India-US relations bettering
Wooden identified that the current name between President Trump and Prime Minister Narendra Modi was greater than a birthday greeting. It signaled Washington’s willingness to undertake a extra conciliatory tone towards India after months of silence. “My guess is that we must always get some decision on this difficulty within the subsequent few weeks and months,” Wooden stated. He added that the US wouldn’t wish to push India nearer to China at a time when commerce frictions with Beijing are escalating.
Trump’s tariffs and international fallout
On Trump’s aggressive tariff strikes, Wooden stated most economists consider the prices will finally fall on American shoppers relatively than exporters, regardless of Trump’s perception in any other case. “The longer these tariffs are in place, the extra adverse penalties will present up, each for American shoppers and the worldwide economic system,” he famous.Wooden gave the instance of Japanese carmakers reducing costs by 15% to soak up tariffs, whereas Japan’s passive stance in commerce talks has even triggered political fallout, together with the resignation of its prime minister. Against this, China has taken a hardline method, utilizing uncommon earth exports as leverage in opposition to US semiconductor restrictions.
India’s balancing act
When requested the place India stands between Japan’s compliance and China’s resistance, Wooden stated India is “someplace within the center.” He highlighted that India’s cautious method is working properly up to now, serving to it preserve strategic independence whereas protecting channels open with either side.
AI, not tariffs, driving US shares
Regardless of commerce tensions, the S&P 500 continues to climb. Wooden defined that the rally has little to do with tariffs and every thing to do with the “AI capex arms race.” Since Microsoft’s funding in OpenAI in early 2023, AI has develop into the dominant market theme. “The 4 hyperscaler shares plus Nvidia have accounted for almost 50% of the beneficial properties within the S&P 500,” he stated.
Firms at the moment are guiding large AI-related capital expenditure, estimated at $350 billion this yr alone, fueling optimism. However Wooden cautioned that this will likely result in an overinvestment bust, particularly with open-source fashions like DeepSeek making giant language fashions extra commoditized. “The market has fully forgotten the teachings of DeepSeek,” he warned.
Dangers of overheating
Wooden emphasised that the US market is essentially retail-driven, with many buyers even counting on AI instruments to determine trades. Valuations are at document highs, with the S&P 500 buying and selling at an all-time excessive price-to-sales ratio. He advised the rally may final so long as sentiment holds, however the eventual unwinding of AI capex may set off a serious correction.
Fed coverage and the greenback
On US financial coverage, Wooden stated the Federal Reserve is prioritizing the labor market over inflation. He expects a 25-basis level lower, noting that the Fed is “fudging the inflation goal.” This, he stated, would weaken the greenback however help gold.
Wooden additionally believes political stress on Fed Chair Jerome Powell will intensify as Trump seeks decrease borrowing prices to handle US debt servicing. “In the event that they lower the federal funds fee by 250 foundation factors, that’s going to materially cut back the price,” he stated, reflecting Trump’s push.
Large image: AI and technique
In conclusion, Wooden argued that AI spending is the one largest driver for US markets and international equities proper now. However the threat of overspending looms giant. “These hyperscalers are transferring from asset-light to asset-heavy fashions,” he stated. “It appears to be like thrilling now, however when this theme unwinds, there might be a giant correction.
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