Analyst Reports

The convergence of policy-driven volatility, global capital shifts, and tactical technical improvements has created a noisy environment for investors. Yet beneath the headlines, the market is exhibiting signs of resilience, bolstered by improving breadth, shifting leadership, and the potential for bullish policy catalysts to emerge. Among the most important are breakthroughs in global trade negotiations, particularly with China, Japan, and the EU, which would help stabilize forward earnings expectations and improve corporate investment confidence. Also, look for the emergence of the so-called "new allies," which include Japan, Saudi Arabia, Qatar, South Korea, Australia, and India. This is not to say we have not been allied with these nations previously or that they would supplant our traditional allies. Rather, it reflects a reemphasis of the U.S.'s dominant global trading partners. In parallel, continued progress toward a new fiscal package that retains elements of the Tax Cuts and Jobs Act (TCJA) would reinforce domestic growth prospects, particularly if it includes incentives for capital investment, research, and the reshoring of manufacturing. Third, evidence that companies are delaying layoffs—opting instead to preserve headcount in a period of uncertainty supports the argument that we may be closer to a soft landing than a recession. Finally, a regulatory tweak to the Supplementary Leverage Ratio (SLR) that eases upward pressure on Treasury yields could provide technical relief to markets and serve as a financial tailwind. In light of these dynamics, our positioning has become more defensive than in prior quarters. We have moved to a neutral stance on equities, stepping down from a modest overweight at year-end. Our view on Big Tech has grown more cautious as investor excitement shifts away from infrastructure-heavy AI spending and toward less proven application layers. We have increased our allocation to Developed International Equities, which now offer more attractive valuations and policy catalysts, particularly in defense and innovation, where U.S. pressure on NATO spending may spur a new wave of public-private investment. Additionally, we have maintained exposure to Gold, not for short-term momentum, but as a core allocation in a world grappling with deglobalization and ongoing monetary distortion. Inflation has cooled but is likely in a lull between waves. Historical patterns show that, once embedded, inflation tends to re-emerge globally in a second wave nearly 90% of the time. Supply chain disruptions from new tariffs and heightened geopolitical risk could reignite cost pressures. While the Federal Reserve cut rates last year, it shows no urgency to do more, citing the need to see durable progress on inflation and employment. Long-end yields are stirring—10-year Treasury yields above 4.60% and 30-year yields breaching 5.00% would carry broader macro implications. Over the intermediate term credit markets, for their part, have not confirmed recession concerns; spreads remain tight. The stealth risk may not be in corporate credit, but rather in foreign exchange (FX). As global capital flows reorder in response to reshoring, trade realignment, and fiscal divergence, a weakening U.S. dollar—or disorderly moves in USDJPY—could become the market's true stress signal. Markets are entering a period of cautious recalibration. Technical breadth has improved, volatility is easing, and policy developments are trending incrementally positive. But structural risks remain, especially in the form of inflation, fiscal distortion, and FX volatility. In this environment, we remain selectively risk-on: tilting toward international equities, maintaining a core gold position, watching technical support zones, and positioning for asymmetric opportunities in volatility markets. The second quarter may not offer clear direction, but it presents abundant information. Knowing how to read it is the edge. Nicholas Bohnsack FOR ONE-ON-ONE USE WITH A CLIENT'S FINANCIAL ADVISOR ONLY. 2 20250611-4578110

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