• Newly effective tax rules for 2026 will reduce how much many workers owe, which means larger refunds unless people adjust their W‑4 forms to avoid over‑withholding.
• Japan was expected to grow this year thanks to government spending, tax cuts, and a weaker yen that helps its exporters but is causing a selloff in government bonds. In the longer term, this should support global stability. The country is also working on stronger trade relationships with the U.S. and others. (Sources: Federal Reserve, Department of Labor, Bloomberg, FRED)

…And Now…
As of this writing, we are in day 11 of Operation Epic Fury. Power is increasingly measured by who controls flows of capital, energy, data and trade – the systems that make markets function. This is economic warfare and can be used, often without full military escalation. Cutting banks off from global trade, freezing assets, and banning transaction can turn markets into pressure points. Controlling chokepoints like the Strait of Hormuz and the Suez Canal can raise transport costs, interrupt the supply chain, and inject uncertainty into futures markets. Cyber attacks target market confidence, increasingly focused on banks, stock exchanges, payment processors and clearing/settlement systems. Breaches can trigger market volatility and liquidity concerns, undermining investors’ belief in the systems.

To date, the impact of tariffs on inflation has been modest but not trivial, concentrated in core goods and durables rather than headline CPI. They have not caused a broad acceleration of inflation but have prevented faster dis-inflation. Markets continued to outperform despite tariffs, with gains being highly concentrated in the mega-cap and AI-adjacent platforms. While it could be said that market winners just weren’t tariff-sensitive, but the Magnificent Seven concentration and leadership has been going on far longer than tariff policies.  Market leadership is structural and cyclical – not tariff-driven.
The Supremes specifically invalidated “Liberation Day” reciprocal tariffs as well as drug-trafficking tariffs but did not ban tariffs generally or tariffs imposed under other statutes.  Now, litigation has begun, seeking the potential refund of tariffs already paid; and with oil costs skyrocketing due to Epic Fury, the market and economy may be more sensitive to inflationary pressures.
Yet in the face of all these and other inflationary events, there remain many levers that can be used to cause growth, countering the effects of tariffs, rising oil prices and inflation in general. One example is the U.S.-Japan Trade & Investment Projects announced in February, which commits large scale Japanese investment into the U.S. energy infrastructure, critical minerals and the AI & semiconductor supply chains. Japan imports 90% of its crude oil, relying heavily on the Straits of Hormuz. Because it can’t solve its energy vulnerability domestically, it has shifted from Middle East dependence to securing leverage through allied producer nations – primarily the U.S..

Pronounced uncertainty in 2025 created volatile trading sessions as labor market concerns and lingering inflation kept the Fed from lowering rates to the extent that had been expected. Regardless, both equity and fixed income markets rose throughout the year, driven by consistent earnings and optimism surrounding massive investment and capital expenditures related to Artificial Intelligence (AI).
In early 2026 AI replacement risk became investable.  In January and February three things converged.  1) AI became a substitute for human workers rather than a tool for people to use to be productive. Autonomous AI and AI Agents became production-ready and  Anthropic and others explicitly targeted core service workflows rather than peripheral. 2) Business models were repriced.
2) Software as a Service (Saas), consumer services and consumer discretionary platforms sold off together.
3) The Magnificent Seven started falling on AI news specifically, rather than macro-economics.  Mag 7 drawdowns coincided with announcements about automation, unjustifiable capex spending, and demand compression.
It feels different because it IS different!  We are seeing synchronous selling.  Selling is thematic and triggered by AI replacing revenue pools – not just labor.
Replacement decisions are being reinforced by real job displacement and cost cuts rewarded by the stock market.
Consumers stopped asking “Are we overspending on AI?” .  Instead we are asking “Which industries does AI eliminate demand for?”