Does it ever surprise you that the stock market doesn’t nosedive when we hear about reports of war? It often falls and quickly recovers, long before the outcome is clear. We go deep on this topic this morning as we consider how to price the potential of all-out war. I know, I know — it is not exactly the happiest of topics to start the day.
We also have a fascinating look at a unique and little-known realm of corporate governance: proxy fights in which the fighters knows they’re going to lose — and in fact, winning the vote isn’t their goal. And check out the responses to my question yesterday about how the Trump administration may try to prevent ad agencies from boycotting certain websites over political speech.
Playing down geopolitical risk
Israel and Iran continue to exchange heavy fire for a fifth straight day, dismaying those hoping for a diplomatic breakthrough.
President Trump abruptly departed the Group of 7 summit in Canada, and said he was looking for something “better than a cease-fire” between Israel and Iran. Earlier, he had said that “everyone should immediately evacuate Tehran!” His comments added to his mixed messages on the conflict.
But investors are taking the geopolitical uncertainty — including turbulence in a key shipping route — in stride.
The latest: Global markets have dipped after Monday’s rebound, but still trade a few ticks off recent peaks. S&P 500 and Nasdaq futures are pointing to a lower open. Brent crude, the international oil benchmark, remains steady above $74 a barrel, well off last week’s highs.
Markets are settling into a familiar pattern: Stocks tumble when geopolitical crises erupt — and then rebound as investors’ appetite for risk returns.
This happened in April 2024, when Israel and Iran last traded strikes and set off fears of wider regional conflict. At the time, the S&P 500 fell by as much as 3.1 percent over five trading sessions, according to data from LPL Research, a market analytics firm.
Fourteen trading sessions later, the benchmark index fully recovered. The S&P 500 later set record after record.
That was no anomaly. LPL Financial analyzed 25 major geopolitical episodes, dating back to Japan’s 1941 attack on Pearl Harbor. “Total drawdowns around these events have been fairly limited,” Jeff Buchbinder, LPL’s chief equity strategist, wrote in a research note on Monday. (Full recoveries often “take only a few weeks to a couple of months,” he added.)
Deutsche Bank analysts drew a similar conclusion: “Geopolitics doesn’t normally matter much for long-run market performance,” Henry Allen, a markets strategist, wrote in a note on Monday.
Investors appear to be betting that the latest barrages won’t disrupt global energy markets. The worst-case scenario is that Israel would inflict significant damage on the energy infrastructure of Iran, a major oil exporter. Tehran would retaliate by effectively cutting off tanker traffic through the Strait of Hormuz, a vital passageway for the world’s crude shipments.
So far, there’s no sign of that.
HERE’S WHAT’S HAPPENING
Meta will soon introduce ads to WhatsApp. The popular messaging app will start showing promotions in user updates, an area used by around 1.5 billion people a day. The move is a long-awaited change for WhatsApp, which had been one of the few ad-free channels in Meta’s empire. But turning messaging apps into a showcase for advertisers has been historically difficult for tech companies, analysts note.
OpenAI reportedly weighs a sharper attack on Microsoft. The artificial intelligence start-up is considering whether to accuse Microsoft, one of its biggest backers, of anticompetitive behavior as the two negotiate over OpenAI’s efforts to convert itself into a for-profit company, according to The Wall Street Journal. While both companies played down the report, the tensions raise questions about the future of one of the tech world’s most consequential alliances.
Airbus pulls further ahead of Boeing. On Day 1 of the Paris Air Show, the European plane maker announced close to $10 billion worth of new orders while its struggling rival was a no-show after the Air India crash last week involving a 787-8 Dreamliner.
The effort to kill the “revenge tax”
Republican lawmakers’ giant domestic policy legislation has drawn criticism from all corners, including about how much it would add to the national debt or how deeply it could cut Medicaid. But for many in the business community, one provision is especially abhorrent.
Known as Section 899 — and informally as the “revenge tax” — critics say the measure, aimed at companies or individuals whose countries will try to collect new taxes on American tech companies, would chill foreign investment in the U.S.
The TL;DR: Section 899 seeks to punish “discriminatory foreign countries” that either stick to the terms of a 2021 global minimum tax agreement, which the Biden administration agreed to, or seek to impose digital services taxes on tech giants.
But there are two different versions of the proposal: The House’s bill would quickly impose the new tax, which would top out at 20 percentage points, while the Senate’s would delay enforcement until 2027 and be capped at 15 percentage points.
Congressional estimates suggest that Section 899 would generate more than $100 billion in revenue over a decade, and proponents say it would deter countries from unfairly punishing American businesses.
Critics say the proposal would deter people from investing in the U.S., particularly at a time when investors have been edging away from American assets amid President Trump’s trade war. The Global Business Alliance, an international lobby group, estimated that it could cost the country 700,000 jobs over time and reduce G.D.P. by $100 billion annually.
“Trump wants onshoring, and now if we’re going to penalize people who are doing the onshoring or the foreign direct investment in the U.S., it’s counter to his goal,” Don Schneider, deputy head of U.S. policy at Piper Sandler, told The Times.
Wall Street is pressing lawmakers to exempt passive investment income, including dividends, rent and royalties, from Section 899. (Interest on Treasury securities is already excluded.)
Is time running out for Section 899 opponents? The Senate’s bill watered down the House version’s provisions, but didn’t kill the tax altogether.
The question is whether the measure can survive upcoming negotiations between the two chambers to reconcile their versions of the policy legislation — giving the business lobby a window to fight back.
Clipping the wings of proxy activists
At Merck’s annual shareholder meeting in May, the National Legal and Policy Center, a conservative research organization, proposed ending diversity programs. The measure garnered just 1 percent of the vote, but the center gained plenty of attention for its proposal, including stage time at the event, and forced Merck’s C.E.O. to publicly defend the company’s programs.
These investor proposals are, in truth, publicity campaigns meant to drum up media attention and attract new benefactors. But the proxy strategy may be getting harder, thanks to a change in S.E.C. rules, Vivienne Walt reports.
Proxy votes are becoming a favorite tool for opponents of E.S.G. and D.E.I. While most shareholder resolutions still come from groups in favor of environmental, social and governance or diversity, equity and inclusion initiatives, proposals opposing those goals have grown significantly since 2021, according to a study published by the Harvard Law School in April.
From January to April, 43 resolutions were filed at annual general meetings demanding an end to diversity and equity initiatives, according to Minerva Analytics, a research group that tracks proxy resolutions. They include a range of proposals, like demands at Alphabet’s and Best Buy’s annual shareholder meetings to halt support for gay rights groups.
About 60 percent of anti-E.S.G. proxy resolutions have been filed by just two conservative Washington area nonprofit groups, the N.L.P.C. and the National Center for Public Policy Research.
Anti-D.E.I. proposals on average win just 2 percent of shareholder votes, according to the Harvard study. But they tend to get lots of buzz.
“They want the proposals on the ballot, because they want the media attention,” Ariane Marchis-Mouren, a senior researcher at the Conference Board, said of the conservative activists. “From what I’ve heard from companies, their end goal is that they will not withdraw.”
The proposals also ratcheted up pressure on boards, even if they don’t succeed: “Their practical effect is to curtail or eliminate D.E.I. initiatives,” the Harvard report read.
New S.E.C. rules intended to hamstring liberal causes have also hit President Trump’s base. Signed in February, they permit companies to exclude proposals that are not core to their business, reversing a Biden-era policy widening the range of allowed topics.
The change has snuffed out conservative activist resolutions before annual meetings are held. About 100 such proposals were filed in this year’s proxy season, which winds down in late June — while about 173 others have been struck from agendas, according to the Conference Board.
Still, the new rules may not deter conservative activists’ campaigns. “Conservatives are the insurgents now,” Jerry Bowyer, the C.E.O. of Bowyer Research, told DealBook. His company issues guidance on proxy resolutions for about 2,000 annual shareholder meetings a year. “They see shareholder proposals as a nuisance,” he said.
“Good luck getting a federal agency to hold the company accountable if service fails or things go off the rails.”
— Robert Weissman, co-president of Public Citizen, a nonprofit watchdog group, on the newly announced Trump-branded smartphone and cellular service plan. Experts questioned the Trump family’s claim that the device could be made in the U.S., while others said it posed another conflict of interest for the administration.
Your thoughts on an unusual merger condition
On Monday, Andrew asked you to weigh in on a requirement that the U.S. government may impose on the proposed merger of the ad giants Interpublic and Omnicom: that the resulting company pledge not to engage in political boycotting of any particular platforms when it considers buying ad space for clients.
Consider if an agency genuinely believes that appearing on a platform would damage a client’s brand, Andrew posited: “This new provision, depending on how it’s interpreted, could make it near impossible for an agency to live up to that professional obligation. If you were this firm’s client, would you remain one?”
Here’s what you said. (The responses have been edited and condensed.):
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“Doesn’t freedom of speech include the right to not speak? Also, how would such a provision, if made law, even be enforced?” — Mark Brandus, former marketing manager in Georgia
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“Consider what’s happened to Tesla. Elon Musk offended, probably irreparably, Tesla’s target market and demographic. If we were to adopt the act’s requirements, advertisers would face a similar situation.” — Jeff Bennett, former automobile dealership owner in Michigan
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“The client may be mad that his agency won’t place an ad on a specific website, but at that scale, he/she will have a hard time finding another agency to do it. They move like herds.” — Grant Castle, retired from the advertising industry in Maine
THE SPEED READ
Deals
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Tron Group, the crypto company run by the digital currency mogul Justin Sun, plans to go public in the U.S. via a reverse merger. (WSJ)
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Millennium Management, the big hedge fund founded by Izzy Englander, is said to be in talks to sell stake in itself at a $14 billion valuation. (FT)
Tech and artificial intelligence
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Inside Meta’s deal to buy a big stake in Scale AI to hire the start-up’s co-founder, the well-connected Alexandr Wang, to lead a new in-house A.I. research lab. (The Information, Bloomberg)
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“A.I. Companies Should Be Wary of Gulf Spending Spree” (WSJ)
Best of the rest
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Sotheby’s is set to auction off a dinosaur fossil that could fetch millions — a prospect paleontologists are dreading. (NYT)
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How Republicans’ proposed tax changes could endanger free office snacks. (WaPo)
We’d like your feedback! Please email thoughts and suggestions to [email protected].
Andrew Ross Sorkin is a columnist and the founder of DealBook, the flagship business and policy newsletter at The Times and an annual conference.
Bernhard Warner is a senior editor for DealBook, a newsletter from The Times, covering business trends, the economy and the markets.
Sarah Kessler is the weekend edition editor of the DealBook newsletter and writes features on business.
Michael J. de la Merced has covered global business and finance news for The Times since 2006.
Danielle Kaye is a Times business reporter and a 2024 David Carr Fellow, a program for journalists early in their careers.
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