Fortune
Good Morning: On Fortune's Radar
The bond market is signaling urgency as yields reach multi-year highs across the globe. Investors are acutely aware that the White House will be monitoring these market movements closely; Treasury Secretary Scott Bessent has emphasized the bond market's paramount importance.
Historically, disturbances in the bond market have prompted policy responses from the Oval Office, such as the emergence of concerns regarding tariffs. However, issues like the ongoing tensions in the Middle East are significantly more complex, as noted by UBS's Paul Donovan in his correspondence with clients this morning.
Bond investors are increasingly convinced that persistent inflation is likely to continue, and they are bracing for the potential that interest rates may remain elevated for an extended period. This outlook may not align with President Trump's preferences, but the underlying data is becoming more challenging to contest.
Market Snapshot
- S&P 500 futures are up 0.24%
- Europe: Stoxx 600 has risen 0.21% in early trading; the U.K.'s FTSE 100 remains unchanged
- Asia: South Korea's KOSPI has decreased by 0.86%; Japan's Nikkei 225 is down 1.23%; India's Nifty 50 has increased by 0.2%; China's CSI 300 is stable
- Brent crude is priced at $109 per barrel
- Bitcoin is trading at $77,456
One Big Thing: AI World Models
The leading companies in the AI sector are allocating significant resources towards creating 'world models'—AI systems designed not only to identify patterns in text or imagery but also to simulate the behavior of the physical world. By leveraging millions of hours of video for training, these models can develop an accurate internal representation of the world's dynamics, including physical principles.
Prominent players are making substantial investments: Google has recently introduced Project Genie, capable of generating interactive, photorealistic environments based on simple prompts, while also predicting the evolution of these environments in response to user interactions. In addition, "AI godmother" Fei-Fei Li and "AI godfather" Yann LeCun have each successfully raised approximately $1 billion for distinct startups focused on developing world models.
Ming-Yu Liu, a vice president at Nvidia's Cosmos Lab, remarked, "There is significant excitement and investment in physical AI at present," predicting that a "ChatGPT moment" is on the horizon. "I genuinely believe that people are gradually discovering the correct approach."
Iran: Tensions Fraying Again
The ceasefire between Iran and the U.S. appears increasingly precarious, with Iran's foreign minister, Abbas Araghchi, cautioning late last night that "with lessons learned and knowledge we gained, a return to war will feature many more surprises."
This warning followed President Trump's firmer stance on negotiating the reopening of the Strait of Hormuz, a crucial step for restoring normal global oil supply. Trump indicated yesterday that the Iranian regime has a limited window of days to engage in negotiations and accept terms.
"They're desperate to strike a deal," Trump stated to reporters yesterday. "I hope we can avoid military action, but we may have to take further aggressive measures. I'm still uncertain, but you will know soon enough."
Asia: K-Shape Economy
Michael Smith, CEO of Hongkong Land, elaborated on how the company is experiencing growth, with its share price surging over 55% in the past year, having surpassed its previous all-time high in January.
The K-shaped recovery—characterized by a situation where high-income earners thrive while lower-income earners lag—is not exclusive to the U.S. Smith is responding with investments predicated on an anticipated urban resurgence. He believes that premium real estate outside of major financial hubs will appreciate in value as companies vie for talent and capital flows toward high-quality assets.
"What we prioritize are ecosystems integrated within urban areas that offer connectivity through infrastructure and transportation," he mentioned. "I wouldn't recommend simply acquiring a single office building in a random market. That doesn't resonate with me."
Why Aren't Markets in Worse Shape?
Deutsche Bank's Henry Allen mirrors the sentiments of numerous investors: How is the stock market maintaining stability amid oil supply fluctuations?
In a research note, the Deutsche team examines why the markets are interpreting the situation in Iran as a temporary disruption rather than a lasting threat to the broader economic outlook. Historical comparisons to past oil shocks prove instructive, as they often coincide with rapid declines in economic data. For example, the 1973 shock was followed by an immediate uptick in unemployment rates, and in 1990, U.S. payrolls experienced their largest contraction in seven years.
"The current scenario is markedly different. In the U.S., payrolls increased by over 100,000 in both March and April, representing the first consecutive monthly readings above 100,000 since 2024. Additionally, the Atlanta Fed's GDPNow estimate for Q2 is currently projecting an annualized growth rate of +4," Allen reflects.
Number of the Day: 44%
According to a recent survey conducted by career tool Kickresume, over a quarter of employees admit to sneaking away to the bathroom at work for a moment of tranquility. The survey of nearly 2,000 global workers revealed that while most seek brief respites, 10% reported spending more than ten minutes in the restroom to catch a break.
Additionally, many respondents indicated they feel too preoccupied to take scheduled breaks, with 53% confessing that they are genuinely busy rather than merely pretending.
Pet Ownership as Luxury
The lifestyle choices deemed extravagant during economic uncertainty can be surprising. In 2026, it appears that pet ownership is an expense that some families are opting to forgo.
Taylor Bowley at the Bank of America Institute reported that veterinary service prices surged nearly 6% year-over-year in April. Adoption rates for pets, especially dogs, have slackened since the pandemic. Specifically, lower-income households are now less likely to have a pet in 2026 than they were merely a year ago.
In addition to reducing pet ownership, consumers are altering their purchasing habits for their furry or feathered companions. In April, spending growth on pet products among younger generations diminished, particularly within lower-income households. This shift illustrates "selective spending," as households modify their expenditures on discretionary items like toys, accessories, and supplies, opting to purchase pet food more frequently from local grocery stores instead of specialty pet retailers.
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