• An Outline of a Peace Deal Emerges: It seems the rumors are true this time, and there is a framework for a deal to end the conflict in the Middle East. Details are still a bit sketchy, but it is said to contain 14 provisions, including the reopening of the Strait of Hormuz within 30 days and the release of $24 billion in frozen Iranian assets. Of course, as one might expect, Iran has yet to confirm that there is a deal in place, but markets did not wait around for such trifling details. Oil prices are responding overnight, as both Brent and WTI have pulled back by more than -4.0%.

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• Pause in Military Games Lifts the Tape: Equity markets are enjoying a “dead cat bounce,” as investors react positively to the news that the latest round of tit-for-tat military skirmishes between the U.S. and Iran appears to have come to an abrupt end. The oil price remained high in the early hours, but that has not stopped stocks, bonds, gold, and Bitcoin from rallying.

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• Rising Cost of AI Usage Causing Markets to Rethink: What drove Tuesday’s AI-led selling (which has extended overnight)? Don’t blame oil prices or yields. What happened was the not-so-constructive news flow: A data center project was paused, while a bearish report on opticals hit those stocks. Concerns are mounting that businesses are balking at AI usage costs.

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• AI Buildout Race Accelerates as China Prepares Big Push: China’s planned nationwide data-center push shows the AI infrastructure cycle is no longer just a U.S. corporate capex story, but an international competition that could extend the profit runway for chips, power, equipment, and other “pick-and-shovel” suppliers.

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• Financial Conditions Now the Tightest Since April: Friday’s risk-off trade has been extended, with this fresh round of hostilities between Iran and Israel sending Brent crude up nearly +4% to over $97 per barrel. All the while, financial conditions are tightening, paced by rising interest rates, a flattening yield, and the dollar at its highest level since early April. The last time financial conditions were as tight as they are today, the S&P 500 was trading around -200 points lower than it is right now.

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• AI IPO Valuations Stretch the Math: Things have gotten so out of hand that SpaceX’s goal to achieve a $1.78 trillion valuation (!) in its IPO hinges on the assumption that its AI division revenues soar… wait for it… 100-fold over the next five years (tip of the hat to Goldman Sachs). Not to mention that the mega IPOs coming to the fore — Anthropic, SpaceX, and OpenAI — will command a combined valuation of $4 trillion (the frenzy is so extreme that Stripe and Databricks are mulling IPOs of their own).

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• Priced for Nirvana: At some point, things end up getting stupidly priced. Like a -25-basis point Equity Risk Premium (comparing the real yield on the CAPE to the 30-year TIPS yield). The CAPE multiple has expanded to 41.0 from 40.2 in May and 38.0 in April, and is at its highest level since September 2000! Investment-grade corporate bond spreads have tightened to below 80 basis points and are now tighter than at any point since the summer of 1998, just prior to the Russian collapse. Look ma’, no risk!

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• New Challenges from Conflict and Tariffs: The truce between the U.S. and Iran has been further tested overnight with some flare-ups, including American forces intercepting missiles and drones that were aimed at neighboring Gulf countries. This has sent oil back up +2.0% to nearly $98 per barrel. Making matters worse, President Trump just announced a blanket 10%-12.5% tariff on sixty countries via Section 301, invoking unfair labor laws as the rationale. Curiously enough, these tariffs are timed to come into effect just as the 10% tariffs under Section 122 are due to expire in July.

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• Early-Cycle Momentum in a Late-Cycle Market: It is nothing short of remarkable that, in the context of a huge energy shock, the S&P 500 is coming off its ninth straight weekly gain, something that has only happened ten other times since 1950, and is generally reserved for periods when the Fed is easing and oil prices are falling, as was the case in the last go-around, which commenced on December 12th, 1985. Not to mention that such a string of strength is typical of early-cycle activity, not the mature phase when valuations get stretched, and risk premia evaporate.

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• Markets Are Higher Despite Geopolitical Risks: The roaring AI trade has swamped the heightened confusion over these “deal” talks between the U.S. and Iran (as President Trump toughened his terms, particularly over the nuclear program) and the IDF making deeper incursions into Lebanon. The S&P 500 is now up nine weeks in a row, a streak we last witnessed in late 2023 —having posted no fewer than 11 record closing highs in May. The +16% run-up in the S&P 500 over the April-May period is a two-month surge that has happened just four other times since 1950!

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• Stocks Roll On Past Another Doubtful Iran Deal: Global equity markets, for the most part, are still in rally mode (the MSCI world index hitting a fresh record high today), though the response to yet another of these announcements of a preliminary U.S.-Iran peace deal (a 60-day extension of the ceasefire) has been rather muted (oh, and more “discussion” over the future of Tehran’s nuclear program, which we all know it will never abandon).

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• Auto and Travel Demand are Cracking: Fed officials are now talking openly about stagflation risks. They may not be wrong when you look at what is happening in the travel sector: consumers are buying fewer cars, no longer filling them up to the limit at the gas stations, and creating a bull market in carpooling. All the while, flyers are either canceling or postponing their planned trips and the major global air carriers are seeing the effects of this demand destruction.

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• Oil Slide Gives Stocks Another Lift: The extended decline in the oil price (WTI down -3.0% to $90.80 per barrel) on durable peace-deal hopes (diplomatic progress is overshadowing ongoing skirmishes) has unleashed a sustained positive tone in the U.S. equity market where futures are pointing towards a positive open (Goldman Sachs just lifted its year-end S&P 500 target to 8,000) while the Euro Stoxx 50 has tacked on +0.7%.

• Survey Data Keep Showing Weakness: The overseas data calendar was limited to French consumer sentiment for May, which fell to a three-year low of 82 from 84 in April. The incoming survey data in the U.S. has also been streaming in on the soft side, and not just consumer confidence. One would have thought with the action in the energy market of late that items like the Dallas Fed’s manufacturing survey would have come in hot in May, but instead it came in roughly flat, as did the employment component, while new orders rolled over.

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• U.S. Strikes Iran, With the Diplomatic Implications in Flux: Another day, another potential obstacle to peace. Renewed U.S. strikes against Iranian missile launchers and boats overnight boosted WTI oil to $93 per barrel, up from below $90 per barrel yesterday, the lowest since early May, on peace talk optimism. Markets, though, still cling to the narrative that a resolution looms.

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• Scarcity Premium in Stocks Is Set to Shift: Scarcity has been one of the hidden supports behind the buy-the-dip, and increasingly buy-the-high, stock market. The market is buoyed by sharp rallies in a narrow group of industries and stocks. It also triggers the meme-like swarming interest in certain names. The supply of public equities has been shrinking for years because of buybacks, the tendency of Big Tech to absorb many of the green shoots in the economy before they mature into large public companies. A wave of mega IPOs from companies such as OpenAI, Anthropic, and SpaceX could change that supply-demand balance, absorbing capital, reshuffling index weights, and weakening the scarcity premium that has helped push the current winners higher.

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• Green Screens Across the Board: The S&P 500 is on pace for eight straight weekly closes in the green, which would be the longest streak since December 2023. This underscores just how resilient the risk-on appetite remains. Europe and Asia are both up decisively overnight, led by surges in Japan and Taiwan.

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• Asia’s AI Rally Meets China’s Growth Drag: Asia’s rebound was powered by the AI chip trade, with the MSCI Asia Pacific Index up +2.5% and Korea’s KOSPI surging +8.4% on strength in Samsung and SK Hynix. Japan also joined the rally, with the Nikkei 225 up +3.1% and the TOPIX gaining +1.6%. But China remains the weak link. The yuan strength weighed on export-sector sentiment, while the PBOC’s decision to keep the loan prime rate unchanged, at 3%, for a 12th straight month, along with less dovish language, dampened hopes for broad stimulus this year. The result is a split Asian market: AI-linked Korea and Japan are bouncing hard, while China remains trapped between currency strength, weak confidence, and limited policy support.

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• Another Busy Earnings Day Ahead: Heading into today’s trading session, equity futures are up, with bond yields and oil prices having drifted down overnight. Investors are looking forward to a fresh set of catalysts today, including the vital FOMC minutes, a key Treasury auction, and updated crude oil inventories. Above all, earnings data will hit from Nvidia, along with key indicators of consumer strength: Target, Lowe’s, and TJX.

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• The Bond Market’s Oil Reflex Looks Too Simple: The bond market may be overreacting to the oil shock by treating it as a straightforward rate-hike story. Central banks cannot fix supply shocks with monetary policy; they can only cool demand and manage inflation expectations. As long as expectations remain anchored, policymakers have room to look through part of the oil-driven inflation impulse rather than rush into a more hawkish stance.

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• The Bond Market Takes the Wheel: With U.S., U.K., and Japanese yields under pressure, the bond market is pushing back against equity-market optimism and forcing a repricing of global risk appetite. The selloff is not just about central-bank expectations. As the U.K. shows, it also reflects growing concern about fiscal challenges colliding with political uncertainty. All of this comes at a time when central banks must assess whether monetary policy can contain supply-shock-driven pricing risks, even as the latest Fed research shows that the cyclical component of core PCE inflation appears to be trending lower.

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