Geopolitics, hot CPI Jitters Hammer Tech, but diversification saves the day

Just an update - I will be out of touch until end of month. My next note will be the last week of June. Remain focused. Stay disciplined.

Good morning, I went to sleep with a headache, and I still have one this morning.

Yesterday began on an uptick. Stocks opened higher, offering investors a bit of relief after Friday’s downtick. But it didn’t last long. Suddenly, green turned to red... – the trigger? Reports surfaced of renewed military tensions involving Iran near the Strait of Hormuz, sparking concerns that the conflict could escalate again. That was enough to trigger a risk-off move across markets.

Markets reacted as expected – Yesterday’s action was another reminder of that reality. The Nasdaq weakened – it swung 1280 points from high to low while the Dow held up relatively well. Money moved into the ‘defensive’ (think boring) names and out of the ‘growth’ (think sexy) names.. - chips getting smacked again. At one point the VIX surged by 23% before settling up 5% at 19.87. This morning the VIX is up another 5% at 21.08 – putting it now in the ‘concerned zone’ still nowhere near panic levels, but certainly enough to make investors pay attention.

At the end of the day – the Dow gained 86 pts, the S&P lost 20 pts, the Nasdaq down 250 pts, the Russell added 11 pts, the Transports rose by 295 pts, the Equal Weight S&P added 63 pts while the Mag 7 gave back 445 pts.

Of the 11 S&P sectors only two ended the day lower, 9 sectors were up – so the damage wasn’t nearly as broad as the headlines would have you believe.

Yes, Tech lost 1.8% and Energy lost 1.6% - (oil was down 2.8%) – but look at everything else….Industrials up 1.1%, Utilities up 1%, Financials up 1%, Consumer Staples up 1.25%, Healthcare up 1.25%, Basic Materials up 1.6%, Real Estate surged by 2.1%, only Communications and Consumer Discretionary rose LESS than 1% but still gained 0.3% and 0.4% respectively.

The damage in Tech could be seen in Disruptive Tech – 1.1%, Cybersecurity down 2.1%, Semi’s down 1.6%, Automation/Robotics down 1.9%, Software down 2.8%, Web/Internet – 1.6%.

Other sectors showing strength included – SMID’s + 1%, Biotech’s + 2.3%, Big Pharma + 1.2%, Airlines +3%, Retail +1.3%, Homebuilders + 3.6%.....

So, the message? Diversification worked exactly the way it was supposed to.

But the geopolitics only lit the fuse. What kept it burning was the CPI story and rates. With this morning’s CPI print just hours away, investors, traders and algos started to do a bit of de-risking — pulling money out of the names most sensitive to higher yields. And no group is more sensitive than tech.

Street economists expect headline CPI to be up 0.5% m/m, the core rate up 0.3% m/m – both slightly lower than last month. Y/y is a different story – Top line up 4.2%, the highest reading in more than three years and well above last month’s 3.8%. Core CPI y/y of +2.9% vs. +2.8% last month…so both of those numbers are hotter than last month. Now, you know what’s next – the concern this morning is – the actual numbers coming in even hotter than expected.

And remember – tomorrow we will get the May PPI and those numbers are also expected to be significantly higher…so let’s not kid ourselves….Investors, Traders and Algo’s are increasingly concerned that stubborn inflation could force Fed Chair Kevy Warsh to maintain a more restrictive stance for longer than many had anticipated. Now we all wait to see how Trump responds to THAT message! Grab the popcorn!

Bonds got bought – the TLT and TLH both up 0.5%, but yields remain elevated…. The 2 yr is at 4.13%, the 10 yr is yielding 4.53%, while the 30 yr is yielding 5.01%. Gold got sold yesterday and is under pressure again this morning as traders reassess the inflation outlook, real rates and the dollar - it was down $67 yesterday and is down $100 this morning – testing $4,160 – just $60 away from where I said it would test….Let’s see if that holds.

So, now all this action is forcing investors to confront all four risks at once: Geo-political risk, Inflation risk, Interest rate risk, and Valuation risk and while all those risks always existed, it is all coming to a head.

Remember – for the past two years – there was really ONE story….AI….and all the adjacent pieces…. If you owned it, you won, if you didn’t, you spent your days explaining why not and now you have to consider whether or not the AI trade is too crowded and if these names have been priced beyond perfection. We’ve been discussing that question for months.

But there is another issue beginning to emerge. Liquidity.

The market is preparing to absorb an unprecedented wave of AI-related IPOs. SpaceX, Anthropic and OpenAI.

SpaceX is expected to raise as much as $75 billion. OpenAI is reportedly preparing its own fundraising. Anthropic continues to attract enormous amounts of capital. Ultimately, investors must decide where that money comes from. Sure, some of it will be fresh capital while some will come from selling existing positions to fund participation in the next wave…..Think about that for a moment. The very stocks that benefited from the AI boom may ultimately become the source of funding for the next phase of the AI boom.

And that brings us to this week’s main event - SpaceX.

The company is expected to price tomorrow and begin trading Friday under the ticker SPCX. At $135 per share, the offering would value the company at roughly $1.77 trillion and raise as much as $75 billion — making it the largest IPO in history.

Now consider the contradiction. Investors spent the last week debating whether AI stocks have become too expensive. At the same time, Wall Street is preparing to buy a company valued at nearly 95 times sales.

SpaceX generated approximately $18.7 billion in revenue last year, up 33%. It also lost nearly $5 billion. The first quarter of 2026 alone produced another $4.3 billion loss. They dominate the launch business. Starlink now serves more than 12 million subscribers across 160 countries. They control more than 80% of U.S. rocket launches. They have built one of the most strategically important technology platforms in the world. It is extraordinary. The valuation is the debate. Or maybe it’s not valuation at all. Maybe the debate is scarcity. Maybe investors simply don’t care what it costs.

I wrote about this last week – here is the link.

“Elon Doesn’t Want a Roadshow—He Wants a Feeding Frenzy” 

SpaceX is selling 555 million shares; investors assume the market is about to be flooded with stock. Think again…. Not even close. After the offering, the company is expected to have nearly 13 billion shares outstanding. That means that only about 4% to 5% of the company will actually trade publicly. So, the story is NOT the 555 million shares being sold. The story is about the 13 billion shares that aren’t.

Institutions want it. Retail investors want it. Momentum traders want it. ETF’s want it, Elon fans want it. And now Nasdaq appears willing to accelerate the company’s path toward inclusion in major indexes, potentially creating another wave of passive demand shortly after the stock begins trading.

That’s a lot of demand. For NOT a lot of supply. We are hearing reports that the deal is already 4 X’s oversubscribed…. that means there is 2.22 BILLION shares of demand chasing just 555 MILLION shares of supply……..and by tomorrow – that number could be 6 or 7 X’s oversubscribed. As I said in my earlier piece – Elon is manufacturing ‘scarcity’ and scarcity has a funny way of making investors forget about valuation.

European markets are all lower…down about 0.5%.

US futures are under pressure…. Dow futures -312 pts or 0.6%, S&P’s -50 pts or 0.7%, the Nasdaq -300 pts or 1% while the Russell is -20 pts or 0.6%.

The S&P closed at 7386 – down 20 pts…. We are now down 5% off the high. Trendline support is down at 7,195 – or 2.5% from here. The Nasdaq closed down 250 pts and is now down 8% off its high and tested support yesterday at 24,958 before bouncing and closing at 25,678. If futures remain weak – we will test support again this morning…. if it fails to hold then do not be surprised to see the Nasdaq test the 24,000 level – which would be another 6% from here.

Penne alla vodka

When the tape is whipping back and forth between exuberance and fear, you want something rich, fast, and reliable on the table. Penne alla Vodka never lets you down.

Heat a splash of olive oil and a knob of butter in a large pan. Add one finely chopped onion and let it soften — do not rush it. Add a couple of cloves of minced garlic and a good pinch of crushed red pepper. Let that come together.

Pour in a half cup of vodka and let it cook down for a couple of minutes to burn off the harshness. Now add a 28-oz can of crushed San Marzano tomatoes, season with s&p, and let it simmer gently for 15 to 20 minutes until it thickens and the flavors marry.

Lower the heat and stir in a half cup of heavy cream — watch the sauce turn that beautiful blush color. Bring a large pot of well-salted water to boil and cook one pound of penne until al dente. Reserve a cup of pasta water before you drain.

Toss the penne right into the sauce, add a handful of grated Parmigiano Reggiano, and loosen with a little pasta water until it coats every piece. Finish with torn fresh basil and more cheese at the table.

Pour a glass of wine and remember — the market will still be there in the morning.