a world that has already moved on.

As those closest to the transformation keep reminding us, including Garry Tan, President & CEO of Y Combinator – what’s unfolding across AI, energy, materials, and biology is a shift from allocation to creation. Yet our political, economic, and cultural systems were built for a different era: Managing scarcity, negotiating slices, deciding who gets what and at whose expense.

They were never designed for exponential technologies that expand the pie faster than institutions can process. When those systems collide with abundance, they don’t recalibrate – they panic.

The failure is as much psychological as it is structural.

If you believe the world is zero-sum, abundance looks like instability. If you believe intelligence, coordination, and technology can scale together, abundance looks like the next stage of civilization.

Markets and the Economy

Before turning to the economy and equities, it’s worth outlining the market structure we are operating in—and likely to remain in for some time.

Markets feel far more volatile than they are- if you listen to headlines instead of price action. Or, to put it more precisely: Markets today are segmented, not contagious.

As Philosopher Heraclitus warned: “Much learning does not teach understanding.” We’re drowning in narratives but missing the signal.

Recent price action makes the point brutally clear. Silver has traded like a meme stock-surging from approximately $40 in September to over $120 in late January, then collapsing back below $65, including two -20% drawdowns in a single week. And yet, during that same stretch, the largest daily move in S&P 500 futures was just –1.2%, while a 9.3basis points (a basis point is 1/100th of a percent) drop in 10-year Treasury yields barely registered against far larger swings seen repeatedly over the past year.

Chaos in selected corners, calm everywhere else.

This disconnect reflects a defining feature of modern markets: Liquidity is everywhere for small positions, but balance-sheet risk is nowhere for big ones.

Years of asset inflation, from equities to housing to crypto, has created a powerful wealth effect, and empowered retail but regulation has stripped institutions of the ability (and incentive) to warehouse risk. The giants that once tied markets together- Dot-com era equity desks, pre-Global Financial Crisis Mortgage-Backed Securities machines- are gone. Price discovery now happens fast, violent, and local.

There are casualties, but they arrive early. As Philosopher Friedrich Nietzsche put it, “What does not kill me makes me stronger.” Rapid price discovery prevents bubbles from metastasizing into systemic threats. Losses are real, but they’re contained-and instructive.

Crypto markets show this most clearly. Heavily leveraged traders are auto-liquidated en masse, clearing positioning in hours, not months. The market goes vertical on the way down-and often rips higher once excess leverage is flushed. Painful? Absolutely. Systemic? No. These losses act as circuit breakers, not accelerants.

Contrast this with the globalization era, when shocks cascaded across borders and balance sheets-from subprime mortgages to sovereign debt crises. Today’s structure does the opposite: it absorbs shocks rather than transmits them.

Even volatility itself is telling the story. The VIX has averaged around 17 over the past six months (see chart below), and repeated spikes into the low 20s have failed to spark broader stress-much to the frustration of those still waiting for the long-anticipated equity reckoning.

Conclusion: Volatility is no longer a warning siren- it’s a sanitation mechanism. Big moves don’t signal growing macro danger; they signal risk being cleared. The calm in the S&P 500 amid violent swings elsewhere isn’t complacency-it’s evidence that today’s market system contains risk rather than denying it.

The VIX index – 6-month price chart

Source: Bloomberg

Over a month ago, I wrote a post – “Let’s talk about Kevin” and made a case for why former member of the US Federal Reserve (Fed) Board Kevin Warsh will be the next Fed chair.

Just over a week ago, President Donald Trump formally appointed Kevin Warsh to be the next Chair of the US Fed subject to confirmation hearing by the Senate.

The nomination of Kevin Warsh as Fed Chair has refocused attention on how deeply the Fed is embedded in markets. Warsh has long argued that the Fed’s footprint-still approximately $7.5 trillion-is too large, not just in asset holdings but in blurred lines between monetary and fiscal policy and an overbearing communications regime that shapes investor behaviour.

A Warsh-led Fed is unlikely to change the near-term rate path, but it could gradually shift balance sheet strategy.

Any meaningful shrinkage, however, is constrained by structurally high bank demand for reserves (still above $3 trillion). Move too fast, and funding markets break-something the Fed learned the hard way in 2019.

To understand the direction of travel, it’s worth reading-and re-reading The Wall Street Journal op-ed Warsh co-authored with Stanley Druckenmiller last June: “ The Asset-Rich, Income-Poor Economy ”  It offers a clear preview of what may be coming next.

Warsh and Druckenmiller argued – higher asset prices are not translating into meaningful increases in capital expenditures, and the weak growth in business investment is proving to be an opportunity-killer for workers.

Balance-sheet wealth is only durable when it stems from earned economic success rather than government stimulus or financial engineering. True wealth creation requires productive growth – where labour, capital, and innovation raise productivity, converting income into savings, savings into investment, and investment into lasting assets.

Today, the US shows a widening gap between asset-driven balance-sheet gains and income growth that benefits the broader population: many households lack stock ownership or housing wealth, retirees face weak bond returns, and employment recovery has lagged population growth, driving high non-participation.

Meanwhile, corporate incentives favour debt-funded buybacks over long-term investment, rewarding short-term asset inflation instead of productive risk-taking.

The result is rising asset prices alongside subdued ~2% real growth, weak business investment, slower wage gains, and below-trend productivity. Without stronger investment in productive capacity and people, prosperity will remain fragile and uneven – though sweeping deregulation and economy-wide growth initiatives could mark an inflection point toward more durable, productivity-led expansion.

“The Powell Fed has failed to get interest rates about right for most of Chair Powell’s tenure.”
– Kevin Warsh, Oct 12, 2025

“What we need to do is examine the entire Federal Reserve institution and whether it has been successful. All of these PhDs over there-I don’t know what they do. This is like a universal basic income for academic economists.”
– US Treasury Secretary, Scott Bessent, July 21, 2025

Both Bessent and Warsh are aligned on the need for urgent Fed reform. That process is likely to begin as Powell’s term ends on May 15, 2026- or sooner, should he step aside.

A broader agenda of major deregulation, reduced red tape, and growth driven by the full breadth of the US economy-not just Wall Street and tech-could mark a defining inflexion point. If executed well, it may finally lift the US out of its long-running 2–3% GDP growth rut and toward a more durable, productivity-led expansion.

This is something to be really excited about. I will not be surprised if we see +5% GDP growth quarter at some point over the next 12 months.

Bottom line: Fed Chair Warsh wouldn’t pull the Fed out of markets overnight-but he’d push toward a smaller, quieter central bank, slowly and within tight plumbing constraints to engender better GDP growth.

The Dow Jones Industrial Average hit 50,000 for the first time on Friday.

The Dow hitting 50,000 is less about tech euphoria and more about a quiet rotation into the real economy. Over the past six months, the Dow has outperformed both the S&P 500 and the Nasdaq, as investors trimmed crowded AI trades and rotated into banks, industrials, consumer staples, and transport stocks.

Global Equity Index Performance (2026 YTD, since Jan 20 to YTD and 2022-26 YTD)

While the Nasdaq has been choppy and flat-to-down amid software and AI volatility, and the S&P 500 has delivered modest gains, the Dow has surged-helped by standout performances from names like Walmart, Johnson & Johnson, and Coca-Cola.

At the same time, emerging markets have kept pace or beaten US tech-heavy indices, benefiting from cheaper valuations and a weaker dollar narrative.

The market’s message is clear: this rally isn’t just tech beta-it’s a vote of confidence in reaccelerating US growth, which is good news for both the broader economy and US equities.

Tech may pause and consolidate, but the baton is being passed to the real economy-banks, industrials, transports, and consumer staples-before ultimately rotating back to tech. That handoff, from innovation to picks-and-shovels and back again, isn’t a risk-off signal. It’s a sign of a healthy, durable bull market doing exactly what it’s supposed to do.

A few thoughts on US GDP growth-and yes, try not to laugh.

“If our new head of the Fed [Kevin Warsh] does the job he’s capable of, we can grow at 15%-maybe more.” That was Donald Trump speaking to Fox News on February 9, 2026.

Fifteen percent is…ambitious. I’m not sure the economy-or anyone’s spreadsheets-are ready for that.

Personally, I’d be more than satisfied with +5% real GDP growth, a level the US hasn’t sustained in over two decades, excluding the post-COVID rebound distortions. Even getting close would be meaningful.

That said, the data are moving in the right direction. The Atlanta Fed’s GDPNow model is tracking +4.2% growth for Q4 2025, putting full-year GDP north of +3%-not fantasy numbers, but strong momentum by modern, post-GFC standards.

US inflation is also behaving better than feared. December CPI rose +0.3% m/m, with headline inflation at +2.7% y/y and core inflation at +2.6%. Importantly, inflation psychology is cooling too: the New York Fed’s consumer survey shows 1-year inflation expectations easing to +3.1%, down from +3.4%.

The US consumer is slowing but not cracking. US Retail sales were flat m/m in December, and core sales dipped -0.1%, pointing to moderation after a strong run rather than outright retrenchment.

Meanwhile, the labour market is cooling in a healthy way. US Payrolls rose 64,000, US unemployment rate sits at 4.6%, and US wage growth remains around 3.5% y/y. Slower hiring alongside steady wages fits a late-cycle but intact expansion-not an economy rolling over.

Bottom line: Growth is solid, inflation is cooling, and the labour market is bending, not breaking.

The journey to S&P 500 at 8,000 and Nasdaq 100 at 30,000 will not be linear. Periodic selloffs and extended sideways phases are inevitable along the way.

That’s precisely where equity structured products come into their own. Used thoughtfully, they are an effective way to navigate-and potentially monetize-higher volatility. These strategies can offer partial capital protection, help define disciplined entry levels, and generate returns even when markets move sideways or pull back.

For tailored ideas, stock-specific structures, or deeper insights, please reach out to me or your dedicated relationship manager.

 
Best wishes,

Manish Singh, CFA