Hi ,

I wanted to share a quick market update, about what’s happening underneath the surface.

A few things I am watching closely:

Bond interest rates are high. The US 30-year U.S Treasury interest is above 5%. When interest rates rise like this, it puts pressure on stock valuations, reduces liquidity, and makes markets more sensitive overall.

Oil prices matter too. If energy stays expensive, inflation could linger which means interest rates may stay higher for longer. That affects everything from mortgages to investment returns.

The AI rally has stretched valuations. Stocks like NVIDIA have surged on excitement about artificial intelligence.

The long-term case for AI is real but some prices are now baking in very optimistic assumptions.

That makes them more vulnerable if interest rates stay high, earnings miss, or sentiment shifts.

One development worth highlighting this week:

Ed Yardeni, a well-respected Wall Street strategist has publicly called for the US Federal Reserve to raise interest rates in July.

This would be a significant shift, as most people had been expecting rate cuts this year.

His reasoning: the bond market is already signalling that the Fed is falling behind on inflation.

With increasingly hot inflation reports and energy shocks from the Iran War, Yardeni argues the Fed needs to drop its easing stance entirely and move to a tightening posture. 

In his words, “The Fed must catch up to the bond market to avoid losing control of borrowing costs.”

He believes a surprise interest rate hike could actually calm bond markets and potentially bring long-term borrowing costs down over time.

This is still a minority view markets currently price in roughly a 45% probability of a interest rate hike by year end. It is a signal worth taking seriously.

What this means for your portfolio:

No dramatic moves needed. Markets go through these phases, and reacting emotionally to headlines usually does more harm than good.

What we focus on instead:

• Staying diversified across different market conditions

• Keeping an eye on concentration in any single sector

• Managing how sensitive your portfolio is to interest rate changes

• Ensuring your income sources remain resilient

I will be watching developments closely and will reach out if anything warrants a meaningful change.

Warm regards,

Zest