REDUCING, STILL in June…
In April, we wrote that markets had already exploded higher and that everything that followed would be a bonus to capture. We acted accordingly: we began reducing exposures significantly, and we will continue that process through the first two weeks of June. This is not a change of course; it is the execution of a plan we announced.
The May rally illustrates precisely why this discipline matters. The S&P 500 gained 5% on the month, the Nasdaq 8%. These figures are accurate but misleading. The broad index moved higher, but most of the advance was driven by an extremely narrow group of names: technology now accounts for approximately 32% of the S&P 500, and the top ten holdings represent nearly 37% of index weight. We saw exactly this dynamic with gold at the start of the year: a parabolic rise, an unassailable narrative, then a sharp correction once flows reversed. A rally this concentrated carries its own fragility within it.
On Iran, markets rallied on the assumption of a deal. But Trump has an electoral clock and a legible agenda. Iran has neither: no comparable domestic pressure, no deadline, no immediate political metric to protect. A regime with nothing to lose in the near term is not an interlocutor in a hurry to negotiate. We treat this rebound for what it is: a move driven by hope, not by any tangible diplomatic reality.
The April figures did not surprise by their distance from consensus: the market expected 3.7%, the print came in at 3.8%. What surprises is what they confirm about the trajectory: a trend reacceleration that owes nothing to noise, with energy costs up 17.9%. More importantly, professional economists surveyed by the Philadelphia Fed now project 6% inflation for the second quarter, against 2.7% expected just three months ago. It is that sequence, not the April figure in isolation, that changes the reading of the cycle. The May data is due on June 10, and if it confirms this direction, the repricing of rate expectations will be painful in a market that has already priced in the best of all worlds.
In Europe, Eurozone growth advanced only 0.1% in the first quarter of 2026, with France at a standstill. The IMF projects 1.1% growth for the Eurozone in 2026, with an explicit recession risk if the energy shock persists. For US multinationals with meaningful European exposure, this slowdown will translate into downward earnings revisions, a channel markets have not yet fully priced.
Finally, the Fed transition remains the structural catalyst we identified back in January. Kevin Warsh is set to inherit a deeply divided Fed, the April vote split 8 to 4, the most fractured since 1992, in an environment where inflation is reaccelerating and political pressure is explicit. The post-war record is unambiguous: markets systematically test the new chair within the first six months of their tenure. Our year-end target of 7,700 on the S&P 500 remains intact, but it is worth reading it in context. Since the May rebound, Goldman Sachs has raised its target to 8,000, Deutsche Bank and Morgan Stanley have followed, JPMorgan has moved back up to 7,600 after cutting to 7,200 in March, and the most optimistic calls now reach 8,300. In this chorus of upgrades, our 7,700 year-end target is the most conservative on the Street, and that is precisely why we stand behind it. These upward revisions were formulated after the rebound, premised on a disinflation and geopolitical normalization scenario we do not share. The 6,500 area remains our intermediate correction target before that level can be reached, and current levels are a distribution zone.
