Today · Lead Story · Markets

Bonds Broke Today. Stocks Followed.

The 10-year hit 4.668%. The S&P fell 0.7%, Nasdaq 0.8%. The reality of higher-for-longer is finally pricing through the equity market — and our positioning was already built for it.

A weeks-long selloff in government bonds intensified Tuesday, with the 10-year Treasury yield jumping to 4.668% and threatening to drive up borrowing costs across the globe. The mechanical consequence: stock multiples compress. The S&P 500, Nasdaq, and Dow all fell — the Dow by 322 points, or 0.65%, with the Nasdaq leading the way down at 0.8%.

This is the trade we've been positioned for, and yesterday's brief was the warning shot: Warsh inherits a Fed that can't cut, the European Central Bank is warning it may have to hike, and the Bank of England is saying the same. That global yield re-rating is now showing up in equity prices.

What works in this regime: energy — we're still long oil exposure through ExxonMobil (XOM), Chevron (CVX), and Cheniere Energy (LNG); defense — Lockheed (LMT), Northrop (NOC), Boeing (BA), Palantir (PLTR); data-center power — GE Vernova (GEV), Vertiv (VRT), and now NextEra (NEE); financials with rate-tailwind — JPMorgan (JPM), Morgan Stanley (MS), Berkshire (BRK.B). Gold (IAU) is the hedge that has been working all year.

What doesn't work right now: long-duration unprofitable growth, anything that needs a rate cut to make the numbers work, and consumer discretionary with rate-sensitive end markets. Today's Home Depot (HD) report — lower Q1 profit and management explicitly calling out big-improvement projects being deferred — is the leading indicator. We don't own the home-improvement complex for a reason.

Sentiment Risk · AI Backlash

The AI Trade Just Met Its First Public-Opinion Wall

On Friday, Eric Schmidt — former CEO of Google (GOOGL) — gave a commencement speech at the University of Arizona about how the AI transformation will be "larger, faster, and more consequential than what came before." He got booed.

A few weeks before that, a 20-year-old in Texas allegedly threw a Molotov cocktail at OpenAI CEO Sam Altman's house. An Indianapolis city councilman who approved a data center got 13 shots fired at his front door and a hand-written note saying "NO DATA CENTERS." Poll after poll over the last month shows the same thing: the public has turned on AI.

This is not the same as the AI trade ending. The capex cycle that NVIDIA (NVDA), Broadcom (AVGO), Taiwan Semiconductor (TSM), and Vertiv (VRT) all benefit from is a corporate decision, not a consumer one. Microsoft (MSFT), Alphabet (GOOGL), Meta (META), and Amazon (AMZN) will spend the $600 billion in 2026 capex regardless of what people think of AI socially.

But it does mean that consumer-facing AI multiples are vulnerable in a way that picks-and-shovels AI multiples are not. We've been overweight the latter all year for exactly this reason. The book stays positioned in compute, power, networking, and cyber — the layer below the headlines.

Geopolitics · Defense Thesis

Putin Walks Into Beijing. Defense Gets Sharper.

Vladimir Putin landed in Beijing Tuesday for a state visit with Xi Jinping, less than a week after President Trump wrapped up his own trip there. The optics matter: Russia and China formally aligning while a U.S.–Iran war is still hot creates a defense-industrial-base story that has multi-year tailwinds.

Our defense sleeve has been working. The names we hold — Lockheed Martin (LMT), Northrop Grumman (NOC), General Dynamics (GD), Raytheon (RTX), Palantir (PLTR), and Boeing (BA) on the aerospace side — all benefit from a $1.5 trillion-and-rising U.S. defense budget that's being run by Steve Feinberg with private-equity-style tactics. The Beijing summit reinforces every piece of that thesis.

Watch the smaller drone and munitions names too — Kratos Defense (KTOS), AeroVironment (AVAV) — for the tier-2 exposure to asymmetric-warfare spending. We're not adding new positions today, but we are reinforcing what's already working.