A Market Stuck Between War and Ceasefire
The central question traders are working through: where do we actually stand? Not at war, not in a ceasefire, somewhere in between. That gap is where things get interesting. The president said publicly he was done dealing with Iran ("For me, it's over. I don't want to deal with them anymore"), handing it to negotiators, while U.S. Central Command opened a series of powerful strikes and signaled more would follow. We bombed Iran two nights running. The question now is whether a third night comes.
My read is that this relationship stays messy. Iran won't move easily or dramatically. Expect constant pressure applied by the U.S. while negotiations continue in parallel, exactly the posture the president described.
Crude Is the Tell
Crude oil rallied but stayed below $70, and it was actually higher two weeks ago than this morning. The market is not pricing in a large risk premium off these strikes. Tom Lee's point holds: oil moving higher without taking off toward 80, 90 or 120 works as a green light for stocks, and the market is taking it in stride. The effects are already dissipating, and the eye is coming off crude and U.S.-Iran, back onto earnings.
Not long ago crude sat at $102. It's now around $73. That swing matters for the next inflation print.
Inflation Is the Fed's Only Job Now
Jobless claims came in at 215,000 first-time filers, the same headline as last week, though last week's number was revised up to 217,000, making this one slightly lower. That's a historically strong labor-market number. Pair it with an unemployment rate that ticked down in June, and this is a Fed that has to focus on one thing: inflation. The labor market looks steady and arguably getting stronger. It hasn't been a straight line, last month's jobs figure disappointed, but the falling unemployment rate offset it.
Two forces held prices up earlier in the year. Tariffs pushed prices higher, and many expect that to fade because it's a one-off event. Then crude climbed. Energy is what's really holding back the inflation story, and the minutes reflected that. Housing has improved. If crude stays at reasonable levels, the headline CPI number should come crashing back down, since energy is what kept CPI elevated over recent months. Getting crude lower would show up as a significant move in the next CPI data.
The AI Trade Loses Some Ferocity
There's fatigue in parts of the AI trade. People are raising cash on rallies, and the rallies themselves are less ferocious than before. Micron and SK Hynix have lost some upside momentum. The good news is the numbers these companies put up remain spectacular. Broadcom looks set for another strong day. Nvidia and Broadcom both came off their lows over the prior two days, rallied, and are up again, which is genuinely good news for the chips.
Software is the problem. Microsoft and Meta Platforms both traded down pre-market. Watch the split inside information technology: semiconductors and chips on one side, software on the other, functioning almost like two different sectors within a sector, and that battle plays out day to day.
When inflation eases and the Iran situation gets more organized, this market wants to look at earnings, and when it does, it turns positive. The NASDAQ was up nearly a full percentage point the day after the Samsung story raised questions about whether the AI trade had enough steam for the years ahead.
Earnings, Banks, and the Catch-Up Trade
Fundamentals and earnings are the story: seven quarters of double-digit growth, though not for the banks. Banks were bid higher but won't post the double-digit growth other sectors have; they kick off the reporting season next week. The Dow set a record close above 53,000 on Monday, squeezed out another on Tuesday, and the week was set up to snap the recent runup.
Fewer fund managers had outperformed the S&P 500 than you'd expect, with many tech names 20% off their highs and energy volatility at a long-time low near 23%. That sets up heavy maneuvering and window dressing for the back half of the year as managers play catch-up. Capturing returns wasn't easy given the volatility in both the broad market and tech, and few anticipated the Mag Seven stumbling.
