Trump Says Planned Iran Attack On Hold After Gulf Leaders’ Request

President Trump said he would hold off on a planned U.S. attack on Iran at the request of Gulf leaders to make room for negotiations with Tehran over a prospective deal to end the war.

In a social-media post on Monday, Trump said he had directed Defense Secretary Pete Hegseth and other U.S. military officials not to proceed with the attack, which he said was scheduled to take place on Tuesday. But he warned that he had “further instructed them to be prepared to go forward with a full, large-scale assault of Iran, on a moment’s notice, in the event that an acceptable Deal is not reached.”

The president said the leaders of Qatar, Saudi Arabia and the United Arab Emirates asked him to hold off on the attack because “serious negotiations are now taking place.” (…)

Several Gulf officials from some of the countries Trump mentioned said they were not aware of the imminent plan to attack Iran he described. (…)

Trump has argued that the U.S. blockade of Iranian ports, and the broader economic pressure campaign officials have called “Operation Economic Fury,” will leave Tehran with few options. “It’s just a question of time, we don’t have to rush anything,” he said last week. “We have a blockade, which gives them no money, allows them no money.”

Since the naval blockade began on April 13, the U.S. military has diverted at least 85 ships and disabled four others, according to U.S. Central Command.

From Windward:

Two developments across May 17 and May 18 define the phase change: Iran’s move to formalize a sovereign transit-toll regime under the Persian Gulf Strait Authority, and the first observed coordinated bilateral cluster transit, conducted by six India-flagged vessels under operational assurances from Tehran.

Together, they signal a strategic pivot. Iran is moving from kinetic disruption toward administrative control of the chokepoint, while simultaneously carving out bilateral lanes for non-Western tonnage. The result is a bifurcating Strait, with dark and gray fleets and BRICS-aligned vessels absorbing the premiums of the new toll regime, and Western-aligned tonnage either frozen out, escorted, or exposed to interdiction.

The chokepoint is now being governed administratively, with bilateral carve-outs for selected partners and coercive interdiction held in reserve for everyone else.

The bifurcation is operational, not theoretical. Dark and gray fleets and BRICS-aligned tonnage are positioned to absorb toll premiums and continue moving. Western-aligned tonnage faces a compounding compliance dilemma: payment exposes vessels to OFAC secondary-sanctions risk, while non-payment exposes them to IRGC interdiction. Continuous naval escort is the only remaining alternative, and the volume of qualifying tonnage that can realistically be escorted is limited.

It now seems that Trump learns of “serious negotiations” from some GCCs, not from the US “negotiators” (Witkoff and Kushner). Pakistan?

Bloomberg adds:

(…) The US delayed the strikes “for a little while, hopefully maybe forever,” because “we’ve had very big discussions with Iran, and we’ll see what they amount to,” Trump said at the White House on Monday evening. (…)

“In their opinion, as Great Leaders and Allies, a Deal will be made, which will be very acceptable to the United States of America, as well as all Countries in the Middle East,” Trump posted on Truth Social, referring to Saudi Crown Prince Mohammed bin Salman, UAE President Sheikh Mohamed bin Zayed, and Qatari Emir Sheikh Tamim bin Hamad. (…)

There was no immediate confirmation from Tehran of renewed talks. (…)

Pakistan has been the main mediator, but the two sides haven’t met for talks since discussions in Islamabad around five weeks ago that ended without a deal. (…)

Iran’s semi-official Tasnim news agency said earlier on Monday the US had offered to lift sanctions on the sale of Iranian oil until a final deal is reached, as part of a new proposal to end the deadlock. A US official who requested anonymity due to the sensitivity of the matter said the story was false, but didn’t elaborate.

The FT:

Speaking at an event later on Monday afternoon, Trump clarified that he had been asked by the three Gulf states “and some others” to delay military action “for two or three days, because they think that they are getting very close to making a deal”. (…)

The US president was expected to meet his senior national security advisers on Tuesday to discuss options for resuming the war, Axios reported.

The Globe & Mail at 6:15 this am citing Reuters::

Tehran’s latest peace proposal to the United States involves ending hostilities on all fronts including Lebanon, the exit of U.S. forces from areas close to Iran, and reparations for destruction caused by the U.S.-Israeli war, state media reported on Tuesday.

In Tehran’s first comments on the proposal, Deputy Foreign Minister Kazem Gharibabadi said Tehran also sought the lifting of sanctions, the release of frozen funds and an end to the U.S. marine blockade on the country, according to IRNA news agency.

The terms as described in the Iranian reports appeared little changed from Iran’s previous offer, which U.S. President Donald Trump rejected last week as “garbage.” (…)

A Pakistani source confirmed that Islamabad, which has conveyed messages between the sides since hosting the only round of peace talks last month, had shared the Iranian proposal with Washington.

The sides “keep changing their goalposts,” the Pakistani source said, adding: “We don’t have much time.”

Although neither side has publicly disclosed any concessions in negotiations that have been stalled for a month, a senior Iranian official suggested on Monday that Washington may be softening some of its demands.

If it were not so serious, it would be totally comical.

NY Fed’s HOUSEHOLD SPENDING SURVEY

• Year-ahead earnings growth expected at 2.7%.
• 1-year inflation expectations up from 3.0% in February to 3.4% in April and to 3.6% in May.
• Yet, expected household spending growth over the next twelve months was unchanged at 3.4% in April. Spending on essentials is seen up 5.1% vs non-essentials up 1.8% vs 1.4% in December.
• The expected response to income loss: 72.6% would reduce spending, up from 70.2% in December and 68.9% in August 2025.

Goldman Sachs has mapped out its expected trends in real income and cash flow (including income tax refunds). Even with a subdued inflation scenario, spending capacity is shrinking. “We expect monthly core CPI increases around 0.2% over the next couple of months, though risks are tilted to the upside if disruptions to oil markets and associated oil price increases prove more persistent than expected.” YoY inflation would thus stay below 3.0%. My own and Dateline’s Gundlach is closer to 4.0%.

Real income softness ahead for the US

• Buy Now, Pay Later in U.S. Shopping

Ten percent of Americans report using installment plans frequently when making purchases online, and another 17% use them occasionally. A total of 51% have used installment plans for online purchases, while 48% say they never have.

Lower-income Americans (those with annual household incomes under $48,000) are more likely to frequently or occasionally use installment payments (37%) than middle-income (between $48,000 and $89,999) and higher-income (at least $90,000) Americans are (29% and 21%, respectively).

Business Leaders Survey Covering service firms in New York, northern New Jersey, and southwestern Connecticut

 

 

AI CORNER

Powering Up Europe (Goldman Sachs)

Last week, National Grid – the Transmission Operator in the UK – stated it is preparing the Grid for up to 10 GW of datacenters demand that could be connected to the power grid by 2031; this scenario would boost UK consumption by up to +25%. As a reference, currently the UK market is c.3 GW and the European market c.15 GW. The UK alone could therefore boost Europe’s installed base by around +65%.

Europe could reach 60-75 GW of DC capacity by 2035, depending on the adoption rates of AI Agents, which are – presently – 50x more energy-intensive than AI Chatbots. We believe that, as of 2029, the roll-out of DCs could boost power consumption in Europe by at least 1%-1.5% per year.

Following a second energy crisis in less than five years, Europe is increasingly pivoting its energy policy towards energy security and electrification. Together with rising AI adoption rates and the continued datacenter build-out, this should drive materially higher power consumption; our hyper-electrification scenario – which suggests merely that the National Energy Plans run-rates will be met by the end of the decade – points to +5% power demand growth pa by 2029-30.

On our estimates, this would drive €3.5 trn of investment needs in power generation (largely renewables) and power grids, which would support high-single-digit/low-double-digit earnings growth well into the 2030s for most Electrification Compounders, at attractive returns.

• Americans Oppose AI Data Centers in Their Area

Seven in 10 Americans oppose constructing data centers for artificial intelligence in their local area, including nearly half, 48%, who are strongly opposed. Barely a quarter favor these projects, with 7% strongly in favor. (…)

Half of opponents mention data centers’ excessive use of resources, including 18% each mentioning their use of water and energy. Sixteen percent mention a related environmental concern of pollution, including noise pollution and air and water pollution.

About one in five opponents are concerned with the impact on local quality of life, including increased population, increased traffic and preferring that the land be used for other purposes. A similar share mention potentially negative economic consequences, including higher utility bills, cost-of-living increases, and the cost of building the data centers (which could involve the use of taxpayer funds).

Most of the remaining opposition stems from general or specific concerns about artificial intelligence.

Majorities of all major demographic groups, including all party groups, say they would oppose having a data center built where they live. However, Democrats are much more likely than Republicans to be strongly opposed, 56% vs. 39%, with independents between the two at 48%. (…)

Majorities of all major demographic groups, including all party groups, say they would oppose having a data center built where they live. However, Democrats are much more likely than Republicans to be strongly opposed, 56% vs. 39%, with independents between the two at 48%.

In the same March survey, 53% of Americans say they oppose building a nuclear energy plant in their area, far less than the 71% opposed to data center construction. Since Gallup first asked the nuclear power plant question in 2001, the high point in opposition has been 63%.

Today’s WSJ turns this into a rebellion!:

• The American Rebellion Against AI Is Gaining Steam Booed commencement speakers, blocked data centers, plummeting poll numbers: Fast-growing industry has a faster-growing crisis

Delivering a commencement address at the University of Arizona, Schmidt told students the “technological transformation” wrought by artificial intelligence will be “larger, faster and more consequential than what came before.” Like some other graduation speakers mentioning AI, Schmidt was met with a chorus of boos.

In one poll after another in recent weeks, respondents have overwhelmingly voiced concerns about AI, a challenge to claims by industry executives that their technology would gain popularity by improving people’s lives.

Consumers resent energy-price jumps exacerbated by the spread of data centers. Workers fear widespread job losses. Parents worry about AI undermining education and harming children’s mental health. In recent months, the wave of anger has brought protests, swayed election results and spurred isolated acts of violence.

In April, a 20-year-old Texas man allegedly threw a Molotov cocktail at OpenAI Chief Executive Sam Altman’s home and made threats at the company’s San Francisco headquarters, according to a federal complaint filed against him. A few days earlier, someone fired 13 shots at the front door of an Indianapolis councilman who had recently approved a data center. (…)

Pollsters and historians say the souring of public opinion is all but unprecedented in its speed. “I don’t think I’ve ever seen something intensify this quickly,” Gregory Ferenstein, who conducted a recent poll with researchers at Stanford University and the University of California, Berkeley, said of the backlash.

The poll showed about 30% of Democrats think America should accelerate AI innovation as quickly as possible, compared with roughly half of Republicans and 77% of tech founders. (…)

Voters in Festus, Mo., ousted four city council members a week after they approved a $6 billion data center. Dozens of communities in states from Maine to Arizona are trying to ban new data centers. Some 360,000 Americans are in Facebook groups opposed to the facilities, roughly quadruple the number from December, figures from organizations fighting the AI build-out show.

(…) for AI companies and builders of the data centers that serve them, it is creating an acute crisis. Investors have staked tens of billions of dollars in capital on the ability of OpenAI, Anthropic and other companies to get access to ever-larger quantities of computing power, and they in turn have pledged much of that capital to fund data-center construction. (…)

Local opposition blocked or delayed at least 48 projects valued at some $156 billion last year, according to Data Center Watch, an organization tracking the trend. A record of 20 were canceled in the first quarter of the year because of local backlash, figures from climate-media outlet and data provider Heatmap show. Dozens more are currently facing similar obstacles on top of obstructions because of permitting snafus and equipment shortages.

On Monday, Texas Agriculture Commissioner Sid Miller called for a moratorium on new hyperscale data-center development in the state, citing concerns about the costs to farmers and strain on the power grid. (…)

A string of high-profile layoff announcements in which executives have attributed steep job cuts to AI have furthered Americans’ mistrust of the technology.

Dylan Patel, CEO of AI-infrastructure consulting firm SemiAnalysis, recently predicted there would be large-scale protests against OpenAI and Anthropic within a few months. “People hate AI. AI is less popular than [Immigration and Customs Enforcement]. AI is less popular than politicians,” he said on a podcast. (…)

Data centers built for training can be remote but inference requires local DCs to reduce latency to a minimum (e.g. autonomous driving, delivery drones, etc.).

Nvidia’s most recent chip architectures reduce DC footprint and energy needs by 30% but Jevons Paradox is very much in play here: as a resource becomes more efficient to use, we don’t use less of it; we use vastly more.

• The explosion of agentic AI and compute shortages are pushing up prices: Average LLM token costs are now $2.12/mil tokens,+12% this week alone and +65% since end of Feb. (@LizThomasStrat)

Anthropic Sends Jolt Through Market for Buying Shares in Hot Pre-IPO Startups

In the moments after Anthropic expanded a ban on popular ways to buy its shares, investor chatrooms around the world lit up.

“Are we screwed?” one person wrote in a WhatsApp chat for family offices with several hundred members. Similar questions reverberated more publicly across X, Reddit and Chinese-language social media, as investors worried whether their shares in the artificial intelligence developer — one of the most coveted private companies — had suddenly become worthless.

Days later, there is little clarity. Anthropic PBC issued a stern warning on its website last week about unauthorized sales, taking the unusual step of naming eight firms whose offerings would be considered void. It also expressly prohibited investors from buying shares through special purpose vehicles, a common tool to raise financing.

Both Anthropic and rival OpenAI have long warned against unauthorized transactions — fine print overlooked by eager buyers until last week when the Claude maker removed any ambiguity. Publicly traded funds touting exposure have plunged on the back of the update and private brokers are reeling.

Sim Desai, founder of Hiive, one of the secondary trading platforms called out by Anthropic, said his company only facilitated deals that had Anthropic’s approval. Sohail Prasad, whose closed-end fund has lost about 25% of its share value in the intervening days, was adamant on X that his fund’s Anthropic holdings were valid.

“Anthropic threw a bomb into the market,” said Idan Miller, who runs Unicorns Exchange, another platform named by Anthropic. “We were unfortunately involved in a really bad and unjust way.” (…)

The crackdown “marks the beginning of a reckoning over our modern private markets,” wrote Anat Alon-Beck, a law professor who specializes in corporate governance at pre-IPO companies at Case Western Reserve University. “It raises questions like, who actually owns what? Who bears the risk when shadow ownership structures collapse? Should trillion-dollar private companies continue to operate outside the disclosure framework that governs other big companies?” (…)

Both OpenAI and Anthropic have greenlit some secondary transactions, primarily through tender offers, where early employees and investors can sell stakes. (…)

As secondary sales grew, so did SPVs, now a standard part of financing for many pre-IPO companies and a way for smaller investors to buy in. (…)

But as funding rounds have grown, SPVs have become complicated and murky, with little end clarity for the buyer and reduced transparency for the startup.

“Anthropic does and should have the right to control its cap table and shareholder base,” said Matt Murphy, the Menlo partner who led the firm’s investment. He said his firm didn’t use the kind of SPVs banned by Anthropic.

“Unauthorized SPVs are not in the company’s best interest and can often be downright shady,” he said. “Buyer beware.”

In one recent email pitch reviewed by Bloomberg News, a broker for the “Family Office Network” in Dubai offered would-be buyers a block of Anthropic shares at a $1.2 trillion valuation through an SPV for a 10% cut. It was a “layered” vehicle, meaning that the vehicle being sold by the broker is invested into yet another SPV that claims to own shares.

“Need to wire funds by Monday,” the message read. (…)

“Anthropic said the SPVs are void, not voidable, meaning it was never valid to begin with,” said Alon Kapen, partner at law firm Farrell Fritz. “That essentially means these investors in the SPVs don’t have a claim against Anthropic.”
Many SPV investors bought interest in “an empty box,” he added. (…)

Two closed-end funds that disclosed holdings in Anthropic and OpenAI through SPVs, Fundrise Innovation Fund LLC and Destiny Tech100 Inc., fell about 29% and 33% since the Anthropic update. (…)

Justin Taylor, a London-based family office adviser, said the mad rush to buy into Anthropic, OpenAI and SpaceX means investors have skimped on due diligence process and missed the fine print on terms. (…)

In the family office chat about whether holders of Anthropic SPVs were hosed, one person offered a curt reply: “Ask Claude.”

Not totally unrelated:

Fear the greed!

China’s two-wheelers ride EV wave into Europe

Yadea, the world’s largest producer of battery-powered scooters and motorcycles, has enjoyed a sales surge across south-east Asia and South America since the conflict began. The group’s overseas sales this year are tracking about 70 per cent higher than 2025.

“The volume is rising in all these places,” Yadea’s senior vice-president Wang Jiazhong told the FT at its headquarters in Wuxi, eastern China. “Customers are asking if we can advance their orders — I need to speed up the shipments.”

Higher oil prices stemming from the closure of the Strait of Hormuz have also prompted the Hong Kong-listed group to accelerate expansion efforts in the UK and Europe, targeting cities such as London and Paris. (…)

In March the group said it was targeting overseas sales of 450,000 vehicles this year, up from 310,000. It plans to add as many as 10,000 sales points overseas in 2026, adding to its 3,700 sites.

This may only be the tip of the iceberg. Battery-powered vehicles accounted for about 15 per cent of the global two-wheeler market last year, according to International Council on Clean Transportation data, highlighting the massive potential for global growth. (…)

Yadea has six factories in China, where it has now sold about 100mn two-wheelers, as well as plants in Vietnam, Indonesia, Thailand, Turkey, Brazil and Mexico.

Wang said manufacturing in or near key foreign markets was necessary to avoid tariffs on Chinese exports. Yadea plans to build a factory in Hungary “as European demand increases”. (…)

Like battery maker CATL and EV giant BYD, Yadea was among the companies that pivoted early to Beijing’s supportive policies for transport electrification. There are about 300mn electric scooters in China, which Wang said averaged between 1.5 and 2 vehicles per household, while the declining population would limit growth. (…)

“In countries with power shortages, Africa for example, even charging mobile phones can be affected. I actually see this as an opportunity.”

He said vehicles could serve as a backup for households. An electric scooter with a 4kWh battery “can supply power during outages — enough to run basic household appliances like a TV, refrigerator or charge phones.”

As I wrote back from China last December, it was eerie to stand on the streets of Shanghai, Shenzhen or Beijing and hear zero noise. All electric!

• Housing
• Bots On The Ground (Robotics)
• Who got a plan?
• Lastly, From Our China Trip

FYI:

Last week, Trump gave an interview to Fortune’s Alyson Shontell. Some might say it was not his most shining moments:

• “Intel should be the biggest company in the world right now,” Trump says. “If I had been president when all these companies started sending their chips in from China, I would have put a tariff on that would have protected Intel.” Referring to Taiwan Semiconductor Manufacturing Co. (TSMC), currently the world’s dominant chipmaker, he adds, “Intel would have all that business now, and there would be no Taiwan.”
• Even the country’s intractable debt crisis draws real estate analogies. The country’s mounting red ink, the president notes, really is not so terrible if you think of it like a real estate mogul would: What’s the total value of America and its natural assets, he suggests, like the Grand Canyon, or even its surrounding oceans? “If you put down the value of these things, it’s like hundreds of trillions of dollars,” Trump says, and by that measure, “if you kept [the national debt] at $40 trillion, you’re way under-levered.”
• “It really pisses me off,” the president groans, as we delve into the Supreme Court’s recent ruling that roughly half of last year’s Liberation Day tariffs were unconstitutional. It’s not the ruling per se that he’s upset about, although he’s certainly not happy about it. But what has specifically ticked him off is the fact that the ruling didn’t come with an asterisk that would have allowed him to keep all of the tariff revenue collected prior to the ruling. “Can you imagine—to people who hate us, to countries that ripped us off for years, I’ve got to give them back $149 billion.”

US and Iran Appear to Postpone Uranium Talks Until Later Date

The US and Iran appear to have put talks about Tehran’s stockpile of highly enriched uranium on the back burner in an effort to end their war, with both sides suggesting it’s a subject for a later date.

Iran said it had “come to the conclusion with the Americans” to postpone the topic until the later stages of negotiations, calling it “very complicated,” Foreign Minister Abbas Araghchi said at a press conference in India on Friday.

Speaking on Air Force One, US President Donald Trump said he’s willing to send US forces to remove Iran’s uranium “at the right time,” suggesting it’s unlikely to be an imminent operation. (…)

• Trump spoke yesterday with Israeli Prime Minister Benjamin Netanyahu about the situation in Iran.
• “We want to make a deal. They are not where we want them to be. They will have to get there, or they will be hit badly, and they don’t want that,” Trump said.
• Tehran “better get moving, FAST, or there won’t be anything left of them,” Trump said on Truth Social on Sunday.
• Trump is expected to convene his top national security team in the Situation Room on Tuesday to discuss military options
• Pakistan’s interior minister visited Tehran on Saturday and Sunday for talks with senior Iranian leaders about the deal for ending the war. Pakistan is the official mediator between the U.S. and Iran.

EARNINSG WATCH

From LSEG IBES:

452 companies in the S&P 500 Index have reported earnings for Q1 2026. Of these companies, 83.0% reported earnings above analyst expectations and 13.3% reported earnings below analyst expectations. In a typical quarter (since 1994), 67% of companies beat estimates and 20% miss estimates. Over the past four quarters, 78% of companies beat the estimates and 17% missed estimates.

In aggregate, companies are reporting earnings that are 8.2% above estimates, which compares to a long-term (since 1994) average surprise factor of 4.4% and the average surprise factor over the prior four quarters of 7.1%.

Of these companies, 78.6% reported revenue above analyst expectations and 21.4% reported revenue below analyst expectations. In a typical quarter (since 2002), 63% of companies beat estimates and 37% miss estimates. Over the past four quarters, 73% of companies beat the estimates and 27% missed estimates.

In aggregate, companies are reporting revenues that are 2.1% above estimates, which compares to a long-term (since 2002) average surprise factor of 1.3% and the average surprise factor over the prior four quarters of 1.9%.

The estimated earnings growth rate for the S&P 500 for 26Q1 is 28.3%. If the energy sector is excluded, the growth rate improves to 29.6%.

The estimated revenue growth rate for the S&P 500 for 26Q1 is 11.1%. If the energy sector is excluded, the growth rate improves to 11.6%.

The estimated earnings growth rate for the S&P 500 for 26Q2 is 21.4%. If the energy sector is excluded, the growth rate declines to 17.7%.

Recall that Q1 earnings include huge non-operating earnings from some hyperscalers which need to mark-to-market their investments.

In fact, Q1 results include several significant unusual and non-operating earnings that significantly distort trailing earnings, profit margins and full year 2026 estimates.

• The (GAAP) EPS actual for Alphabet for Q1 2026 included a net gain of $37.7 billion primarily due to net unrealized gains on non-marketable equity securities.
• The (GAAP) EPS actual for Netflix for Q1 2026 included a $2.8 billion termination fee related to the Warner Bros. transaction.
• The (GAAP) EPS actual for Meta Platforms for Q1 2026 included an $8.03 billion income tax benefit.
• The (GAAP) EPS actual for Amazon.com for Q1 2026 included pre-tax gains of $16.8 billion included in non-operating income from investments in Anthropic.
• The (GAAP) actual EPS for GE Vernova for Q1 2026 included $4.5 billion in pre-tax M&A gains. As a result, the blended earnings growth rate for the Industrials sector has increased to 20.3% from 3.1% over this period.

Together, we got $70B of unusuals, more than 10% of all S&P 500 earnings in Q1.

That said, Q1 revenues and earnings are nonetheless broadly spectacular:

 

Revenues, which carry no unusual items, are up 11.1% so far in Q1 vs +7.5% expected on Jan. 1.

Total US business sales and nominal GDP are up 5.9% and 6.0% respectively in Q1:

Larger companies are doing better than smaller ones. Also, 41% of S&P 500 revenues are foreign and the USD was 6.7% lower in Q1’26 than in Q1’25, boosting foreign revenues translated in dollar.

I have been warning against the so called “broadening market”. Here’s Goldman Sachs with my emphasis:

Bottom-up consensus estimates for S&P 500 EPS in 2026 and 2027 have each risen by 8% YTD. Within the index, increasing expectations for AI capex spending and higher energy prices have driven the majority of the positive revisions. Excluding AI infrastructure and Energy companies, S&P 500 2027 EPS estimates have been flat YTD.

Compared with numbers at the same time in Q1’26, more companies have pre-announced, none positive and 8 negative. Utes and Consumer Discretionary show the largest negative/positive ratios countered by highest P/N ratios for Health Care and IT.

Watch Big Mo!

On top of a messy earnings season, we also have a market with very bad breath. Per Goldman Sachs:

The median S&P 500 stock now trades 13% below its 52-week high. In the past, sharp declines in equity market breadth have signaled larger than average market drawdowns and increased Momentum factor volatility.

The S&P 500 has returned 10% YTD, with technology accounting for 85% of the index return and the S&P 500 excluding technology returning just 3%. The rally has also driven a 25% return in our Momentum factor during the past three months, one of its sharpest upswings on record. With AI and Momentum moving hand in hand and driving the direction of the S&P 500, many investors have expressed the view that the equity market today is “one big trade” rather than “a market of stocks.”

Since 1980, following 11 other comparable rallies, Momentum usually extended for another month before peaking and turning lower. For the S&P 500, sharp Momentum rallies with the market near a high usually preceded soft returns during the following few months. These episodes included mid-1998, late 1999, mid-2015, and late 2021. Today, we expect the macroeconomic backdrop and the outlook for AI will determine the trajectories of both Momentum and the broad market.

Our study of the sharpest Momentum reversals in the past 100 years showed that previous laggards (i.e., low Momentum stocks) did not just outperform when Momentum crashed, they appreciated in absolute terms.

On the economic backdrop, on May 14, the Atlanta Fed raised the Q2 GDP growth estimate to 4.0%, up from 3.7% on May 8. This is more than twice private forecasts.

Nealy half of the 4.0% expected growth comes from consumer spending and nearly 25% from inventory accumulation. The latter stems from a recent hoarding behavior, because of the war. The former is increasingly at risk from spiking inflation, because of the war.

Bank of America card data show that

Total credit and debit card spending per household increased 4.8% year-over-year (YoY) in April 2026, the strongest monthly growth in the last three years. This followed the already solid 4.3% YoY increase in March.

While higher gasoline prices boosted spending, spending excluding gas still rose 4.0% YoY – the fastest pace in three years and up from 3.6% last month.

BoA’s numbers match last week’s retail sales release, +4.9% YoY after +4.2% in March.

But these are not inflation adjusted. My “retail inflation” proxy is up 4.2% in April (real sales up 0.7%) after +3.2% in March (+1.0%).

BoA’s seasonally-adjusted spending per household increased 0.6% MoM in April (my inflation proxy is up 0.9%), easing from +0.9% in March (my inflation proxy was up 1.7%).

Excluding higher gasoline spending, BoA’s rise in total spending was +0.5%, from nearly flat in March.

This chart from BoA is worrying:

• Clothing store sales are still up 4.2% YoY in April but CPI-Apparel is also up 4.2% that month from 0% last fall.
• Restaurant sales are up 3.1% in April but CPI-Food-away-from-home is up 3.5%.
• Travel spending is up 5.6% but CPI-Air fares is up 20.7% and CPI-Lodging-away-from-home is up 4.6%.
• Spending on durables has been negative over the last 4 months, a period when CPI-Durables average only +0.4% YoY.

Rising and volatile prices are messing with a proper reading of the key consumer sector. Crucially, all 3 inflation lines below are converging towards 4.0%, above wage growth (black). Americans’ resiliency is being seriously tested, particularly given the low 3.6% savings rate and rising credit card interest rates.

Meanwhile, bond investors drove 10-year Treasury yields from 4.0% at the end of February to 4.5% last week, clearly more concerned by inflation than by a consumer-led economic slowdown.

• Global Bond Yields at Multiyear Highs on Mounting Inflation Risk

Global bond yields hovered near multiyear highs as rising energy prices stoked inflation concerns.

While the moves were subdued compared with the rout that swept markets on Friday, 30-year US yields were the most elevated since 2007 and the rate on similar-maturity German debt was the loftiest in 15 years. Japanese government bonds notched the biggest losses, with the 30-year yield surging to its highest since the maturity was first sold in 1999. (…)

“Yields are very high, but they might go higher. The world is awash with debt.” (…)

The fragility was on full display in Japan, where the prospect of a supplementary budget to deal with rising commodity prices has fueled concern about heavier debt issuance. (…)

Japan’s lofty yields will eventually draw more domestic investors back home — though that could act as an additional headwind for the US market.

“What it’ll do though is drive up yields elsewhere, especially, for example, US Treasuries,” said Hooper on Bloomberg Television. (…)

Just “a little excursion” he said!

• Yardeni Urges Fed to Drop Easing Bias or Lose Control of Rates

Ed Yardeni, president and chief investment strategist, said the US central bank should remove its easing bias at its June meeting, given that it is “no longer” appropriate in the current market environment.

“If the Fed fails to remove it, investors will conclude that the central bank is falling behind the inflation curve and will demand a higher inflation risk premium,” Yardeni wrote in a note. “We expect the Fed to hold rates unchanged at the June meeting and shift to a tightening policy stance.” (…)

Higher rates abroad are weakening a key source of demand for Treasuries, forcing the US government to compete harder for buyers at a time of large fiscal deficits and persistent inflation concerns, according to Yardeni. (…)

The view that the Fed may have to delay rate cuts or even raise borrowing costs is shared by other major investors, including DoubleLine Capital LP Chief Executive Officer Jeffrey Gundlach and Pimco Chief Investment Officer Dan Ivascyn.

“It’s just not possible, in my view, to cut interest rates when the two-year Treasury is almost 50 basis points higher than the Fed funds rate,” Gundlach said on Fox News’ Sunday Morning Futures. (…)

Yardeni said (…) a more hawkish Warsh than markets expect could actually work in Trump’s favor by helping to contain long-term Treasury yields.

“By acting hawkishly, Warsh might have a chance of delivering what the White House wants: lower real-world borrowing costs,” he wrote. “Mortgage rates could fall, corporate financing would ease, and Trump can point to declining long-term yields as the economic win.”

BTW, Gundlach also said Sunday that “DoubleLine’s models suggest the next print on the headline CPI is going to start with a four.”

What would rising rates from a hawkish Fed do to this expensive equity markets?

Whither the wealth effect?

There might also be a debt effect:

Topdown Charts Professional

Farmers growing desperate amid rising energy and fertilizer prices

(…) Mark Mueller — a northeast Iowa farmer and president of the Iowa Corn Growers Association — tells Axios that the current landscape is more challenging than at any time since the 1980s farm crisis, when interest rates soared and exports plunged, triggering agricultural bank failures.

The stresses are showing, with rising bankruptcies and lenders becoming more reluctant to provide farmers with operational loans.

“There’s going to be fewer farmers next year than there is this year,” Mueller says.

• Skyrocketing energy prices triggered by President Trump’s Iran war, which led to the shuttering of Strait of Hormuz, a vital passageway for fossil fuels. Diesel averaged $5.67 per gallon as of May 14, up 60% from a year earlier, according to AAA.
• Spiking fertilizer prices and shortages after the Iranians blocked shipments through the strait. 70% of farmers can’t afford the fertilizer they need, according to the American Farm Bureau Federation.
• Disrupted export markets tied to Trump’s tariffs and Chinese import restrictions.
• Global drought and other weather pressures, including climate change. The U.S. cattle herd is at its lowest level in decades, largely due to global drought, per USDA data.

Trump said China’s Xi Jinping agreed to buy “billions of dollars” worth of soybeans during their summit this week but no specific deals have been announced.

China’s Economy Succumbs to Slowdown and Reignites Stimulus Talk

(…) Official data on Monday painted a picture of an economy where booming exports no longer offset deteriorating consumption at home, prompting analysts at banks including Nomura Holdings Inc. and Societe Generale SA to urge bolder measures in support of growth.

Fixed-asset investment unexpectedly shrank 1.6% in the first four months of 2026 from a year earlier, while industrial production grew 4.1% last month — the weakest in almost three years. Retail sales missed forecasts and rose just 0.2% in April, the worst reading since they contracted in December 2022, when China reopened from Covid. (…)

Not a single economist surveyed by Bloomberg had predicted as pessimistic a reading for industry, retail sales and investment. The disappointing performance of the world’s second-biggest economy last month is a reminder of its domestic vulnerabilities, after a global artificial intelligence investment boom sent trade soaring.

Even though many manufacturers are struggling to cope with higher raw material costs, overall exports soared as Chinese tech products found willing buyers abroad. Greater demand for green energy products is also benefiting China.

But a sustained weakening of investment and consumption at home could still bring risks to Beijing’s goal of achieving 4.5% to 5% growth this year.

The April data suggest gross domestic product may expand as little as 4.1% on-year in the second quarter, which could prompt incremental policy easing, according to Macquarie Group Ltd. Goldman Sachs Group Inc. is maintaining its forecast for a GDP gain of 4.7% in April-June, compared with 5% in the first three months of the year. (…)

Investment plunged by around 8% in April from a year earlier, according to estimates from Goldman Sachs and Capital Economics, returning to a similar pace of decline seen in the second half of 2025. Manufacturing and infrastructure investment both weakened, while private investment plummeted.

Weaker credit demand and heavy rainfall in southern China could be behind the sharp fall in capital spending, Goldman economists including Lisheng Wang said in a note.

Statistical adjustment is another potential factor. Many economists believe authorities took measures to correct over-reporting of the data in late 2025. Such a change may have exaggerated the volatility of the figures recently, as the on-year contraction in steel and cement output narrowed in April, according to Goldman Sachs.

The consumer economy has meanwhile continued to struggle as households spent less on items as varied as autos and furniture.

Car sales plunged 15% in April from a year earlier, the worst contraction since mid-2022, when the country was under Covid restrictions. The government has scaled back subsidies for electric vehicle purchases this year, while the Iran oil shock hurt sales of gasoline-powered cars.

Purchases of home appliances and furniture — products that used to be buoyed by government subsidies — declined at a double-digit pace. Gold, silver and jewelry sales plummeted 21% — a huge reversal from earlier this year and 2025, when soaring prices for precious metals led to a speculative investment frenzy. (…)

The production of electronics, lifted by soaring global demand for AI chips, expanded 15.6% in April, the fastest pace in two years.

The auto industry also expanded briskly at 9.2%, as overseas EV sales took off. Meanwhile, commodities linked to real estate and construction — such as cement, glass and steel — recorded declines, while crude oil processing volume fell, which ING Bank economist Lynn Song attributed to the war’s impact.

Soaring chip prices may partly explain why factory output weakened even as exports surged.

While industrial production is reported after an adjustment made for inflation, sales abroad are calculated in nominal terms, making it hard to separate movements in prices versus volumes. Surging costs of chips and electronics accounted for about half of April’s 14% headline export growth, according to Nomura. (…)

“The concern is not just that activity missed, but that the weakness is broadening across the domestic side of the economy.” (…)

Chinese households net repaid the most loans in April since comparable data going back to 2010. (…)

The Winners and Losers of Oil’s New World Order

(…) The most consequential effects of the crisis, however, may not be the immediate price spikes around the world but the strategic policy shifts they prompt.

Just as nations dramatically rethought energy policy after the oil crises of the 1970s, a disruption of this scale will force governments around the world to rethink energy strategy.

Jason Bordoff makes a number of obvious points:

• “it is both true that America’s position has been strengthened by producing more oil and gas, and that the U.S. would still be less vulnerable to supply shocks if we used less oil through tighter fuel-economy standards, more electric vehicles, and better mass transit and rail.”
• The crisis will strengthen the case for Canada to export more crude through a pipeline to the West coast.
• “The crisis will reinforce, not upend, Beijing’s energy strategy. China spent years curbing the growth of oil use. (…) China’s 15th Five-Year Plan, released just after the war started, called for becoming an “energy powerhouse” through “strategic resilience” and “technological sovereignty” with non-fossil sources. The disruption of oil and gas supplies will only strengthen those ambitions.”
• India’s “longer-term response may require diversifying supply while accelerating oil displacement through solar, batteries, electric vehicles and rail.”
• In Japan, the crisis will “strengthen the case for restarting more nuclear reactors, accelerating offshore wind and solar and improving grid flexibility and storage. But Japan’s basic import vulnerability will remain, leading it to further prioritize energy efficiency, electrification of more of the economy, and maintaining larger buffers against disruption.”
• “Ukrainian attacks and constraints on investment and technology have accelerated the long-term decline of Russia’s oil industry, hampering its ability to structurally increase oil production capacity for the long-term in response to today’s higher prices. And Ukrainian attacks are intensifying, with at least 21 strikes on Russian assets and infrastructure in April. Russia’s refinery runs last month were the lowest since 2009.”
• “For many [Middle East] producers, a priority will be reducing exposure to chokepoints through new pipelines and export routes that bypass Hormuz, and reaffirming they are a trustworthy supplier.”
• “Tehran may emerge with new leverage. It has floated the idea of charging a toll to keep the strait open. Even if the war ends without such an arrangement, Iran has demonstrated that its ability to block Hormuz may be as powerful as the threat of a nuclear weapon.”
• “Much like the 2022 energy crisis following Russia’s invasion of Ukraine, this one will reinforce Europe’s imperative to electrify more of the economy with domestic power sources, including by reconsidering opposition to nuclear energy in some countries.”
• “For Africa’s poorest importers, every mini-grid, solar farm, battery and electric bus that displaces fuel imports reduces exposure to the next oil shock, though high borrowing costs, currency risk and weak grids remain major constraints. This situation will likely expand China’s existing investments in these industries in Africa and increase demand for Chinese products such as solar panels, inverters and batteries.”

He concludes with

The longer the Iran war continues, the more divided the energy world will become across existing geopolitical and geographic fault lines.

China will cast the conflict as proof that American hegemony has become a source of global instability rather than order, while heightened anxiety over oil and gas risk pushes more countries toward the clean-energy technologies Beijing controls.

Wealthy countries will respond by diversifying supply, strengthening buffers and accelerating alternatives, while poorer ones will often be forced to choose what is cheapest rather than most secure.

Importers will pay a premium for diversified supply, while exporters will pay for routes to market that are less vulnerable to disruption.

Here in the U.S., perhaps the biggest lesson is that even the world’s largest producers cannot insulate themselves from shocks in a global market.

I will dare to be more blunt than professor Bordoff:

The crisis the US created will backfire in several ways:

• Oil prices will likely be much higher for much longer, raising costs across the world for consumers and companies.
• Every oil importing country will seek to hastily reduce consumption and diversify sources of supply. As the world’s largest oil producer, the US is vulnerable to declining oil consumption.
• Canada will accelerate oil exports to Asia, curbing its discounted landlocked oil exports to the US. American refiners will lose the “Canadian Discount” and increase their dependence on Venezuelan and Mexican heavy crude.
• While most of the world will speed up electrification with lower cost, green renewable energy, the US will remain hooked on more expensive fossil fuels, raising relative costs for American consumers and companies.
• Europeans, having replaced Russian gas with US LNG, have recently realized a new vulnerability after the Trump administration weaponized America’s enhanced dominance by threatening to revoke Europe‘s “favourable access” to US LNG if the European Parliament attempted to “amend, stall, or refuse to ratify the trade agreement”. The whole world certainly took note that the US can no longer be classified as a truly reliable supplier.
• The US attack on Iran, Iran’s closing of the Strait of Hormuz and the subsequent US blockade are a big wake up call for Gulf producers.
• The US totally disregarded the GCCs’ views and warnings against the attack and went with Israel’s analysis.
• GCCs discovered an unsuspected military vulnerability in spite of a perceived US security umbrella.
• The US has greatly benefitted from the war, not only from higher prices, but also from increased exports to GCC’s pre-war clients. Energy Secretary Chris Wright said on CNBC last week that the US’s economic future depends on selling its energy abroad and that this was a top item on the Trump agenda. Asian refiners, short on crude input, have also seen US refiners supply their European and Australasian clients.
• Transit through Hormuz and/or the Red Sea’s Bab-el-Mandeb Strait will remain vulnerable after the war.
• Already split on the 2020 Abraham Accords, the GCC was further weakened by the UAE’s decision to leave OPEC.
• As a result, oil supplies and prices after the war are highly uncertain. How will Middle East producers, particularly Saudi Arabia, deal with shipping uncertainty and costs, market share dislocations and expectations of faster growth in renewables across the world? How will producers balance prices vs production against declining demand from now on?
• What will happen with the petrodollar and US interest rates? The petrodollar system goes back to 1974 when Saudi Arabia agreed to price its oil in dollars and reinvest those funds in US Treasuries in exchange for American security guarantees, now under reconsideration. Trump repeatedly saying that “You know, we don’t use the strait…We don’t need it. Europe needs it. Korea, Japan, China, a lot of other people” directly weakens the case for a petrodollar. Liquidity issues and US dollar currency pegs prevent a large scale decline in OPEC’s USD needs but many see the war as “a catalyst for the erosion in petrodollar dominance, and the beginnings of the petroyuan”. Longer term, this will have an immense effect of the United States’ monetary policies, even more so given the US ever rising indebtedness.

 

Taiwan is now a bargaining chip, literally…

Trump to Decide Soon on Taiwan Arms Sale, Noncommittal to Xi

(…) “On Taiwan he feels very strongly, I made no commitment either way,” Trump told reporters aboard Air Force One on Friday. The US president said he would ultimately “make a determination over the next fairly short period” about the weapons after speaking to the person “that’s running Taiwan,” without specifying who he means.

“I may do it. I may not do it,” Trump said separately in a Fox News interview.

“I’m holding that in abeyance, and it depends on China, it depends,” Trump added, speaking about the decision. “It’s a very good negotiating chip for us, frankly. It’s a lot of weapons.” (…)

Trump also said Xi asked him directly if the US would defend Taiwan in a conflict.

“There’s only one person that knows that, you know, it is me, I’m the only person,” Trump said.

“I said, I don’t talk about that,” he continued.

Trump’s extended conversation with Xi over Taiwan policy was itself remarkable, and represented a possible break that could reverberate both internationally and domestically. The US has a long-standing policy of strategic ambiguity over whether it would come to the aid of Taiwan if it is attacked by China, with Washington reserving the right to use force but never explicitly saying whether it would actually intervene. But negotiating any arms transfers with Xi would flout diplomatic policy.

US-Taiwan relations have been dictated since 1982 by President Ronald Reagan’s “six assurances,” which take a deliberately vague stance toward the island’s sovereignty but explicitly state that the US would not consult with China on arms sales to Taiwan and would not revise the Taiwan Relations Act, which requires Washington to provide the island with defensive arms.

Trump was asked explicitly whether he risked undermining the assurances, a bipartisan bedrock of US foreign policy, by a reporter aboard Air Force One. He responded by saying 1982 was “a long way” away, but reiterated he didn’t make commitments to Xi. At the same time, he sowed doubt about whether he would follow through with the arms sale.

“I think the last thing we need right now is a war that’s 9,500 miles away,” Trump said.

Still, he told Fox News that “nothing’s changed” with regard to the US stance on Taiwan. (…)

“US policy on the issue of Taiwan is unchanged as of today, and as of the meeting that we had here today,” Rubio told NBC News on Thursday, referring to Washington’s long—held policy of supporting the island without recognizing its sovereignty. (…)

While Trump and Xi’s closed-door meeting on Thursday was still underway, Beijing released a readout of the Chinese president’s remarks that underscored how much the self-ruling island continues to strain US-China relations.

“The Taiwan issue is the most important issue in China-US relations,” Xi said, according to the official Xinhua News Agency. “If mishandled, the two nations will experience collision or even clashes, pushing the entire China-US relationship into a highly dangerous situation.” (…)

Any Trump effort to quash the planned $14 billion US arms sale to Taipei would likely unleash a bipartisan backlash in Washington. If the White House pushes the deal through, Trump will face Beijing’s wrath. (…)

Yesterday:

Lai Says Taiwan Won’t Be Sacrificed as Trump Weighs Arms Deal

(…) “Taiwan is a core global interest, and any act that undermines peace and stability across the Taiwan Strait is not only a blatant provocation against international rules and order but will also have a significant impact on Indo-Pacific security, global supply chains and the world economy,” Lai said in a Facebook post.

Taiwan also played a key “security and defense” role in the region, Lai added in his post on Sunday, meaning that US weapons sales were necessary to counter “China’s unwavering commitment to the use of force to annex Taiwan.” Taiwan is part of what US military strategists gaming out how to fight China call the “first island chain,” which runs from Japan to the Philippines.

Lai’s comments on supply chains refer to what some have called “the silicon shield” — the notion that defending the democratic island that makes some 90% of the world’s most advanced chips from China is vital to the world economy, especially during the artificial intelligence era. (…)

Trump’s comment about the distance from the US to Taiwan was the most worrying, and could be viewed as Washington not sending troops if Beijing invades, even if Trump hadn’t made a final decision, said the official, who asked not to be identified discussing the sensitive issue.

Taipei was also concerned that Trump might use a potential $14 billion weapons package as a bargaining chip with China to get it to ramp up purchases from the US, the official said. It was also concerned that the size of the arms deal could be reduced to get China to buy more US goods, the official added.

Trump told reporters after the summit that he spoke with Xi about Taiwan and weapons sales, “in great detail actually.” “I’ll be making decisions,” he said, apparently about weapons sales for Taiwan. (…)

Goldman Sachs Group Inc. economists Andrew Tilton and Hui Shan wrote in a note that their “impression is that Xi is implicitly offering Trump a ‘grand bargain’ of sorts: if the US reduces rhetorical and military support for Taiwan, and refrains from new sanctions, China will make big/bigger headline purchases and be helpful on other US priorities.” One of those issues, they wrote, was possibly working with Iran to open the Strait of Hormuz. (…)

The US president also said he doesn’t want Taiwan to “go independent,” and called on both Taipei and Beijing to “cool down.” (…)

In his comments on Facebook, Lai said “there is no issue of ‘Taiwan independence’” and repeated his government’s position that the island is already a sovereign democratic state. (…)

Chinese Foreign Ministry spokesman Guo Jiakun said Lai’s comments showed “his separatist stance and intent to advance Taiwan independence.”

“By colluding with external forces to seek independence and attempting to make the Taiwan question an international issue, the Lai Ching-te authorities are destroyers of the status quo and biggest destroyers of peace and stability across the strait,” Guo added at the regular press briefing in Beijing on Monday. (…)