Good morning investors,
The Iran situation I have flagged as a hedge a few weeks ago turned into the market's dominant story overnight, and the news is serious. President Trump declared the ceasefire with Iran "over" this morning at the NATO summit in Ankara, saying he no longer wants to deal with Tehran and that negotiating a peace deal has become a waste of time. His comments followed a night of US military strikes, with Central Command reporting hits on more than 80 targets, including air defenses and anti-ship missile systems, plus over 60 Revolutionary Guard boats, in retaliation for Iranian attacks on three commercial vessels transiting the Strait of Hormuz. The Treasury also revoked the waiver that had let Iran sell its oil.
The market reaction has been swift. Oil surged, with Brent up more than 6% to around $78.70 and WTI up a similar amount to near $74.70. Stock futures dropped hard on Trump's remarks, with the Dow off 705 points, the S&P down 1%, and the Nasdaq lower. Government bond yields jumped around the world as investors priced in higher inflation, with the US 10-year up about 5 basis points to 4.58% and European yields rising even more sharply. This is precisely the scenario I have been cautioning about, the reason I have repeatedly suggested energy exposure as a sensible hedge rather than treating the peace as settled. The complacency that had crept into the market on a smooth path to de-escalation has been interrupted violently.
The FOMC minutes from Warsh's first meeting arrive at 2 PM today, and given how opaque he was in the press conference, they could carry more surprises than usual.
What the Escalation Means
Let me put this in perspective, because the honest answer is that uncertainty just rose materially and I do not want to pretend otherwise. The memorandum of understanding that both sides signed in June is now in serious jeopardy, with Iran labeling the US strikes a gross violation and vowing to defend its sovereignty, while NATO's secretary general called the American response absolutely necessary given Iran's ceasefire breaches. Both sides are accusing the other of breaking the agreement, and the diplomatic path that looked promising just weeks ago has narrowed considerably.
For the inflation picture, this is the development that matters most. Oil erasing its entire war premium over the past month was the quiet hero cushioning both the consumer and the Fed's task. A sustained move back toward $80 or higher would reverse that relief, feed back into headline inflation, and complicate the case I have been building for cooling prices in the second half. The bond market grasped this instantly, with yields climbing on the renewed inflation risk. My longstanding view has been that the political incentive to resolve this before the midterms ultimately wins out, and I still lean that way over the medium term, but I have always paired that with the caveat that the road would deliver exactly these tremors, and this is a big one. The situation is genuinely fluid, and I would brace for continued volatility until there is clarity on whether this is a temporary flare-up or a durable breakdown.
I want to be measured rather than alarmist as markets have weathered several rounds of this over the past four months, and each prior escalation ultimately gave way to de-escalation. The energy relief may reassert itself quickly if cooler heads prevail. What I would not do is make dramatic portfolio changes in reaction to a single morning's headlines. This is exactly why a plan built to absorb shocks matters more than any forecast, and why I have favored holding some energy exposure precisely so that days like this are cushioned rather than purely painful.
The Memory Bear Market
Beneath the geopolitical drama, the story that was already unfolding is just as significant. The three largest memory names, Micron, SK Hynix, and Samsung, have officially fallen into bear market territory, each down 20% from recent highs. What makes this remarkable, and genuinely instructive, is that it happened despite Samsung reporting the best quarter in its history on Tuesday, with $58.4 billion in operating profit and record revenue. Records that would have sent the stock soaring a month ago instead met a 7% decline.
This is the elevated bar dynamic I warned about yesterday, playing out in its starkest form. Micron has now shed nearly $300 billion in market cap since its late June high, closing Tuesday roughly 25% below those levels, and the semiconductor index sits 13% off its highs. The AI bulls, myself included, have spent two years arguing that fundamentals were outpacing prices and that earnings justified the multiples. Samsung just vindicated that claim with its results, and the sector sold off anyway. For the moment, as one observer put it well, the AI trade has decoupled from the AI companies.
There is a genuine fundamental worry mixed into the profit taking. The hyperscalers and model builders, OpenAI, Anthropic, and now reportedly China's DeepSeek, are all pushing into proprietary silicon. DeepSeek is said to be developing its own inference chip to reduce reliance on Nvidia and Huawei hardware. If the biggest buyers of memory heavy GPUs become competitors to the memory and chip specialists, that is a real long term risk to the group, particularly as the AI workload shifts from training toward inference.
That said, context matters enormously here. Micron remains up 250% year to date, SK Hynix has soared 770% over twelve months, and Samsung is still up 140% this year. A 20% pullback after triple digit runs can be straightforward profit taking rather than a thesis break. My structural view is intact, and Micron's blowout guidance three weeks ago told us demand is sold out into 2028. If investors keep seeing evidence of blowout memory demand, the stocks should eventually adjust back to reflect it,but I have been consistent that I would let the semiconductor decline play out rather than chase it, given the broken uptrend, and this bear market is exactly why that patience was warranted. I want to buy this group on evidence of stabilization, not catch a falling knife into an elevated-expectations earnings season.
The Rest of Tech Is Holding Up
Here is the crucial nuance that the memory carnage obscures, and it reinforces why I have favored other corners of tech over the chips. While the semiconductors are in a bear market, the rest of the growth trade is holding up remarkably well. Since the late June turn, the Magnificent Seven ETF is up 8% while the semiconductor index is down 12%. The market is treating the chip wipeout as damage to a crowded hardware trade, not a reason to dump every corner of growth.
Apple has been the standout, up 13% since the late June low after a textbook retest of its old ceiling near $275, now sitting within 1% of its all time closing high. This is exactly the value I flagged in the Magnificent Seven when the group was left for dead a couple of weeks ago, and it is playing out. Even Nvidia has outperformed its own sector, bouncing off its 200-day moving average as one of the only chip names in the green. The strength extends well beyond seven stocks, with cybersecurity back near records, and biotech, aerospace and defense, China tech, and crypto all showing signs of life. The rotation from memory into software, security, and the beaten down megacaps is precisely the healthy baton passing I keep emphasizing.
Most encouraging of all, the breadth picture keeps improving even through this chop. The NYSE and S&P advance-decline lines are printing new highs, which resolves the participation concern that hung over the spring breakout when the index was making highs before the average stock confirmed. That is a genuinely bullish underpinning that the scary chip headlines completely mask. Broad participation like this is not what market tops are made of.
Apple and Broadcom Go Big on American Silicon
Apple expanded its partnership with Broadcom in a multi-year deal expected to exceed $30 billion, its largest US manufacturing commitment ever, to produce more than 15 billion American-made chips including custom silicon through 2031. It is the biggest piece of Apple's $600 billion domestic investment plan and a clear nod to the administration's manufacturing emphasis.
This matters beyond the headline number. It deepens the reshoring of semiconductor production that the AI buildout is accelerating, and it strengthens Broadcom's position in custom ASICs, which are increasingly central to AI workloads. For Apple, building an end to end silicon supply chain in America is both a strategic hedge and a political alignment. It is the kind of structural, contracted commitment that underpins my conviction in the physical layer of AI, the chips, power, and infrastructure that the whole edifice rests on. Deals like this are being signed regardless of the daily swings in the memory names.
The Fiscal Backdrop
A data point crossed my desk that goes straight to my central macro concern. Interest expense on US public debt has risen to roughly 3.2% of GDP, the highest since at least the 1970s and nearly triple the level of five years ago. It has now exceeded national defense spending for three consecutive years, with nominal interest payments hitting a record $1.22 trillion annualized. This is the fiscal reality that keeps my worry focused more on the bond market than the stock market. With today's geopolitical shock pushing yields higher and reviving inflation risk, the vulnerability of a government paying this much just to service its debt comes into sharper focus. The 10-year above 4.75% remains my line in the sand, and this morning's move to 4.58% bears watching closely in that light.
Final Thought
This is a genuinely more uncertain morning than we have had in a while, and I will not sugarcoat it. The Iran ceasefire has broken, oil is surging, yields are climbing, and the memory names are in a bear market even after record earnings. Any one of those would be notable but together, they make for a real test of nerve.
My posture, though, remains anchored rather than reactive, and here is the balance I would strike. On the geopolitics, I have long counseled energy exposure as a hedge precisely so that a morning like this is cushioned, and I would let the situation clarify before making dramatic moves, while leaning on my medium-term view that the political incentive to resolve this eventually wins out. On the memory selloff, I respect the custom-silicon risk as legitimate, but I read a 20% pullback after triple digit runs as largely profit taking within an intact structural story, and I would wait for stabilization rather than chase the decline. Most importantly, the broader market is far healthier than the chip wreck suggests, with the Magnificent Seven back on offense, software and cybersecurity near records, and advance-decline lines making new highs. The bull is broadening, not breaking.
I still expect a bumpy second half, and today is a vivid reminder of why. Yet the reasons for longer-term optimism, earnings acceleration, improving breadth, and my contrarian view that the Fed's next move is ultimately a cut as inflation cools, remain intact beneath the noise, even acknowledging that today's oil spike complicates the inflation path in the near term. The minutes at 2 PM will add color on Warsh's thinking, and given his opacity, they are a genuine wildcard likely to read hawkish.
Days like this are exactly when discipline separates good long term outcomes from poor ones. Do not let a single volatile morning, however dramatic, knock you off a plan built to absorb precisely these shocks. Stay invested, stay diversified, keep some ballast against geopolitical risk, and if this morning has you questioning whether your portfolio is genuinely built for your goals rather than the headlines, that is the conversation I would most welcome having. I will be watching Iran and the minutes closely, and I will keep you updated as this develops.
Best regards,
Dan Sheehan [email protected]
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Market Pulse with Dan Sheehan is a personal market commentary newsletter and is independent from my employer. The content is provided for informational and educational purposes only and reflects my views as of the publication date, which may change without notice. Nothing contained herein should be construed as personalized investment, legal, tax, or financial advice, or as a recommendation to buy or sell any security. Any positions discussed represent my own views and may not be suitable for every reader's objectives, financial situation, or risk tolerance. Information is derived from publicly available sources believed to be reliable, but accuracy and completeness cannot be guaranteed. Readers should conduct their own research and consult their own professional advisers before making financial decisions.