If the weekend news reports are correct a cease fire deal is imminent between the US and Iran leading to the opening of the Straits of Hormuz. As I’ve pondered previously will this news be the last hurrah for financial markets, which have seemingly ignored the long-term impacts of the war and instead have rewarded investors, especially those in US markets with impressive gains since the war began. Albeit, as I've commented numerous times, much of the gains in the broad indices have been driven by AI related technology companies, whose recent profits and projected future earnings and revenue growth seem to know no bounds; case in point the Magnificent Seven companies reported average first-quarter earnings growth of 63%, versus 17% for the other 493 companies in the S&P 500 Index.  These impressive results both past and enthusiastic projections have caused investors to push a number of technology companies shares into multiple double digit percentage gains over the last few weeks.

Last week despite the price of oil remaining above hundred dollars, inflation and interest rates reaching the highest point in a number of years, it was a very good week for stock markets everywhere. In the United States the small-cap benchmark outperformed its large-cap peer by a wide margin, rising 2.7% for the week versus a 1.1% gain for the large-cap benchmark. Amongst the big weekly winners were recent sector laggards such as Real Estate, Healthcare and Utilities all delivering over a 3% weekly gain. Most European and Asian markets were also higher with the notable exception of China down over 2% and extending its loss for the year of 7.2% along with two other notable year-to-date losers: India and Indonesia.

Our TSX jumped almost 2 % with Canadian banks being particularly impressive. One might ponder why Canada is doing so well considering we could be a prime sufferer from re-negotiated tariffs plus our ongoing real estate woes. Well of course we do have oil and natural gas, but also worthy to note our banks will likely deliver impressive profit gains thanks to the wealth management and underwriting.  On a broader note, in the semiannual survey of the Global Infrastructure Investors Association where members control some $1 trillion in assets, Canada was voted the world’s most attractive infrastructure investment destination, surpassing the United States, Mexico, Germany and several other European nations to the top spot. The survey noted Canada's outlook has "improved materially" and an anonymous respondent said Canada appears to be “having a moment.” Thus the TSX may also be benefiting from foreign investment inflows?

And what of the consumer, who according to news reports is suffering globally whether it be India, Europe, the UK or indeed the USA where the monthly gauge of U.S. consumer sentiment fell to a record low, extending its recent decline amid a spike in energy prices. The latest number released Friday showed that sentiment fell in May to a final reading of 44.8, It was the third straight monthly decline following a recent peak of 56.6 in February.  Notwithstanding if one believes the CEOs of airlines and cruise ships, all are saying, in financial media interviews, that business is booming and it probably currently is.  Airline (reduced?) capacity is full and cruise ship berths are in hot demand and no doubt both sectors benefitting that the prices paid by travelers’ are substantially higher than a year ago.

Two examples: United Airlines on Tuesday said it expects to serve about 53 million travelers this summer--about 3 million more than last year. The company noted demand is particularly strong for destinations tied to once-in-a-lifetime moments such as the total solar eclipse in Europe, as well as international soccer matches and major global concert tours. Bookings to destinations including Madrid, Barcelona and Reykjavík are up more than 50%  Overall US air tickets are up on average some 53% compared to this time last year.

Not wanting to be a Debbie Downer, (thank you Saturday Night Live and Rachel Dratch), but should the war end this week and the Straits reopen, as I have opined before, by all accounts it will take many months to get refineries back in action and oil and related byproducts fully back into production and timely deliveries. As I am cognitive of letter length and your time,  I'll leave you to Google how important sulphuric acid is to so many industries and how the war has severely disrupted supplies. So should the war end will economists and investors turn their focus to the lingering aftereffects? Higher inflation, higher interest rates, potential slowing economies and more job losses from AI and overall demand destruction? Many stock markets have had an excellent run year to date and potentially prime for a fall on any bad news - of note the market value of Nvidia is now some $5.4 trillion, bigger than the US banking or Healthcare sector !! Anyone remember the good old days of Nortel?

If that is the case perhaps, as I've suggested before, any strong market up moves following the potential good Middle East news could be the last hurrah for a while.

My weekly investment/economic/political reading is wide, varied and encompasses many, many hours every week and there's much I'd like to pass on but as space is limited, here are two tidbits to mull over with your morning coffee:

This week, the UAE (United Arab Emirates ) announced new pipelines that will bypass the Strait of Hormuz is nearly 50% complete and will be operational in 2027. Equally interesting these pipelines appear to have originally been announced in 2024, 18 months BEFORE the outbreak of the Iran war, and if news reports are correct guess who's building – CHINESE companies. When complete these new pipelines will considerably enhance the UAE's oil transfer capabilities to international markets. Also noteworthy is that the UAE recently left OPEC, so going forward they are not restricted by any of OPEC’s production mandates and China had already been significantly ramping up its consumption of UAE oil as of August 2025.

Secondly as I'm sure we all read during Presidents Trump's recent visit to China he was warned that any US interference in China's long desire to take control of Taiwan will not be viewed favourably - to put it mildly. Or as President Xi put it  “conflicts” could emerge - if the two powers mishandle Taiwan.

So consider this about Taiwan,  their legislation just approved $25 billion in defense funding. While the U.S. cleared an $11 billion arms package last December, with another $14 billion package reportedly waiting in the wings. China believes reunification with Taiwan is inevitable as Xi perceives the island as the “core of China’s core interests,” and Beijing has never taken the use of force off the table.  On the other hand the U.S. has maintained military and political backing for Taiwan for more than 75 years. Abandoning that commitment would, as one analyst put it, trigger a “disastrous chain reaction” across America’s entire Indo-Pacific alliance system.

And perhaps key to all this is Taiwan's role in technology and by default the business world. The global semiconductor industry is projected to reach $975 billion in annual sales this year, $1 trillion next year. Generative AI chips alone will generate an estimated $500 billion in sales. Taiwan Semiconductor Manufacturing Co. (TSMC) alone enjoys a roughly 70% global market share in this massive industry. This has helped make it the sixth most valuable company in the world, with a market cap exceeding $2 trillion. Apple and NVIDIA alone account for almost 40% of TSMC’s sales.  Add in their other customers—Microsoft, Amazon, Alphabet, Meta, Oracle—and the broader equipment supply chain, and you’re looking at roughly $30 trillion in market value directly or indirectly tethered to Taiwan’s chip fabrication.

How will all this play out in the years ahead should China attempt to exercise control over Taiwan one way or the other? Whether you are a  fan or not, Elon Musk has been the architect of breakthroughs in number of industries and one of his current focuses is the development of a semiconductor manufacturing project, named Terafab. This multi-billion-dollar chip complex located in Austin is a  joint venture between Tesla, SpaceX, and xAI. The facility is designed to handle the entire semiconductor pipeline. The initial phase of development is estimated to cost between $55 billion and $120 billion.

Should semiconductor supplies out of Taiwan be disrupted in the years ahead-guess who will be there to take up the slack?

Dennis