Financial markets face significant turbulence driven by the peaking AI trade, imminent escalation in the Iran war, and potential Federal Reserve rate hikes. The AI sector is losing momentum as hyperscalers face market skepticism over rising capital expenditures that no longer guarantee growth, evidenced by negative free cash flow and increased debt costs. Simultaneously, the Iran conflict threatens global oil supplies, with increased military activity and Houthi-led disruptions pushing energy prices higher. These inflationary pressures, combined with sustained AI-related spending and new tariff structures, force the Federal Reserve into a difficult position. A rate hike appears increasingly likely to preserve central bank credibility and preemptively address inflation before the politically sensitive midterm period. Investors should remain cautious, as these converging risks create a high-probability environment for equity market corrections and increased volatility across global bond markets.
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