Good morning,

Yesterday, there was a continued momentum/AI unwind leaving major indices in the red. The S&P 500 closed down 0.4% ending the day off of session lows as mega-cap tech stock bounced while the AI-capex beneficiaries were under pressure. Semi and memory stocks were down >5% despite the strong Samsung earnings report overnight highlighting the high bar ahead of earnings season. Oil prices and Treasury yields moved higher as shots were fired at multiple ships in the Strait. Late in the day the Treasury reinstated sanctions on Iranian oil which sent energy stocks higher into the close. Outside of energy, which was up 3%, healthcare and other defensive/yield-oriented sectors ended with gains. The momentum unwind left not only semis, memory and other AI adjacent stocks in its wake, but other more speculative themes also moved sharply lower including rare-earths, robotics, space and quantum.

The US carried out airstrikes in Iran overnight, but US equity futures were only trading modestly lower as European markets opened. However, ~4:00 during a press conference at the NATO summit President Trump said as far as he was concerned, the ceasefire was over but left the door open a smidge for a diplomatic resolution saying negotiators could continue to talk even though he thought it was a “waste of time”. The comments triggered the typical risk off conflict flows however, the absolute moves are somewhat muted as markets continue to discount a significant escalation ahead of midterms and don’t want to be fooled again by the escalate to deescalate playbook. S&P futures were down >1% at the lows but have cut those losses about in half. Oil prices are holding the bulk of the rally with ICE Brent reclaiming its 200d ma trading up ~5% at ~$78. Treasury yields initially jumped 3-4bps but have pulled back only up 1bps across the curve while the USD index moves modestly higher trading just under $101.