Good Morning Investors,
Markets are walking a tightrope. Last week delivered the bullish cocktail: cooling inflation, softening labor, and dovish undertones from Powell. But just as the macro stars aligned, geopolitics crashed the party. Friday’s airstrikes dragged sentiment back to risk-off, sending oil surging and semis reeling. Now, investors are left asking: was that the top or just a test?
Opening Bell
Futures are mixed after a volatile end to last week. The S&P 500 closed Friday down nearly 1%, the Nasdaq slid 1.5%, and oil jumped 6% after Israel struck Iranian military sites. Gold spiked. Yields dipped. It was textbook flight-to-safety behavior but notably, the selloff stopped short of panic.
Bitcoin rebounded modestly to ~$104,000 after briefly breaking support. Ethereum lagged. The VIX remains elevated, but the lack of capitulation suggests this may be more recalibration than collapse.
Market Framework: The Fed’s Window Is Open — If the World Lets It Stay That Way
The Fed’s path to cutting rates has cleared materially. Headline CPI surprised to the downside, with the three-month core trend now running well below 2%. Jobless claims rose for the third straight week. The labor market is cooling. Inflation is easing. Powell said the magic phrase: “not far from confidence.”
Markets now assign a 65% chance of a September cut and are pricing in two cuts by year-end. That’s a sharp pivot from just a few weeks ago and it reflects a regime shift: soft landing is in, stagflation is out.
But the wild card is the Middle East. If oil remains elevated or Iran retaliates directly, rate cut bets may retrace, not because of better growth, but because risk premia start reappearing in the global inflation outlook. Powell’s window is open but it’s being kept open by geopolitics holding steady, not just the data.
Historical Perspective: Middle East conflicts have consistently created temporary dislocations rather than lasting damage. In 2003, markets fell 15% ahead of the Iraq War but rallied 15% in the month following the invasion. The October 2023 Hamas attacks fully reversed within two weeks. While the human toll is real, market history suggests this may again be a buying opportunity for patient capital.
Read more on this in my piece here: War Creates Opportunity - Investing.com
Corporate Framework: Semis Stumble, But Don’t Break
Nvidia fell 3.2% Friday, and AMD slipped another 4.1%, erasing most of the week’s gains. But the broader AI thesis remains structurally intact. Meta’s stake in Scale AI and Oracle’s blowout cloud earnings are signals, not noise. The AI capex cycle isn’t slowing, it’s rotating from hardware to platforms and infrastructure.
Adobe’s beat and raised guidance supports that view. Microsoft’s next Azure update and Google Cloud’s Gemini rollout will be key barometers. The next move in this cycle may come from software, not silicon.
Risk-On, Risk-Hedged: Defense and cybersecurity stocks gained ground Friday as investors rotated toward geopolitical hedges. Palantir rose 2% premarket. While AI remains the cycle’s driver, periods of international tension can create tactical tailwinds for these sectors.
Technology Evolution: Apple’s AI Bet May Land Faster Than Expected
Fresh weekend leaks suggest iOS 19 is running real-time AI summarization in Mail and Messages — processed entirely on-device via M2 chips. Apple’s “Apple Intelligence” initiative may launch quicker than expected.
Why does that matter? Because mass-market AI adoption creates upside for inference-heavy hardware and edge infrastructure. If iPhones can efficiently run local LLMs, that’s a bullish tailwind for chips, memory, and edge-native software players.
Economic Framework: Oil, Rates, and the $36 Trillion Elephant
Bond markets aren’t behaving as expected. Yields held steady last week despite light CPI and PPI prints, a sign that fiscal risk is back on the table.
May’s budget deficit was $316 billion. The U.S. is now paying $92 billion a month in interest. The 10-year yield remains stuck near 4.4%, even with soft inflation. That’s not normal. It reflects a supply-demand imbalance in Treasuries — and could become the next macro pressure point if deficits keep climbing.
Powell may have policy space but he’s working within the constraints of a government whose debt burden is no longer invisible.
Energy Sector Dynamics: Oil’s 6% surge to $74 per barrel on Friday reflects a classic fear premium. But history suggests these spikes often reverse as headlines settle. Infrastructure plays — pipelines, storage, and LNG — may offer better risk-adjusted exposure than crude futures for investors looking to hedge without overcommitting to oil volatility.
Strategic Outlook: The Pullback Is Healthy, Not Fatal — History as Our Guide
Markets had run hot. The S&P 500 touched record highs. Semis were stretched. Breadth was thinning. A reset was due and now we’re in one.
My base case remains unchanged: we’ll see a retest of the 50-day or even the 200-day moving average. That would be a healthy refresh, not a trend break. It gives patient capital new entry points and cools off overextended positioning.
Crisis Investing Framework: Geopolitical shocks consistently generate tactical opportunities. From the 1991 Gulf War to the 2022 Ukraine invasion, market history shows fear-induced drawdowns are usually followed by strong rebounds. Watch for VIX readings over 30 and high-quality names trading at conflict discounts.
Unless Iran targets U.S. assets or oil breaks $100, this looks more like a pullback than a breakdown.
Tactical Considerations: Sector Rotation Opportunities
Core AI Evolution: Cloud platforms (Microsoft, Google), enterprise software, and edge compute — not just semis — are the next leg of AI monetization.
Geopolitical Beneficiaries: Defense, cybersecurity, and energy infrastructure historically outperform during global tensions and offer diversification.
Fed Pivot Plays: REITs and utilities benefit if September cuts hold, while financials could find relief from margin compression pressure.
Final Thought
This is not the moment to rotate out of tech — and it’s too early to chase defensives. If you followed my QQQ call since April, you're still up 20–25%, even with Friday’s drawdown.
The AI theme isn’t fading, it’s evolving. Leadership is expanding into cloud, enterprise software, and the edge. That’s where the next wave of growth is forming.
Geopolitical shocks may disrupt momentum, but they rarely reverse a macro regime shift. Inflation is cooling. Labor is softening. The Fed is nearing action. And markets are still climbing that wall of worry.
Today’s tensions are tragic, but from a market perspective, they look more like echoes of history than regime breakers. Stay tactical. Stay focused. Don’t confuse noise with signal.
Please feel free to reach out to me on LinkedIn or by email if you would like help navigating this market environment or have any planning-related questions.
👉 For more insights & macro coverage, subscribe here: https://dansheehan.beehiiv.com/subscribe
Dan Sheehan
This newsletter is for informational purposes only and should not be considered as investment advice. Please consult with your financial advisor about your specific situation.