By Barron's Editors

Lonesome Dove?

Talking Points

BMO Capital Markets

bmo.com

May 22: Even with some slight moderation in oil prices and bond yields, the market is more firmly leaning to the view that the Fed's next move is likely to be a rate hike, not a cut. The relentless rally in equities, signs of firming job growth, and surprisingly hawkish minutes from the April Federal Open Market Committee meeting all added to the mix. This presents Fed Chair Kevin Warsh with a rather inconvenient truth -- if he is still advocating for rate cuts, as in his Senate testimony last month, he may be a lonesome dove. The case for cuts simply isn't there at the moment, and there are likely precious few Fed voters who would even consider such a step at this point.

Fed Governor [Christopher] Waller put an exclamation point on the shift in view among Fed members in a speech Friday morning. The erstwhile dove flatly stated that the easing bias should be removed from the Fed's statement and that he preferred no change in policy rates in the near term, presumably until there is more clarity on the oil price and inflation outlook. While he said that he wasn't advocating for a hike, yet, he wouldn't hesitate to if "expectations became unanchored." His key concern is that inflation expectations could indeed ramp up as the Fed is now in the process of missing its inflation target for a sixth year.

Douglas Porter

S&P Target: 7,900

UBS House View

UBS

ubs.com

May 21: Our expectation is for S&P 500 earnings per share of $335 in 2026, representing 20% year over year growth -- a significant increase over our prior estimate of 11%. In our base case, we now see the S&P 500 reaching 7,900 by year-end (our previous target was 7,500). Elsewhere, we expect MSCI Asia ex-Japan profits to rise 62% this year, with companies in the technology supply chain driving significant growth. In Europe, we expect earnings to grow by 8%, a pickup after three years of stagnation.

One of the main risks to the rally would be a shift in earnings momentum. A larger-than-average number of companies are beating expectations and by a wider margin than usual. Should this trend reverse, it could shift the focus back to the long-term question of whether current AI investment will ultimately generate meaningful returns.

We expect AI capex to keep rising in the years ahead and believe supply bottlenecks in chips are unlikely to resolve quickly (particularly given the technical com-

plexity and capital intensity involved). At the same time, it isn't yet clear how the gains from AI might ultimately be spread across the economy, and there are likely to be periods ahead when realized profit growth is weaker. We advocate staying invested to benefit from rising earnings while diversifying across the AI value chain to mitigate company-specific risks.

Mark Haefele

AI's Circular Ecosystem

Macro Picture

TS Lombard

tslombard.com

May 21: The AI capex debate -- who is right?

With U.S. tech stocks melting higher, the bulls are clearly "winning." Two forces are driving this revival in sentiment. First, revenues across the AI ecosystem have surged, which seems to contradict the bears' worries about data-center profitability. Second, we are seeing extremely strong demand for compute, which helps to alleviate investors' worries about "overinvestment."

From our perspective, however, the debate about the sustainability of AI capex hasn't been settled. Far from it. That's because what we are seeing now is still largely just the result of revenue recycling, rather than the entry of new funds from outside the AI ecosystem. To illustrate: This year the hyperscalers are set to spend around $700 billion on data centers. That is a huge sum. Not only does it directly boost the revenues of the companies that provide the infrastructure, but the hyperscalers are also booking revenues from the recycling of those investments, either as order backlogs ("commitments" from the likes of OpenAI) or as "other revenues" (derived from the hyperscalers taking an equity stake in their customers and then recording large capital gains).

Meanwhile, it is the model developers and the hyperscalers that are still driving much of the increase in demand for compute, as they put those massive AI investments to work. This whole ecosystem is massively circular; and while those circular dynamics clearly have a lot of momentum, that, in itself, isn't enough for medium-term sustainability. For AI capex to be sustainable over the medium term, there needs to be a much larger share of revenue (and compute demand) from outside the ecosystem, particularly from business and consumer demand. Capex recycling isn't enough.

Dario Perkins

Emerging Markets in Turmoil

Morning Briefing

Yardeni Research

yardeni.com

May 19: As Kevin Warsh settles into his new role as Federal Reserve chair, policymakers the world over are watching his every move. Late 2025 saw investors flood into developing-world assets on the conviction that Fed rate cuts were imminent, lifting the Emerging Markets MSCI over 25% last year. As U.S. inflation reaccelerates, vaporizing the case for Fed rate cuts, the foundations of that rally are cracking...

Investors are dumping government bonds from the U.S. to Japan to the U.K., sending yields to multiyear highs as war-driven inflation forces central banks to reconsider the path of interest rates. EM economies are taking the brunt of the whiplash. With U.S. 30-year yields above 5.12%, even the prospect of no Fed rate cuts is rapidly reshaping the outlook.

Asia offers a stark illustration. Several of this year's weakest EM currencies since the Iran war began -- including the Philippine peso (down 4.7% year to date), South Korean won (down 4%), and Thai baht (down 3.9%) -- have policymakers scrambling. The Indonesian rupiah hit a record low against the dollar this month. In effect, the core casualties of the 1997--98 Asian financial crisis are back in the line of fire as currency speculators circle.

Ed Yardeni

Pharma: Ripe for Mergers

The MIZ Diagnosis

Mizuho

mizuhogroup.com

May 18: Large-Scale M&A [mergers and acquisitions] is happening in other industry verticals. Will this happen in pharma? Would argue it should. PFE [ Pfizer] and BMY [ Bristol Myers Squibb] returns roughly -2% over the past decade. Among others. Truly alarming. Total market-cap of PFE+BMY = $250 billion. Hardly material in the context of today's market in healthcare and certainly more broadly. Not saying has to be this combo specifically, but pharma remains far more fragmented compared to other sectors.

Jared Holz

To the Moon, Elon

The following excerpt is from SpaceX's Form S-1 Registration Statement (disclosure document prior to

filing for an initial public offering).

May 20: Our mission is to build the systems and technologies necessary to make life multiplanetary, to understand the true nature of the universe, and to extend the light of consciousness to the stars. To do this, we have formed the most ambitious, vertically integrated innovation engine on (and off) Earth with unmatched capabilities to rapidly manufacture and launch space-based communications that connect the world, to harness the Sun to power a truth-seeking artificial intelligence that advances scientific discovery, and ultimately to build a base on the Moon and cities on other planets... We believe that space represents the largest economic frontier in human history. Connectivity infrastructure in space is designed to help everyone on Earth have access to education, healthcare, entertainment, and communications, and to enable people to overcome many traditional limits, such as physical and political borders. We believe AI infrastructure in space can utilize the virtually limitless power of the Sun and thereby enable the use of AI as a transformative force for understanding the universe and improving the daily lives of all humans. We believe the convergence of these areas will enable an unprecedented expansion in the global economy, leading to an age of abundance. Our innovations and technological advancements are redefining industries on Earth, while we aim to create new ones on the Moon, Mars, and beyond. We are truly building the infrastructure of the future.

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May 22, 2026 21:23 ET (01:23 GMT)

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