Markets tremble as Trump can’t stop blurting out threats while suing for peace

(Originally published June 22 in “What in the World“) Trump nearly torpedoed his own peace talks.

The Iranian delegation reportedly suspended talks in Switzerland Sunday after Trump threatened to strike Iran if it didn’t stop its proxy Hezbollah militia in Lebanon from attacking Israeli forces. “Iran must immediately stop their highly paid PROXIES in Lebanon from causing trouble,” Trump posted Sunday. “If they don’t, we’ll hit Iran very hard again, just like we did last week, only harder!!!”

The show must go on, however, and mediators from Qatar and Pakistan announced at roughly 3 a.m. Monday morning that the first round of negotiations had ended. Iran’s foreign minister Abbas Araghchi followed that statement with a post of his own: “Tireless Pakistani and Qatari mediation has delivered major progress to end Lebanon War.”

The outcome seemed to bring to a close a weekend of soap operatic melodrama. The talks were due to start Friday in Bürgenstock on Lake Lucerne, but the Iranian delegation postponed their arrival until Saturday. Iran then said Saturday it was re-closing the Strait of Hormuz in response to Israeli attacks against Hezbollah in southern Lebanon Friday and Saturday. Neither Hezbollah nor Israel are part of the talks, but Iran has made a cessation of attacks there a prerequisite to the talks.

Trump reportedly told Fox News in an interview that he had warned Iran Saturday: “You close it, and you won’t have a country. You won’t even make it back to your f—ing country.” Fox News reporter Trey Yingst posted that Trump told Fox: “We may take over the Strait, if we have to… I’ll blow the sh*t out of them.”

The U.S. military said the Strait remained open, though traffic has only recovered to roughly 20% its pre-war level. Shipping companies are hesitant to chance traversing the Strait until the remove of at least 80 mines Iran laid.

After Trump’s additional threats on Truth Social Sunday, the Iranians reportedly left the resort hosting the talks; a senior U.S. diplomat said they hadn’t. Either way, the talks apparently resumed Sunday night.

As they try to make sense of Trump’s fitful capitulation to Tehran, investors are also still digesting the ramifications of Trump appointee Kevin Warsh’s first interest-rate setting meeting as chair of the Federal Reserve. While economists have worried about Warsh’s plan to overhaul the Fed’s purchase of U.S. Treasury bonds, investors are concerned about Warsh’s intention to eliminate some of the guidance the Fed offers on where rates are heading.

The first sign was the statement accompanying the Federal Open Markets Committee’s decision last week to leave the target for its benchmark Fed Funds rate unchanged at between 3.5% to 3.75%. While past statements have typically included language suggesting which way committee members saw rates headed, last week’s omitted it. And Warsh reportedly declined to submit his own predictions for inclusion in the committee’s famous “dot plot” of rate predictions, meaning there were only 18 instead of 19 dots in the latest version.

Warsh has said such regular forward rate guidance tends to bind the Fed to inappropriate rate predictions for fear of disappointing the market. Asset prices, as a result, end up having a disproportionate influence on interest rates, he argues.

Investors warn removing the guidance will force markets to charge a premium for the uncertainty it adds. Yields on U.S. 10-year Treasury bonds have climbed 5 basis points to 4.48% since last week’s rate meeting, but have fallen from 4.66% a month ago, before Trump’s ceasefire agreement, when the market faced a crippling summer oil shortage.

Those rising yields on U.S. Treasury bonds are making investors increasingly nervous about stocks, too. One concern is that, despite an optimistic outlook for earnings, stocks are becoming overpriced. While it might no longer be justified given soaring U.S. public debt and increasingly unpredictable policies, investors still treat the 10-year Treasury as a “risk-free” asset. And so many investors assess the relative allure of stocks by comparing the yield on Treasuries to the yield on stocks implied by cyclically adjusted corporate earnings relative to the price of their shares. The resulting spread, known as an excess CAPE yield (CAPE stands for the Cyclically Adjusted Price-to-Earnings ratio developed by economist Robert Shiller), is almost at its lowest in a decade—around 1.3%.

Inflation is driving up bond yields, but inflation drives up stock prices, too. While the outlook for corporate earnings remain strong, investors worry rising inflation, particularly high prices for energy, housing, and electronics, could hit consumer spending and corporate profits. Rising prices are exacerbating what Moody’s says is a “K-shaped” economy, where the richest minority now account for not only the vast majority of new wealth, but a preponderance of spending.

Many also worry the broader outlook for earnings is being unrealistically inflated by over-optimistic appraisals of AI’s future profits considering the rising cost of massive investment in AI infrastructure.

Another concern is that that massive AI investment is creating an overabundance of equity. Companies like SpaceX and Google have turned to selling news shares to fund their AI expansions; OpenAI and Anthropic are also planning massive initial public offerings of stock. Nonfinancial companies issued more shares in the first three months of 2026—before SpaceX’s record, $86 billion IPO—than they retired for the first time since 2021, according to the Fed.