Per the synopsis below, along with our broad (although thematic) diversification, we manage an options strategy (for portfolios that, by size, qualify) designed to mitigate the major, protracted drawdowns... I.e., the pain we intend to quell is not the single digit % breaks the likes of which we saw last week -- although, indeed, there have been a number of instances when even those were notably muted -- it's the large, extended drawdowns that occur every so often in equity markets that we aim to quell.
So, in essence, and just to clarify, our goal is to mitigate said drawdowns while smartly capturing upside where it's to be had, which requires that we live through some, at times notable, downside volatility as a matter of course.
PWA Morning Note*: Wednesday, June 10, 2026
The setup in one line
A soft-core inflation print and an overnight escalation in the U.S.–Iran conflict are pulling the market in opposite directions this morning, and so far they are largely cancelling — leaving the major averages modestly lower and the deeper story unchanged: inflation that runs hot on energy while staying contained underneath, and a geopolitical premium that the market keeps building and fading in turn.
Where we stand this morning
Stocks opened lower in what is, beneath the surface, a quieter session than the headlines suggest. The major averages are down modestly in early trading, with the weakness concentrated in the large-cap technology and semiconductor names that have driven both the recent rally and last week's sharp pullback. Small caps are holding up better — a tell worth watching, as it suggests this is not a broad-based risk-off move so much as a continuation of the rotation out of crowded tech.
What's moving the tape
Inflation. May CPI came in this morning at 4.2% year-over-year — the fastest annual pace since 2023 and the first reading above 4% in three years. On the surface that is a hot number, and it was driven almost entirely by energy, which alone accounted for over 60% of the monthly increase as the conflict in the Middle East continued to push oil and gasoline higher. But the more important detail sat beneath the headline: core inflation, which strips out food and energy, rose just 0.2% for the month — below expectations and slower than April. That distinction matters. It tells us the energy shock has not yet meaningfully spread into the broader prices of goods and services. The bond market is reading it the same way: the 10-year Treasury yield is little changed near 4.5%, easing back from its intraday high after the report.
Geopolitics. Overnight, the U.S. and Iran exchanged military strikes after a U.S. military helicopter was downed over the Strait of Hormuz, and the President signaled that further action was likely. Oil is higher on the news. This is the live variable for markets right now, and it has been the dominant driver of this week's back-and-forth — Monday's optimism on ceasefire headlines, Tuesday's reversal, and this morning's escalation. What is striking is how the market continues to treat each flare-up: oil builds a premium and then gives much of it back, because the strait has effectively been disrupted for months and a great deal of that risk is already in the price.
How we read it
This is the environment we have been positioned for and have described to you over recent months: inflation that stays elevated because of energy and geopolitics, a Federal Reserve that is effectively frozen — unable to cut with inflation running this hot, and reluctant to hike into geopolitical uncertainty — and a market that is range-bound and headline-driven as a result. This morning's data reinforced rather than changed that picture. The hot headline gives the Fed's more hawkish members cover; the contained core gives the doves their argument. The committee meets next week, and the more meaningful question is not whether they hold rates steady (they almost certainly will) but what their updated projections signal about the path ahead.
Gold is weaker this morning, which can seem counterintuitive on a day of military escalation. But in this cycle gold has been trading primarily as an interest-rate-sensitive asset rather than a pure geopolitical hedge — when yields hold firm, gold faces a headwind regardless of the headlines. That relationship is behaving exactly as we would expect, and it is one reason we carry protection on the position.
Positioning
We are making no change to our core allocation on this news. Our posture remains deliberately balanced: meaningful reserves held in short-term instruments as dry powder, a core of defensive and quality exposure, real-asset and energy-related holdings that benefit from the inflationary backdrop, and the options structure described above. On a morning when the headlines are dramatic, the portfolio is moving very little — but that day-to-day steadiness is a function of the diversification and the dry powder, not the options strategy. As noted above, the options work is aimed at a different and larger problem: the major, protracted drawdowns, not the day's noise. Today is simply an ordinary example of the balanced construction doing its job.
What we're watching
Tomorrow brings the Producer Price Index, the next read on whether the energy shock is feeding into inflation further up the supply chain. Next week's Federal Reserve meeting and its updated economic projections are the more consequential event. And the Middle East remains the wildcard that can move oil, and therefore inflation expectations, on any given headline.
This note is for informational purposes and is not a solicitation to buy or sell any security. Past performance is not indicative of future results.
*Prepared by Marty Mazorra, Chief Investment Officer, Private Wealth Advisors. Research synthesis and drafting assisted by AI tools under advisor review. All market views, analysis, and recommendations are those of the advisor.
No comments:
Post a Comment