No Smooth Paths From Here

Per the below, we maintain that it does not serve the overall interests of either side of the Iran conflict to resume all out war at this juncture... That said, the geopolitical experts whom we contract with are noticing that Iran seems to aggravate tensions pretty much whenever the price of oil dips below ~$70/barrel, suggesting that Iran's incentives (somewhat, if not largely political relative to the timing of the US election cycle) has them willing to push the needle to keep the stress on the US electorate elevated. 

Hence, the reason for this morning's broad global selloff outlined below.

When Headlines Move Markets: A Word on This Morning's Action*

A Rising Bar

Per the note below, tech stocks (with the exception of Microsoft, which we recently added to) are getting hammered today despite some remarkable, nearly breathtaking, good news from the world's largest memory-chip maker overnight.

Stocks falling on good news is, let's say, not a good sign... That said, chip stocks, that one in particular, have gone so far, so fast, that the proverbial "buy-the-rumor-sell-the-news" event was for certain priced into the cards.

The "healthy" news is that some rotation continues... I.e., while the global tech sector gets hammered, our healthcare, staples and communication exposures are up solidly, financials are up marginally.

The other issue rocking global markets today is the resumption of kinetic action in the Strait of Hormuz (details below) which is adding to the pain in virtually all things, save for the positives mentioned above.

Here's your morning macro rundown*:

Bad News/Good News

The latest labor data did a slight number on this week's PWA Index score... Although, overall, we continue to see very low recession risk for the foreseeable future.

And while the latter, all else equal, paints a favorable picture for equities, all else, alas, is never equal.

Note that the equity market popped higher on Thursday's release of the weaker than expected June payrolls data and the -74k prior months' revision... I.e., for that moment bad news (being disinflationary) was good news for stocks... However, while the Dow held up nicely, by the end of the session the S&P 500 finished dead even, and the Nasdaq was down nearly 1% -- reflecting continued angst over the ramifications (sustainability, debt financing, profitability, valuations, ancillary players, etc.) of the continued massive AI-buildout.

Not to say that we're not in the near-term bullish camp -- we actually (cautiously) are -- however, as I keep expressing, the setup gets sketchy later this year/into next... More on that herein to come.

In the meantime, here's your summary of this week's PWA Index scoring, followed by a succinct macro note*:

Searching for Signal

I'm feeling compelled to take you into the short-term weeds with me a bit this morning, but first note that we definitely do not react to noise... However, we do forever look for potential signal within said noise.

Today, like many other days of late, is particularly noisy, and I do believe there is some signal, or perhaps some harbinger of potential things to come within.

In a nutshell, while, as I continue to point out, we're generally constructive on risk assets at the moment, we do see potentially serious headwinds developing late this year and into next... I'll be putting the whys (it's multi-faceted) into narrative that I'll share in the coming days.

In the meantime, here's the gist on today's action and how we're viewing it... This expresses our view of the moment -- we're relatively sanguine -- and hints at where we think some of the future pressure will come from (read mega-cap tech):

Chart of the Day: Messy Under the Hood

Following up on yesterday's video commentary (be sure to watch if you haven't yet) around the action among sectors of late, here's a look at the S&P 500 Dispersion Index -- which measures how differently the members of the index are moving from one another.

The white line measures dispersion, the blue represents the index itself... Note that we are currently well within the the range where volatility tends to pick up, in a not-always favorable fashion:

A Timely Look at Equities, Yields, The Dollar, Gold, Oil, Fed Funds Odds and Sectors (video)

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Weekly Roundup

While our narrative below acknowledges the Fed's latest messaging -- not only no rate cut in the offing, but, per fed funds futures odds, one hike fully priced later this year -- we see probabilities leaning against a rate hike between now and year end... Although, as implied below, we will continue to test our thesis and remain openminded to the possibility as we go.

At the same time, we actually believe that the perceived posture is on-balance warranted, based on our view of longer-term inflation reality... So it's not economic weakness that we necessarily see staying the Fed's hand, it's, frankly, our view of what the ultimate gameplan will be under its new leadership going forward.