A week that may have marked an inflection point — not necessarily in the upward trajectory since the post-Liberation Day rebound, but above all in the near-vertical climb of the indices most associated with growth: the S&P and the Nasdaq.
Structural risk vs. geopolitical noise.
Having now witnessed two sessions — Tuesday and Friday — of sharper reactions to the threat of a higher-for-longer rate environment, driven by not only stickier but also higher-than-expected inflation data, what's interesting is that the market may have found here a far more structural reason to make a u-turn than anything related to the US-Iran conflict. With geopolitical risk, wishful thinking comes easily. With inflation risk, it doesn't — the ghost doesn't necessarily go back into the closet because of a few tweets.
What the tape said.
The "good feeling" that Tuesday's price action gave us — a solid rebound off the session lows — didn't replicate on Friday. There was a recovery attempt mid-session, but the close simply didn't hold, and didn't try to. Sectors that had climbed almost vertically, semiconductors chief among them, were among the most penalised in both sessions.
What to watch next week.
Next week should give us valuable clues about whether sentiment can hold — or will yield — to the shadow called inflation. Wednesday, the world's most valuable company reports earnings. The fanfare around this quarterly event isn't what it used to be, but the current momentum around semiconductors could make it a catalyst, particularly if the over-deliver trend that peers have shown in recent weeks continues. Elsewhere on the calendar: initial jobless claims and housing starts on Thursday, and the University of Michigan consumer sentiment to close the week — notable but not decisive, in my view.