Wall St. Cashes Out, Peace Deal Crashes Out, Semiconductors Smashed Up
Let’s check the fighting with Iran, why Wall St. is cashing out, how far the semis fell, and why inflation numbers are more nuanced than they appear.
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Then It Got Worse…
U.S. forces carried out a second wave of strikes against Iran in as many days on Wednesday. CENTCOM announced on Wednesday evening that the American military had “began launching additional self-defense strikes today at 5:15 p.m. ET against multiple targets in Iran at the commander-in-chief’s direction.”
Concerns that the conflict would escalate further spread throughout the trading session earlier on Wednesday after Pres. Donald Trump had told Fox News that the U.S. would hit Iran again if that nation’s leaders did not sign an interim peace deal.
In response, the Iranian military announced that the Strait of Hormuz would be closed to all traffic and that two vessels had been struck trying to traverse the Strait. Additionally, Kuwait closed its airspace, citing “Iranian aggression” as that nation’s forces intercepted “hostile aerial targets” following roughly four hours of U.S. strikes against Iranian targets. CENTCOM announced that the U.S. strikes had concluded at 9:04 p.m. ET.
Two days of U.S. attacks came after Iran had shot down a U.S. Army helicopter over regional waters on Monday. The U.S. president had warned that Iran had taken too long to negotiate and would “pay the price.” Iranian media reported explosions across the country to include the city of Karaj, northwest of Tehran.
The U.S. president, later on Wednesday evening, said that he had spoken directly with Iranian officials and that they had asked that the bombing come to an end. The president responded that said bombing would stop shortly, but that the possibility of further military action still existed. Markets, after having been beaten down on Wednesday, have experienced some relief
overnight.
Inflation
The Bureau of Labor Statistics on Wednesday morning revealed consumer prices data for May. The headline CPI printed at growth of 0.5% month over month and growth of 4.2% year over year. While too hot for comfort, these results were not unexpected. The heat was brought almost entirely by higher energy prices related to the war with Iran and the closure of the Strait of Hormuz.
For May, gasoline prices were up 7% month over month and 40.5% year over year, while fuel oil prices were up 3.8% from April 2026 and up 58.9% from May 2025. Core CPI showed growth of just 0.2% month over month (below expectations) and growth of 2.9% year over year (as expected). Prices for new vehicles, non-food / energy commodities, medical care commodities and transportation services actually experienced month-over-month contractions in May.
The financial media tried to sensationalize this report, but the truth is that outside of energy-related commodities and energy-adjacent services, consumer-level inflation was very tame in May. My theory has been that this current spate of inflation is closely related to the supply shock created by the war and that adjusting short-term interest rates higher would only harm the economy while doing little to impact inflation; I feel my view was backed up by these numbers. Does that mean we are out of the woods? Not a chance. I do not feel that this Federal Open Market Committee pays my thoughts much heed. In addition, there is a good chance that today’s May PPI release is a lot uglier than yesterday’s CPI data.
The Environment
Wall Street appeared to cash out on Wednesday. Discouraged by the war with Iran? Discouraged by inflation? Making room for SpaceX? Try all of the above. I did add strategically to a number of long positions on Wednesday with the exception of Cracker Barrel (CBRL). I initiated a trading (not investment) short on that name as I wrote that I would. I am currently up small on that trade, but I will not be around for long. Though the balance sheet is just awful, Wall Street is on to it and the short interest is sky high.
It was the tech space that has taken the brunt of the selling this week. The S&P Tech sector SPDR ETF (XLK) gave up 2.29% on Wednesday to close down 10.9% from its June 2 record close. Though, in the age of high-speed algorithmic trading, I am not sure that we should recognize 10% pullbacks as corrections, and 20% pullbacks as bear markets, many on Wall Street still do. This is worth keeping track of. The Philadelphia Semiconductor Index closed 12.3% below its June 3 record high. Among the most punished names have been Micron Technology (MU), Marvell Technology (MRVL) and Intel (INTC).
For me, what drove the intense rally in tech this year, the AI buildout and steroid-infused earnings growth is still there. Those pillars that supported the bull market are still there and probably not going anywhere. Just my opinion. Of course, some weakness is to be expected after a nearly parabolic run across entire tech-related industries. Especially when downside catalysts such as a war that impacts inflation and what could still be a dicey labor market arise.
Not to mention, potential mega-cap IPOs that will draw allocation dollars away from existing investments. That said, while I trade around this volatility to soften its impact on my book, I remain, at heart, rather bullish as an investor even if my trader side sees reason to be less exposed. Bottom line? If you do this for a living, trade. If you do something else with your productive hours and can’t keep your eye on the ball, investment opportunities are being created.
Marketplace
WTI Crude traded above $93 per barrel on Wednesday. Overnight, I saw WTI Crude trading with an $89 handle. On Wednesday, the U.S. 10-Year Note paid more than 4.43% at its nadir. Overnight, I see that yield at 4.37%, so market conditions, if people can refrain from shooting at each other, might be improving.
It was ugly at the headline level on Wednesday. The S&P 500 was hit for a loss of 1.62% while the Nasdaq Composite and Nasdaq 100 suffered identical beatdowns of 1.98%. The Philly Semiconductors were wrecked for 3.57%, while the Dow Transports lost 2.69%. The small-to-mid-cap indexes all lost between 0.75% and 1.52%. It would be fair to say that the beatings were broad and evenly spread out.
Just four of the 11 S&P sector SPDR ETFs rallied on Wednesday, led by the Staples (XLP) as the defensives outperformed both growth and cyclicals. The Industrials (XLI), Materials (XLB), tech and the discretionaries (XLC) were all taken out to the woodshed on Wednesday. Breadth was ugly too, but there was a positive takeaway. Stay with me here.
Losers beat winners by an eight-to-five margin at the NYSE and by a rough five top three at the Nasdaq. Advancing volume took a 43.4% share of composite Nasdaq-listed trade for the day and a paltry 32.5% share of composite NYSE-listed activity. Here’s where it gets fun: Aggregate trading volume contracted by a whopping 12.6% on a day-over-day basis across NYSE-listings on Wednesday. It gets better. Aggregate trade contracted by an incredible 21.4% on a day-over-day basis across Nasdaq-listings. Trade was reduced across the membership of the S&P 500 as well and fell short of the 50-day trading volume simple moving average for that index.
What does this mean? It means that quite simply, the algorithms threw a tantrum, knocking the stuffing out of risk asset prices and the professionally managed money took a pass. The pros took a wait-and-see approach and let the amateurs sell their stocks on Wednesday. No, after a pretty severe selloff and three down days in four, we still for one reason or another, have not experienced a technical confirmation of a bearish change in trend. Sometimes, we do not get an actual confirmation. We usually do.
Economics (All Times Eastern)
08:30 – Initial Jobless Claims (Weekly): Expecting 222K, Last 225K.
08:30 – Continuing Claims (Weekly): Last 1.777M.
08:30 – PPI (May): Expecting 0.7% m/m, Last 1.4% m/m.
08:30 – Core PPI (May): Expecting 0.4% m/m, Last 1.0% m/m.
08:30 – PPI (May): Expecting 6.5% y/y, Last 6.0% y/y.
08:30 – Core PPI (May): Expecting 5.3% y/y, Last 5.2% y/y.
10:30 – Natural Gas Inventories (Weekly): Last +95B cf.
1:00 p.m. – Thirty-Year Bond Auction: $22B.
The Fed (All Times Eastern)
Fed Blackout Period.
Today’s Earnings Highlights (Consensus EPS Expectations)
After the Close: ADBE (5.81), LEN (1.24), RH (-2.05)
At the time of publication, Guilfoyle was long MU, INTC equity.
