Author: Fiona Craig

Government Action Could Pose a Greater Threat Than Technology Itself

BCA Research believes the most significant challenge facing artificial intelligence investors is not whether the technology works, but how governments and voters ultimately respond to its rapid adoption.

In a new research note, Chief Geopolitical Strategist Matt Gertken argued that political resistance to AI is steadily increasing and could lead to tougher regulation, higher taxation and broader restrictions on the industry over the coming years.

The firm’s central conclusion is that “the populist backlash against AI could result in bipartisan regulation in 2027, but is especially likely to prompt tax hikes from 2029.”

Employment Concerns Are Driving the Debate

According to BCA, fears over job displacement remain at the heart of growing opposition to artificial intelligence.

As businesses increasingly adopt automation technologies, workers in service-heavy economies are becoming more concerned about the impact on employment opportunities and income growth.

The report noted that policymakers in several countries are already discussing measures ranging from regulatory oversight and taxation to redistribution policies and limitations on new data centre developments.

Public Opinion Is Becoming More Cautious

BCA also pointed to weakening public sentiment toward artificial intelligence, particularly in the United States.

The firm said more Americans now believe AI is advancing too quickly and are becoming less confident that its benefits will outweigh its risks.

Younger generations appear to be among the most sceptical groups, reflecting concerns about how automation could affect future career prospects and economic security.

Major Regulation Often Follows a Catalyst

Looking at previous industries that experienced significant government intervention, BCA observed that sweeping regulations generally emerged after a major triggering event.

The firm cited examples from banking, healthcare and nuclear energy, where public and political pressure intensified only after a crisis occurred.

Although AI has yet to face such a defining moment, BCA warned that the technology “could be scapegoated amid an unrelated crisis.”

Potential catalysts could include an economic downturn, widespread AI-related layoffs, renewed inflation pressures or a high-profile accident involving artificial intelligence systems.

2028 Election Seen as Key Turning Point

BCA believes political risks surrounding AI could increase substantially over the next several years, particularly as the United States approaches the 2028 election cycle.

Growing voter concerns may encourage lawmakers to adopt stricter oversight measures and seek additional tax revenue from large technology companies benefiting from the AI boom.

The firm concluded that “the investment risk is political, not technological,” warning that aggressive regulation and higher taxes on AI-related businesses could emerge “as early as next year — and especially after the 2028 election.”

More about AI Investment Risks

Artificial intelligence has become one of the largest investment themes globally, driving spending across cloud computing, semiconductors, software and digital infrastructure. While much attention remains focused on technological progress and commercial adoption, political and regulatory developments are increasingly being viewed as critical factors that could shape the sector’s long-term growth prospects.

Wolfe Research expects a relatively small group of stocks to continue driving overall market performance through 2026, supported by strong fund flows and the growing influence of the largest companies in major equity benchmarks.

The firm observed signs of improving market breadth late last week as investors shifted capital into more defensive areas of the market. Wolfe compared the move to the AI Disruption rotation that took place earlier this year in February. Nevertheless, the firm argued that a lasting easing of geopolitical tensions involving Iran would likely be necessary for broader participation to emerge under more constructive conditions. Any expansion in leadership, it said, is likely to be concentrated in selected sectors such as consumer discretionary.

Wolfe outlined five reasons why market leadership is expected to remain concentrated: continued inflows from retail and institutional investors, a shortage of long-term secular growth opportunities, strong speculative sentiment supported by large IPOs, powerful economic themes shaping investment decisions, and earnings estimate upgrades that remain heavily focused on technology, media and telecom companies.

The research firm emphasized that passive investment flows remain a critical factor. With the ten largest stocks in the S&P 500 accounting for roughly two-fifths of the index, money flowing into passive products continues to disproportionately support the biggest names in the market.

Wolfe also pointed to the rapid growth of exchange-traded funds, which has increased the amount of capital automatically directed toward the largest sectors and companies within major benchmarks.

As a result, technology stocks have continued to benefit from these structural trends. Wolfe believes this may explain why participation within the technology sector has broadened somewhat this year, even though overall market performance remains heavily dependent on a relatively small number of large-cap stocks.

Standard Chartered believes the worst of the current cryptocurrency downturn may already be over, arguing that Bitcoin (COIN:BTCUSD) established its cycle low when it briefly fell to $59,000, representing a 53% drop from its $126,000 peak.

According to Geoffrey Kendrick, the bank’s Global Head of Digital Assets Research, several near-term developments could help validate the view that the market is beginning a new recovery phase.

U.S.-Iran Developments and SpaceX Debut Could Shift Sentiment

Writing on Friday, Kendrick highlighted a potential peace agreement between the United States and Iran as one of the most important macroeconomic factors for crypto markets.

Should negotiations succeed, the agreement “may sound the end to higher oil prices and therefore higher UST yields,” he said.

The analyst also cited the IPO of SpaceX (NASDAQ:SPCX) as another potentially significant catalyst.

Kendrick suggested that many Bitcoin ETF investors have recently been selling positions to raise funds ahead of the landmark public offering, contributing to unusually large ETF outflows.

Those withdrawals have ranked among the biggest since spot Bitcoin ETFs were introduced.

Key Signals to Watch Next Week

Kendrick said several indicators would help confirm that Bitcoin has successfully established a bottom.

Among them are fresh Bitcoin purchases by Strategy (NASDAQ:MSTR), a return to positive ETF flows, and further declines in crude oil prices.

“Winter is over. Welcome back to crypto Spring,” he wrote.

Forecast for Bitcoin at $100,000 Remains Unchanged

The latest comments are consistent with Kendrick’s bullish outlook issued earlier this month.

At that time, he maintained his prediction that Bitcoin could reach $100,000 before the end of 2026.

“When we look back at the end of 2026 with bitcoin at $100k we will say this was the buying zone we all wanted,” he said.

Institutional Selling Still Weighs on Prices

Despite signs of stabilization, Bitcoin remains under pressure.

The digital asset has fallen by more than 50% since reaching its October high, even as the Trump administration has implemented a number of policies viewed as supportive of the cryptocurrency industry.

Bitcoin gained 0.9% on Friday to trade at $63,337.8 and was heading for a small weekly advance.

Nevertheless, that gain came after a sharp 17% decline during the previous week.

While confidence may be starting to improve, Bitcoin continues to hover near annual lows amid ongoing institutional selling through spot Bitcoin ETFs.

Recent Cocoa Price Recovery Draws Attention

Wells Fargo believes cocoa prices could remain supported by constrained inventories, even after the commodity retreated sharply from the extraordinary highs recorded over the past two years.

The bank noted that cocoa has recently regained momentum after falling from the record levels reached during the supply crisis. Prices had traded near $2,000-$3,000 per metric ton for years before surging to almost $13,000 per metric ton in early 2024.

While prices later eased back toward $3,000 per metric ton during late 2025, the market has shown signs of strengthening again in recent weeks.

Weather Conditions Could Tighten Supply Further

A major focus of Wells Fargo’s outlook is the potential return of El Niño.

NOAA currently estimates an 80% likelihood that the weather pattern will emerge this year. Historically, El Niño has been associated with weaker cocoa harvests due to hotter and drier conditions in producing regions.

Last week, Barry Callebaut said it is “watching the potential effect of El Niño,” while still forecasting a cocoa surplus for the current year.

Previous El Niño episodes coincided with meaningful disruptions to cocoa production, including during 2016 and 2024.

Stock Levels Could Reach New Lows

Wells Fargo estimates that a severe El Niño event could reduce worldwide cocoa output by a high-single-digit percentage.

Should that occur, global stock-to-grinding ratios could fall to roughly 23.8%, according to the bank’s calculations.

That would represent a new record low and fall below the previous trough of 26.5% recorded in 2024, reinforcing concerns about supply availability.

Mondelez Positioned to Benefit

Among consumer companies exposed to cocoa markets, Wells Fargo continues to favour Mondelez International (NASDAQ:MDLZ).

The bank forecasts that Mondelez’s cocoa costs could decline by approximately 37% in 2027 compared with the previous year, based on prevailing futures market curves.

If realised, those lower input costs could help strengthen profitability and provide a meaningful boost to margins.

More about Mondelez International

Mondelez International is a global snacks manufacturer with leading brands across chocolate, biscuits, gum and confectionery. Its portfolio includes Oreo, Cadbury, Toblerone, Milka and Ritz, making cocoa prices a key variable in the company’s long-term cost structure and earnings outlook.

Barclays believes Amazon’s satellite internet business still offers substantial upside potential, even as the company navigates a series of near-term obstacles that could slow deployment of its Leo network.

Formerly known as Project Kuiper, Amazon’s Leo low-Earth-orbit satellite constellation is approaching a major milestone that could allow the company to begin offering services to customers as early as the third quarter. Barclays analyst Ross Sandler and his team said the development “could be a small sentiment tailwind for AMZN.”

Even so, execution risks have increased. The latest setback came after an explosion during testing damaged the only launch facility currently available for Blue Origin’s New Glenn rocket, creating uncertainty around future launch schedules.

While Blue Origin has expressed confidence that operations could resume before year-end, some industry observers believe the recovery process could stretch beyond a year. That uncertainty leaves Amazon increasingly dependent on alternative launch providers to deploy satellites originally scheduled to fly aboard New Glenn.

The options are limited. United Launch Alliance’s Atlas V has only one remaining mission allocated to Amazon, while the company’s newer Vulcan Centaur rocket is still in the early stages of scaling operations after experiencing technical issues on two of its first four flights. Arianespace remains a potential partner but has yet to demonstrate a steady launch cadence.

According to Barclays, these launch-related constraints may weigh on Amazon’s second-quarter North American retail operating margin by approximately 125 basis points. The bank expects the impact to lessen later in the year as associated expenses begin to be capitalized. The earlier scheduling of Prime Day could also provide some financial offset.

Despite these challenges, Barclays remains optimistic about the long-term economics of the satellite connectivity industry and Amazon’s ability to establish a meaningful position within it.

“Connectivity is an enormous market that likely evolves into oligopoly-like structures with the industry leader way in front, but solid revenue opportunities for the second- and third-place companies,” the bank’s analysts wrote.

“Being second place in an enormous industry (satellite connectivity) is still a very attractive proposition for AMZN bulls,” they said.

The analysts expect Leo to offer competitive service quality from launch and believe Amazon’s enormous Prime ecosystem could accelerate customer adoption. Once the service becomes commercially available, subscriber growth could scale rapidly.

Barclays forecasts that Leo may generate annual revenue exceeding $10 billion by the end of the decade while achieving operating margins above 40%, making it a potentially significant contributor to Amazon’s future growth.

Citi expects lithium prices to find support after a prolonged decline, arguing that recent market weakness has largely been driven by growing GFEX inventories, improved supply dynamics and uncertainty surrounding near-term consumption trends.

The bank said the bulk of the price correction is likely already reflected in the market and anticipates a period of consolidation before a more positive pricing environment develops.

One of the key drivers identified by Citi is the likelihood of inventory rebuilding ahead of the industry’s usual August-September demand peak, which could stimulate buying activity and strengthen prices.

The firm also noted that additional export front-loading is expected to provide further support, helping to tighten market conditions and improve sentiment.

While Citi remains constructive on the outlook, it did not provide specific guidance on the duration of the consolidation phase or the timing of any future price recovery.

Bank of America strategist Michael Hartnett believes investors remain overwhelmingly optimistic despite long-term bond yields reaching 5%, although he cautions that several warning signs associated with the end of major bull markets are beginning to appear.

In his latest Flow Show publication, Hartnett identified three developments that have historically brought market booms to a close: rising bond yields that make capital more expensive, weakening performance among market leaders, and election-driven political pressure as voters demand lower inflation or stronger employment conditions.

“We’re getting there,” Hartnett wrote, “but for now asset allocation frozen bullish, positioned for late-cycle greed, not at all tempted by 5% yields at the long-end.”

Hartnett also drew comparisons with 1994, suggesting that year could offer valuable lessons for investors looking ahead to 2026.

At that time, an extended period of Federal Reserve accommodation and weak job creation came to an abrupt end when unexpectedly strong employment figures forced policymakers into a rapid tightening cycle.

Equity markets then spent months moving sideways before eventually stabilising after the Mexican peso crisis and Orange County bankruptcy halted the rise in bond yields.

Inflation Signals Flash Caution

According to Hartnett, U.S. inflation has averaged 0.5% month-over-month during the past six months, putting it on pace to move above 5% by the time midterm elections take place.

Meanwhile, unemployment remains at 4.3%, only slightly above the current CPI reading of 4.2%.

Historically, such a narrow gap between inflation and unemployment has often coincided with periods of aggressive Federal Reserve tightening, episodes that have rarely been favourable for financial markets.

Sell Signal Remains in Place

Bank of America’s Bull & Bear Indicator increased to 8.8 from 8.7, marking a fourth consecutive week in sell-signal territory.

Strong demand for technology investments continued to drive the indicator higher, partially offsetting outflows from both high-yield credit and emerging-market bond funds.

Technology Leads Equity Fund Flows

Global equity funds attracted $31.5 billion during the week ending June 10.

Technology funds accounted for a record $12.3 billion of those inflows.

The Direxion Daily S&P500 Bull 3X Shares ETF (AMEX:SOXL) attracted $3 billion, while the iShares Semiconductor ETF (NASDAQ:SOXX) drew $2.9 billion.

U.S. equities extended their inflow streak to 11 straight weeks, the strongest run since late 2025.

Emerging-market stocks also returned to favour, attracting $4.5 billion after experiencing eight weeks of outflows. South Korean equities led regional inflows with $5.9 billion, their largest intake since March.

Outflows Hit Crypto, Gold and Money Markets

Elsewhere, investor appetite weakened noticeably.

Cryptocurrency funds recorded a record $6.6 billion in outflows over the last five weeks.

Gold funds posted their fourth consecutive week of withdrawals, losing $2.3 billion, while money market funds experienced $2.5 billion of outflows.

The latest flow data indicates that investors remain committed to equities and growth assets despite elevated bond yields and inflation concerns, reinforcing Hartnett’s argument that bullish positioning remains deeply entrenched even as conditions become increasingly challenging.