By Peter Tchir of Academy Securities U.S. stocks finished the week up around 3% (which was in line with markets globally). 10-year Treasury yields finished 7 bps higher, while the 2-year Treasury gyrated from 3.75% to 3.6% and all the way back to 3.83% to finish the week. Much of the move is because we had some clarity on topics discussed in last weekend’s Deep Breaths , and Dealpalooza prior to that. Before we update where we stand, we just wanted to highlight this month’s Around the World , where Academy’s Geopolitical Intelligence Group focuses on Israel/Hamas, U.S. and Iran, Ukraine and Russia, tensions with China, and fighting in the Congo. The last one brings back memories of Academy’s version of We Didn’t Start the Fire from October 2023, which actually fits in the “vibes” section quite well.

There are three policies that matter the most right now: So far, no official outlines of any deal have been announced. Expect more deal headlines, and hopefully, the outline of an actual deal. I do think that we need to be cautious about “China deal progress” headlines. While I’m not sure what to make of it, the fact that Japan seemed to threaten Treasury holding reductions was also interesting (not in a good way). The U.S. has now apparently impacted elections in Canada and Australia. Not sure what that means, but it is curious to think about as we all try to figure out what the world will look like in the coming years. I do think it is another warning about the American Brand (which will affect sales of American products overseas, and not in a good way). Israel ramping up in Gaza and the Houthis launching successful attacks after being pounded by the U.S. for the past few weeks is also concerning. A nuclear deal with Iran would be great, but much like the situation between Russia/Ukraine, the risk of more violence in the region seems to be increasing even as talks are ongoing. China is interfering with the Philippines’ territorial claims. It seems crazy that things could escalate over reefs and shoals, but crazier things have happened. While I look at a lot of data, I think I can safely say, in my 30+ years in the business, I have never looked at the Taiwan dollar – well, now I have. An extreme move. It has had other large moves (though nothing quite as aggressive), but the fact that it is happening in the midst of a growing trade war, and heightened tensions, makes me nervous. India and Pakistan, which wasn’t high on our risk radar last week, is becoming increasingly so. The People’s Armed Forces Maritime Militia (PAFMM) is something I fear we will all learn a lot more about this year. It completely fits into the Gray Zone of warfare that Academy has been harping on (cyber, cable cutting, etc.). This fleet could be used to disrupt trade in and around the South China Sea. It could be used as a way to increase the chances of an “accident” occurring that risks escalation. Lots of weird things going on that, at least for me, create this unpleasant vibe (almost like when the sky turns a weird color and the wind dies down right before the storms ragin intensity).

Rates and risk assets will continue to be headline driven . Policies and deals will take their turns driving markets. On the bright side, the pivot from less aggression on tariffs, the indications of some cooling with China, and getting the budget going are all positives (I’d like to see more aggressive measures taken to help the chip industry, biotech, and the processing/refining of commodities). But with the Fed unlikely to help, a lot has already been priced in. We’ve argued since the start of Trump 1.0, that Trump is willing to pivot and shift his direction. But that also tends to mean that whenever things are really good, be cautious (like in January), and whenever things are really bad, they can change (like in April). I wish we had more clarity on the direction of policy and deals and weren’t surrounded by all of these “vibes,” but we are. I’m less optimistic than at the start of last week (markets moved and more is being priced in), but have to remain nimble as the headlines could come out in any direction (I’m leaning towards the negative, but am by no means convinced) and we have to respect what seems like a complete lack of liquidity out there. With everyone trading the same headlines, the moves are abnormally large, and I just don’t see that changing yet. Guess that is a long way of saying that I am “neutral” with a slight negative bias on risk and bonds. I do think that everyone, and every corporation, will have to remain slightly cautious in their decisions which will put pressure on the economy, especially if we start seeing real signs of disruption from the tariffs that have already been implemented.