Andrew here. Looking at the volatility in the oil market, I’m left wondering why the smart money failed to hedge against what was always a highly probable breakdown of this fragile cease-fire between the U.S. and Iran.
The interim peace deal was clearly resting on a knife’s edge, yet investors chose the comfort of short-term optimism over geopolitical probability. Again. More below.
‘More unstable today’
President Trump is expressing doubts about the Iran-U.S. cease-fire, with fighting having escalated in the Persian Gulf region overnight.
The peace-trade rally that drove global markets to a series of record highs is looking fragile at this moment. It is also forcing the market to once again adjust to geopolitical risks disrupting global trade.
The market is flashing conflicting signals:
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Brent crude, the international benchmark for oil, has dipped since Wednesday to around $77.50 a barrel. That’s well below its wartime peak of about $120. But it has climbed roughly 5 percent this week, stoking fears of wider inflation.
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The CBOE Volatility Index, known as Wall Street’s fear gauge and a measure of investor uncertainty, ticked higher on Thursday.
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S&P 500 futures are in the green, and sovereign bonds are rebounding.
The region “is more unstable today than it was before the war,” Mohit Kumar, an economist at Jefferies, wrote in a research note on Thursday. Iranian officials said they had targeted U.S. military bases in Bahrain and Kuwait, and ship traffic through the vital Strait of Hormuz trade conduit is near a standstill, according to Bloomberg. Yet oil prices haven’t surged again, perhaps because regional energy infrastructure wasn’t struck.
Kumar still expects a peace deal but added, “Medium-term, tensions may flare up again.”
The war’s economic toll remains in focus. The International Monetary Fund on Wednesday published its latest forecast showing a sharp slowdown in global growth this year as countries feel the aftershocks of wartime inflation.
The Fed also sees an inflation risk. Minutes from the central bank’s most recent policy meeting showed that a few officials saw reason to raise interest rates to counter rising prices. (It wasn’t just energy costs that worried them: Tech giants’ spending on artificial intelligence infrastructure also risks pushing up prices, the minutes read.)
Keep an eye on debt markets. Stocks have boomed despite the uncertainty. But bondholders have been bearish since the war began. That became clear again on Wednesday: Bonds were sold off rapidly after Trump said the cease-fire was “over.”
The yield on the 10-year Treasury note, which underpins mortgages and many commercial loans, hit 4.589 percent on Thursday. It has risen more than a half percentage point since U.S. strikes on Iran began.
HERE’S WHAT’S HAPPENING
Graham Platner suspends his campaign for a Maine Senate seat. The move by Platner, the Democratic nominee, came after political and donor support evaporated following an accusation of rape, a charge he denies. Democrats now must name a replacement by July 27 — watch these names — to take on the Republican incumbent, Senator Susan Collins, with control of the Senate potentially at stake.
States reportedly prepare a challenge to Paramount’s deal for Warner Bros. Discovery. A multistate antitrust suit could be filed as soon as next week, according to CNN. Such a move could hinder Paramount’s goal of taking control of Warner Bros. Discovery this summer, and it would come after the Justice Department cleared the proposed transaction.
President Trump appears to support a Patriot missile deal for Ukraine. At the NATO summit in Turkey on Wednesday, Trump signaled that he might give Ukraine permission to produce the air defense interceptors to help fend off Russian missile attacks, which have killed more than 50 people in the past week. That seems to signal improved relations between Washington and Kyiv.
Focus on a stricken Midtown Manhattan skyscraper turns to the inspector. The Times found that Domani Inspection Services, which signed off on the structural viability of a 37-story office building set to be converted into apartments, had been repeatedly cited for missing warning signs at other building projects in New York City. Key supports have buckled in the skyscraper, which forced the evacuation of nearby buildings on Tuesday and raised concerns about other office-to-residential renovation projects.
Nvidia loses its A.I. heat
For much of the artificial intelligence boom, Nvidia has been its engine, as tech giants have paid dearly for its processors and investors have benefited.
As the A.I. trade enters its latest phase, Nvidia is no longer its darling. And among the stocks that have supplanted it are those of a company that was all but left for dead a year ago: Intel.
The shine has come off Nvidia. To be clear, the company is still a juggernaut, with a nearly $5 trillion market value and earnings of $58.3 billion in its most recent quarter. Analysts are still raising their profit estimates for the company. (It has also scored some wins recently, which reportedly include Beijing’s letting Chinese tech companies buy some of Nvidia’s H200 chips, according to The Information.)
But Nvidia shed nearly $1 trillion over the past two months. As Bloomberg notes, it now trades at 18 times its projected earnings for the next 12 months, its lowest level since 2019. That’s a cheaper trading multiple than the S&P 500 index (20 times forecast earnings) or the Nasdaq 100 (23 times).
Intel is making a comeback. Last summer, the onetime giant of U.S. chipmaking handed over a 10 percent stake to the U.S. government after years of falling sales, the firing of a C.E.O. and a host of other troubles.
Flash-forward to today: Intel has drastically improved its manufacturing processes, and President Trump recently said that the company would collaborate with Apple on producing chips in the U.S.
Memory chip stocks are also still on fire. The Roundhill Memory exchange traded fund, which tracks companies including Micron, Samsung Electronics and SK Hynix, has more than doubled so far this year.
And there’s incredibly robust demand for SK Hynix’s planned U.S. listing on Friday, which is expected to be the second-biggest I.P.O. on Wall Street. (Behind only SpaceX’s offering last month, of course.)
A.I. disrupts San Francisco real estate
Would you accept stock in exchange for your home? For some sellers in San Francisco, the answer is yes — if it’s in high-flying artificial intelligence companies like OpenAI or Anthropic.
The fervor for pre-I.P.O. shares in the start-ups reflects how the A.I. boom — which is expected to produce perhaps 16,000 millionaires and nearly 20 billionaires — is reshaping the Bay Area, including its already tight real estate market, Emmy Martin reports for The Times.
Sales of homes above $10 million have doubled over the past six months, compared with those in the previous year.
More from Martin’s report:
“There’s a hysteria that’s out there right now,” said Pete Rodway, a Compass agent who works mostly in the luxury market.
One of his clients, an OpenAI employee, was scrambling to buy a $5 million home now to beat “a thousand other people that are going to have a budget of $30 million,” he said.
Garret Spiecker, who works at Citizens Private Bank and describes himself as a “financial therapist” for sudden wealth, said he had advised dozens of OpenAI and Anthropic employees on how to navigate the housing market. He has suggested they buy properties through trusts to protect their privacy, especially on homes above $5 million.
“In this cycle, which differs from some of the others, a lot of these individuals are very young and quite wealthy very fast,” he said.
Some homeowners are messaging Anthropic workers and investors directly, hoping to trade their properties for stock.
Others are being asked for unusual conditions, including Sam Rosenstein, a software engineer at Databricks, and his partner, Michelle Huang, who works in tech sales:
In May, Mr. Rosenstein and Ms. Huang landed a four-bedroom, two-bathroom in the Hayes Valley neighborhood for $2.185 million, bidding $385,000 above asking.
“When we put in the offer for the house, the seller came back and said we could pay the offer that we put in, or we could pay less money but provide 60 hours of A.I. consulting” on a personal project, Mr. Rosenstein said. “That’s totally the weirdest thing that has happened.” They declined the $10,000 discount.
THE SPEED READ
Deals
Politics, policy and regulation
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Gianni Infantino, the head of FIFA, could face international investigations over his contacts with President Trump. (ESPN)
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Don’t expect the House investigation into all things Jeffrey Epstein to end even if Democrats take control of the chamber after the midterm elections. (Politico)
Best of the rest
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William Zabel, a veteran Wall Street litigator who handled celebrity divorces, clawed back millions for victims of Bernie Madoff and fought for civil rights, died on Tuesday. He was 89. (NYT)
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“The End of Reading Is Here” (The Atlantic)
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