Greetings,

Wall Street may need tech companies to pump the brakes on their massive AI buildouts as investors struggle to absorb the recent wave of bond issuance. More on that below.

Also in this edition:

• AI agents for accountants lag expectations
• Final IRS regulations remove tax snags from Section 1035
• Firms weigh benefits of private equity funding vs. independence
• Warsh's first testimony to offer policy clues

Tech companies are issuing record amounts of debt to finance AI infrastructure, straining demand in the investment-grade corporate bond market. Investors remain confident in the companies' credit quality but are growing more cautious as expectations for continued bond issuance weigh on prices and borrowing costs. Market participants are closely watching whether firms shift more funding toward equity as AI spending accelerates.

Federal Reserve Chair Kevin Warsh will deliver the Fed's Semiannual Monetary Policy Report to Congress this week as investors look for signals on interest rates, inflation and his plans to reform the central bank. His testimony comes ahead of the Fed's July policy meeting, with officials weighing whether persistent inflation and a resilient economy warrant higher rates.

Accounting firms are navigating the influx of private equity funding, with some, such as Sax and Wipfli, leveraging investments for growth and technology, while others, such as Mowery & Schoenfeld, prioritize independence. Sax has accelerated mergers and acquisitions and technology investments with minority investment from Cobepa. Wipfli has focused on technology and client services with funding from New Mountain Capital. Mowery & Schoenfeld, however, have grown without private equity, emphasizing internal succession and independence.

Major US banks are expected to report strong second-quarter earnings this week, driven by trading, investment banking and resilient lending. Investors will focus on consumer credit quality, net interest margins, loan growth and capital markets activity for signs of the sector's outlook, while executives are also expected to discuss AI-related financing and broader economic conditions.

The Federal Reserve has reaffirmed its commitment to price stability in its semiannual monetary policy report, despite inflation remaining above the 2% target. The report, the first under Chairman Kevin Warsh, highlights solid economic growth and productivity, with minimal risk in the banking system. However, it notes that inflation has risen due to the war in Iran, tariffs and higher prices for technology goods, driven by artificial intelligence demand. The Fed also notes that other measures of inflation have decreased, aligning with Warsh's view on broadening inflation metrics.

The Internal Revenue Service and the Treasury Department have issued final regulations on Section 1035 exchanges for life insurance contracts, removing tax traps from the 2019 regulations that affected corporate reorganizations and death benefits. The final regulations provide guidance on the application of the transfer for valuable consideration rules and information reporting requirements, and introduce a de minimis exception for corporate reorganizations.