Market Stories by Fathom 12/06/2025

It’s been a hectic few weeks, with headlines flying fast — especially out of the U.S. Immigration protests in Los Angeles, revived tariff talks in Geneva, and a new tax bill loaded with hidden implications are just a few of the big stories. Globally, things aren’t exactly calm either. Tensions with Iran are back in focus, and Ukraine recently pulled off a dramatic drone strike deep into Russian territory, prompting retaliation. All in all, it’s shaping up to be a volatile summer.

Starting in the U.S., uncertainty is building on multiple fronts. It’s not just about tariffs anymore. A political tug-of-war is brewing over taxes, the debt ceiling, and potential changes to banking regulation. These battles are likely to play out over the summer — and they could introduce real market risk.

Oddly enough, markets seem largely unfazed by what’s happening geopolitically. In Israel, Netanyahu’s leadership is under threat, which throws more uncertainty into the already fragile Gaza situation. There’s been no real movement on the Iran nuclear deal. And despite the dramatic escalation between Ukraine and Russia, investor reactions have been muted at best.

Meanwhile, there are some cracks showing in the broader economic narrative. Business leaders, for one, aren’t feeling great about the road ahead. The latest CEO confidence survey from the Conference Board just saw its biggest quarterly drop ever — down 26 points to a score of 34 out of 100. That doesn’t exactly scream optimism about 2026. Unless of course if you are in the eye of the market hype (Quantum, SNR, Crypto treasury) where you sell billions of new stock in a raging bull market for thematic trading.

On the corporate side, margins are feeling the squeeze. Productivity fell in Q1, labor costs are rising, and according to recent ISM data, companies are dealing with higher input costs — while struggling to raise prices at the same pace. That’s a tough dynamic for earnings.

Capital spending is another soft spot — outside of the ongoing AI frenzy. Durable goods orders have been trending negative, and new orders in both manufacturing and services are shrinking. Add in signs of consumer strain — more credit delinquencies, fewer job quitters, rising savings rates, and weak demand for new credit — and it’s clear the foundation for continued growth isn’t as solid as some might think.

On the rates side, May’s U.S. inflation came in a bit lighter than expected, and a strong $39 billion 10-year Treasury auction helped pull yields lower. We saw a classic bull steepening, with short-term rates falling more sharply. The 2-year yield dipped back below 4%, again. Markets are still betting on a Fed cut by October, but the odds of a September move have jumped from 65% to over 80%. June? That looks like a hold.

The inflation surprise also hit the dollar hard. The DXY dropped sharply and is now closing in on its April low around 98. Fueling that move were comments from VP Vance, who criticized the Fed’s cautious stance, calling it "monetary malpractice." Trump weighed in too, pushing for a full percentage point rate cut.

And here’s where it gets really interesting: According to Bessent’s recent testimony, the Trump camp doesn’t see the sheer size of the national debt as the problem — it’s the interest expense that matters. Right now, interest payments are about 3% of GDP, which is manageable — but only if rates stay low.

The apparent strategy? Keep deficits high and borrowing steady, but push down the Fed Funds rate to contain the cost of that debt. That’s why the short end of the US interest rate curve is now the main focus — over 85% of new debt issuance is happening there. Long-term yields? Almost beside the point. Lowering short-term rates helps ease interest expense and reduce the deficit. And if Powell won’t act? Trump’s team has made it clear someone else will.

Alexandros Tavlaridis