Oil Up, Stocks Down,
Rinse & Repeat

U.S. Futures & World Markets

Iran headlines have oil (+6% today) and Treasury yields higher this morning, and stocks sharply lower. It's not a surprise that oil-driven volatility is putting pressure on equities after the US launched a large attack in retaliation for Iranian strikes on commercial ships navigating the Strait of Hormuz.

Semiconductor stocks are getting hit again after yesterday's selloff, with memory names leading the decline. The Philly Semiconductor Index has dropped 8% over the last five trading days. Before anyone starts drafting their "AI is over" posts on LinkedIn, the index is still up +61% year-to-date. A little profit-taking after a monster rally isn't anything unusual.

Earnings season unofficially begins next week, and expectations are high. Investors want to know if Big Tech can keep the AI-driven rally moving forward or if the bar is set a bit too high. As I've said before, stocks ultimately move on two things: earnings and interest rates. This week is all about oil and rates. Next week, it's time for companies to deliver.

CORE Headlines

• U.S. strikes on Iran were four to five times bigger in scope and power than previous strikes — in retaliation for Iranian attacks on commercial ships. — Axios
• Iran targets Bahrain and Kuwait. — AP
• President Trump at NATO meeting says Iran ceasefire is "over"; will let negotiations continue if they want but thinks it's a waste of time; press conference at 12:00 PM ET.
• Apple expands Broadcom agreement with new $30B U.S. chip commitment.
• Meta will test "super sensing" AI glasses. — FT
• Across Silicon Valley, startup founders are enjoying a wave of computing credits and competing offers from AI-model makers racing to land new enterprise customers. — WSJ
• Affordable Care Act premiums will likely rise by double digits next year. — NBC
• Shares of Rivian lost 18% after the EV maker disclosed stock sale plans. — WSJ
• Nestlé looking to spice up products to counter the duller taste buds that can accompany GLP-1 weight-loss drugs. — WSJ
• Blue Origin nearing large funding round. — NY Times
• Occidental Petroleum upgraded to Outperform at Evercore ISI, target $65.

Charts & Data

Hedge funds fully deleveraged — US L/S Gross leverage at 2nd percentile, Net leverage at 6th percentile (1-year horizon). Goldman Sachs Prime via The Market Ear: "Hedge funds have rarely been more conservatively positioned over the past 12 months." Extreme caution from the professionals creates conditions for a sharp squeeze when they're forced back in.

Retail investors fully invested — BofA private client cash allocation at a generational low. BofA via Daily Chartbook: the contrast between hedge fund caution and retail fully-in is historically unusual.

This US expansion is now the 6th longest in history. NBER via The Market Ear: on track for top 5 if we avoid a 2026 recession. Recessions don't come just because a cycle is long.

S&P profit margins have driven the bull market. JPMorgan Asset Management: the margin expansion story is real and has been the fundamental engine of the entire rally since 2022.

Rising corporate profit margins have been entirely a large-cap story. BCA Research via Daily Chartbook: "The K-shaped economy on Wall Street." Small and mid caps are not participating in the same margin expansion.

Hormuz traffic: 16 commercial crossings in latest 24h — down 67% from the June 24 recovery peak of 57, just 14% of the Jan-Feb run-rate. @m_mcdonough via Daily Chartbook: "Brent says the oil risk premium has faded. The AIS tape says shipowner confidence has not."

Oil short sellers getting squeezed — Managed Money shorts above 40%, third highest in 15 years. @warrenpies via Daily Chartbook: "Recipe for a solid bottom. The question is how big will the bounce be?"

Consumer Cyclical ETFs saw the largest weekly inflows; Small Caps and Precious Metals saw the largest outflows. Arbor Data via Daily Chartbook: capital rotating toward consumer spending plays and away from the inflation/defensive trades.

Consolidated equity positioning at 41st percentile — well below crowded, plenty of upside room. Deutsche Bank via Daily Chartbook: "Systematic strategies sit in the 60th percentile, while discretionary investors remain stuck at the 29th percentile."

Tech insiders are buying — viewing the pullback as a buying opportunity. @jaykaeppel via Daily Chartbook: insider buying during a selloff is one of the most reliable contrarian signals in the market.

B200 GPU rental rates spiked from $5.30 to $5.77 — B200 availability collapsed back to 0%. 3Fourteen Research via Daily Chartbook: the physical scarcity of frontier compute remains extreme despite nervousness around demand.

S&P put/call skew at the lowest reading on record — 0.71. Crash protection is essentially free. Goldman Sachs via Daily Chartbook: "Nobody wants it." Complacency in the options market at a historically extreme level.

S&P 500 breadth expanding even as the index goes sideways — participation continuing to improve. Grant Hawkridge via Daily Chartbook: "The market underneath it has been telling a different story."

91% of S&P 500 Healthcare stocks outperforming the index over the past month — highest in 15 years. @tpmrsignals via Daily Chartbook: healthcare is the quiet rotation trade nobody is talking about.

When S&P is at ATH, semis were at ATH within 30 sessions, and semis drop 10%+, the S&P was positive 90% of the time one month later. SentimenTrader via Daily Chartbook: history strongly favors recovery from this exact setup.

Interesting Reads

• Amazon's secret 'Moonraker' project pushes Alexa into the AI-agent race — TNW
• The Venetian tradition of bridge brawls — Public Domain Review. I assume there were people on the canal taking bets on who would win. With a quill pen and linen rag, of course.

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