For those of you who would prefer to listen:
The Market never takes a vacation. It’s there to price in events and expectations around the world every week. This was another busy one with plenty of Market-moving events. Here’s another rapid rundown:
The World Cup kicked things off throughout North America. A record 48 teams are competing. 104 matches will be played over 39 days. Mexico won game 1 in front of a home crowd of 80,000. 5 Million tickets have been sold to attend. Another 6 Billion people are expected to watch on TV or stream. That’s over 70% of the global population. It comes at a time with serious tensions on Planet Earth. Sports have a way of bringing people together. Hopefully, that trend will continue as Soccer takes the global stage this Summer.
Spain and France are the clear favorites to win the title. England, Argentina and Brazil are considered next likely to win. Interestingly, the betting Markets saw aggressive wagering on Portugal. Team USA doesn’t seem to have high expectations, entering at 60-to-1 odds to win it. The championship match will take place July 19 at the New Jersey Meadowlands. Planet Earth will be watching. Fair competition brings out the best in everyone.
There appears to be a breakthrough in the fighting in the Persian Gulf. A Memorandum of Understanding (MoU) has reportedly been agreed to, verbally. A signing could come as early as this weekend. In it is believed to be a 60-day extension of the ceasefire and a reopening of the Strait of Hormuz. Iran would see sanctions waived on Oil sales during this time. The MoU also addresses Iran’s nuclear program, though how remains unclear. This is merely a first step in a better direction, with no guarantees it settles the conflict. Regardless, the Market celebrated the news. A relief rally ensued to close out the week.
An American Apache helicopter was shot down in the Strait of Hormuz earlier in the week. Fortunately, there were no casualties. Our pilots were rescued. In response, US Central Command ordered multiple strikes against Iran. Both nations launched missiles. These events further clouded the timeline for any form of agreement. Any hopes for a deal looked bleak.
Those attacks came after Israel and Iran traded fire last weekend, violating the ceasefire. Importantly, the Gulf States have been active proponents in negotiating the memorandum. That said, the Iranian regime, represented by the Islamic Revolutionary Guard, continues to dispute claims that a formal and binding agreement is near. But the Foreign Minister did say they’ve never been closer to a path forward. Of course, you’ve got to start somewhere. He also said Iran won the war. So there’s that. The news flow around this conflict has been as volatile as the Stock Market. There’s definitely a correlation.
The months-long negotiations had stalled over Iran’s unbudging demands for access to its frozen funds, the scope of nuclear concessions, and the future control of the Strait of Hormuz. The World Bank said two-thirds of the Global Economy has been damaged by the conflict. The Market has taken it very much in stride all along. In case you’re wondering, there is a path for the U.S. to play Iran in the World Cup. It would take place in Dallas on July 3rd. Imagine that.
The price of Oil is nowhere near its 2026 high, staying below the $100 level. In fact, WTI is presently well below $90. Flows through the Strait have reportedly increased in recent weeks. Alternate routes have been established, too. The Gulf states have ramped up the use of pipelines to deliver fuel. Saudi jet fuel exports to Europe, via the Red Sea pipeline, reached the highest monthly total since the conflict began. Despite this, OPEC production is near its lowest levels this century.
The Energy Information Administration reported it does not expect the Strait of Hormuz traffic to return to pre-conflict levels until early 2027. The White House asserted it could get there within 30 days. At this point, it’s anyone’s guess. That said, ensuring ship safety is far from automatic. Also of significance, Israel is not party to this deal.
The situation between Israel and Iran is beyond complicated. Our sources lead me to believe it would be a mistake to think the United States ultimately holds influence over either of them. They have their own objectives in their decades-old war. Both countries have to factor in the role of the United States in helping to achieve those interests or the extent to which President Trump’s actions could undermine them. Prime Minister Netanyahu’s actions have irritated the American President of late. The Iranians have to enjoy seeing a gap in the alliance.
Iran has a history of stalling and delaying, demonstrating a strong threshold to absorb pain. It knows that Americans can lose patience easily, preferring quick outcomes. The regime is well aware of the nagging impacts that high gas prices are having on the American people. It’s making a bet that the pressure will force the White House to abandon its original objectives. I’m reminded of the phrase I heard long ago from my Middle Eastern History professor at Cal. We Americans have the watches, but the Iranians have the time…
Here’s another attention grabber: The Social Security Trust Fund, which has provided payments for decades, is expected to be depleted in 2032. This, according to the Social Security Board of Trustees. Medicare is set to face a similar fate the following year. These have been known risks for years, yet Congress has done nothing to address it. Social Security and Medicare insolvency have long been a political ticking time bomb. According to the Board, payroll tax revenue and other income sources would be able to cover an estimated 78% of benefits owed. That would mean cuts will come unless Washington acts.
The issue of Social Security is primarily mathematical and demographical. Baby Boomers are retiring at a rapid rate, while the rate of births has steadily declined. Social Security is a pay-as-you-go system. There are fewer workers paying into the system per retiree than ever before. That means less money coming in to pay those going out.
Possible solutions include raising the payroll tax rate and/or delaying the ages when people can start collecting benefits or receiving their full retirement payments. Congress could also increase the amount of income subject to the payroll tax or reduce the benefits or the rate at which they increase annually. We don’t anticipate any immediate movement on this issue, other than political finger-pointing, with the midterms ahead. Expect a whole lot of rhetoric and can-kicking out to the 2028 Presidential election.
I’m two-thirds through this piece and haven’t yet mentioned AI; Until now. Goldman Sachs expects AI investment to clear $1 Trillion next year, which would account for nearly 3% of US GDP. The last time an infrastructure spend like this occurred was during the Dot-com days. Before that was the advancement of the railroad. The AI revolution is real. It’s fueling the Stock Market. However, the impacts on society remain a great unknown.
Apple hosted its annual developer day. Investors were hyper-focused on its plans to innovate again. Apple’s AI strategy seems caught between the commitment to privacy while embracing third-party innovations. Artificial Intelligence requires access to deep personal data in order to ultimately unlock its true value to users. It’s clear this has been a sticking point in Cupertino for years, while the industry keeps racing forward.
The Street was mixed on the Apple event. Some were unimpressed, feeling the company failed to outline a clear revenue strategy while hitching a dependence on Google’s Gemini. Conversely, others saw it as Apple’s official launch of its long-awaited AI platform shift. There was some optimism with the introduction of Siri AI, setting a new way for its large and loyal user-base to interact with their many Apple devices.
Apple has been successful with the watch, but it is lagging in other wearable devices. AI aspires to be everywhere. Google and Meta’s rollout of AI glasses is definitely infringing on Apple territory. The company seems to view itself as a gateway to AI for its large and affluent audience. It’s definitely in a strategic position. The challenge in Cupertino is to keep it.
The price action of the stock reflected the conflicting reviews. Apple was weak on the week but still strong on the year. That is precisely how the AI-trade has been in 2026.
Back to the Market:
There has been serious rotation below the surface this week. After a relentless rally all Spring, money started flowing out of Tech. The bubble-like conditions were targeted. Semiconductors surged over 50% in just 3 months’ time. The Tech-heavy NAS headed into the week the furthest above its 50-day moving average since the Dot-com days. Selling ensued. It didn’t last.
The risk-off quickly turned back to risk on with the AI-trade. Tech stocks took off again to end the week. There was a key driver. SpaceX officially launched the largest IPO in history. Demand was white hot. It was 5x oversubscribed. Even foreign investors scrambled to get shares. This is an American company basically built from scraps. It’s important to remember, before SpaceX, our astronauts were getting rides from the Russians.
The company was valued at $1.77 Trillion at its debut. That made it the 7th most valuable company in America. It leapfrogged Tesla. The stock was priced at $135. It opened for trade at $150. It hit a high of $176 before closing at $161. It made Elon Musk the first Trillionaire. That, on its face, seems impossible to fathom.
The IPO fever broke, then returned. Selling turned back to buying. The sell-off earlier in the week was corrective price action. The rotation under the surface was telling. We learned a lot. Health Care, Consumer, Financials and Energy caught a bid while Tech corrected. Importantly, there’s been rotation within the Market, not out of the Market. That’s healthy. That’s a good thing. We are hyper-focused here to see whether it continues or deteriorates.
Inflation is nagging and war always brings risk. The Fed has its hands full and rates sure look like they’re going to stay higher for longer. But the Market is mostly driven by earnings, which have been strong and show no signs of slowing. At least not yet. The AI-trade has been the undisputed driver of this Bull. It’s been an explosive force all Spring. The relentless rally led to multiple new highs. It was way overdue for a breather. It’s getting one in June. We expect this choppy price action to continue.
The SpaceX IPO clearly marks a moment for the Market. We shall see what it leaves in its trail. Same goes for the Memorandum of Understanding. There’s no all-clear sign. More turbulence is likely. Besides, Summer tends to bring shakeouts. We’re ready for whatever comes our way. We are long-term investors trained to deal with short-term issues.
Though the odds are against them, we are emotionally all-in on Team USA. Let’s hope the competition brings a large dose of global solidarity. Disney had it right, it is a small world after all.
Have a nice weekend. We’ll be back, dark and early on Monday.
Mike
