The bombs are back! With Donald Trump and the Iranian Mullahs tearing up their fragile, short-lived Memorandum of (mis)Understanding and resuming their highly combustible game of tit-for-tat, you might expect global markets to be in full-blown panic. After all, the U.S. military just launched fresh strikes on Iran to keep the Strait of Hormuz open, hitting some 90 military targets, which promptly triggered Iranian retaliatory strikes on U.S. bases in Kuwait, Bahrain, and Qatar. Trump declared on Wednesday that the ceasefire is officially “over,” while calling Iranian leaders “liars” and “sick people.”

Yet, if you look at the actual financial charts, Wall Street and global investors are responding with little more than a collective, synchronized shrug. Instead of sky-rocketing through the stratosphere, crude oil prices are bobbing up and down a little bit. In the span of just five days, oil prices bounced from $68 to $75 and slid right back down to $71. Yes, that is higher than the $60 baseline before the bombing started, and drivers are feeling the pinch with gasoline averaging $3.85 a gallon (up from $3.16 a year ago). But overall, the market’s reaction suggests that the financial world has developed a thick skin.

So, who is actually making money in this chaotic “new normal?”

While traders, refiners, and oil majors are doing just fine, the real surprise is the resilience of consumer-facing big businesses. Delta Air Lines, $DAL ( ▲ 2.21% )  which reports its highly anticipated earnings this Friday, is up an astonishing 25% year-to-date, nearly tripling the return of the S&P 500. Even with jet fuel prices remaining stubbornly high, about a third higher than pre-war levels, airlines are making a killing thanks to warm weather and relentless consumer demand. Consumers, it seems, would rather fly through a geopolitical storm than cancel their vacation plans.

Over in Singapore, institutional heavyweights are urging everyone to take a deep breath. Rohit Sipahimalani, Chief Investment Officer of the state-owned investor Temasek, noted at the Reuters NEXT conference: “There are always tail risks and it’s likely that the path to resolution will not be a straight line.” But from a market perspective, he insisted, “the worst is behind us, peak uncertainty is behind us, and outside some really ‘tail’ outcomes... this is not going to be a key driver of the market.”

Rather than fleeing for safety, savvy long-term investors are treating the volatility like a boutique clearance sale. Clara Chan, CEO of the Hong Kong Investment Corporation (HKIC), explained that “the fact that there is some market volatility, there will be some change in valuation and for a long-term investor like us with staying power, those could be (the) perfect window to buy." HKIC also remains laser-focused on sustainable investments.

Indeed, what some investors have called the “largest energy shock in history” is fast-tracking the global green transition. Thailand, which usually imports energy to the tune of 8% of its GDP, is turning this crisis into a major economic catalyst. Vice Finance Minister Santitarn Sathirathai remarked at the summit that the war is actually driving a “new growth engine” centered on green industries, noting: “A lot of the green economy, whether it’s new energy vehicles, solar panels and related industries, those are areas where Thailand already has some capabilities and we can build a lot more upon that.”

Geopolitics may be as explosive as ever, but big business, oil markets, and global capital appear to have learned to shrug off the fire.

—Peter S. Green

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Big Businesses mentioned this week

$DAL ( ▲ 2.21% )  $SPCX ( ▲ 2.6% )  $MU ( ▲ 4.52% )  $AMD ( ▲ 5.67% )  $INTC ( ▲ 2.09% )  $NVDA ( ▼ 0.66% )  $SOXX ( ▲ 3.5% )  $SOXQ ( ▲ 3.05% )  $DRAM ( ▲ 3.74% )  $SJM ( ▼ 1.29% )  $META ( ▲ 4.7% )  $AMZN ( ▲ 1.4% )  $ANTHZZX ( ▲ 0.37% )  $MSFT ( ▲ 0.27% )  $TM ( ▼ 1.6% )  $GM ( ▲ 0.54% )  $RIVN ( ▲ 8.76% )  $TSLA ( ▲ 3.17% )  

The Usual Suspects

• The  Chip Dip: It looks like chip stocks are falling off the old auction block. Amid investor fears that AI firms can’t keep buying more chips until they have some revenue to show for all their spending, and hedge funds and other early investors deciding to sell to lock in their gains (what Wall Street likes to call profit-taking), it’s been a bad few weeks for the companies making processing and memory chips. The big disappointment is Samsung, which reported a second-quarter operating profit of about $58 billion, nearly 20x its profit a year earlier, but its shares fell 7% after the announcement, as investors expected even greater growth to come. On Monday, another Korean chipmaker, SK Hynix, opened a U.S. share sale aiming to raise $28 billion, the second-largest new share sale on record after SpaceX’s $SPCX ( ▲ 2.6% ) $86 billion June IPO.  Micron $MU ( ▲ 4.52% ) dropped 12% in the past five days, while AMD $AMD ( ▲ 5.67% ) dropped 6%. Intel $INTC ( ▲ 2.09% ) dropped 9% on Tuesday alone. Nvidia $NVDA ( ▼ 0.66% ) , the poster child for the chip boom, is actually up more than 4% in the past five days, but it’s down more than 2% in the past month. The sector ETFs give a hint of how widespread the trouble is.  $SOXX ( ▲ 3.5% ) , the iShares Semiconductor ETF is down 14% since a peak on June 22, and the PHLX Semiconductor Sector $SOXQ ( ▲ 3.05% ) is down 8.3% in the past five days. Memory chips took it particularly hard. The Roundhill Memory ETF $DRAM ( ▲ 3.74% ) , is down 8% in the past five days. Then again, in the looking-glass world of the U.S. stock markets, where few companies are valued as ongoing businesses, the winds could change tomorrow. Indeed, by the time we went to press, many of these stocks had recovered many of their earlier losses. “Expectations have gotten to ⁠be almost impossible to beat for these companies,” Zachary Hill, head of portfolio management at Horizon Investments told the Globe & Mail.
• SpaceX Splashdown: Adding Elon’s Spaceship/AI/Satellite/Mobile phone company to the Nasdaq-100 index was supposed to buoy both SpaceX’s $SPCX ( ▲ 2.6% ) newly public shares, and the Nasdaq’s quest for ever greater heights. After pricing the IPO at $135, shares opened for trading at $150. They’ve now fallen below that, closing Wednesday at $148.30, a 35% drop from their mid-June intraday peak of $225. So what happened to the expected Nasdaq boost? Well, the index has about $40 trillion worth of stock, and despite the large size of SpaceX’s $68 billion IPO, the total number of tradeable shares is only worth about $100 billion, and the Nasdaq chiefs gave that a triple weight, so its total oomph is about 0.75% of the index. The math is fun: With $600 billion in assets indexed to the Nasdaq, that’s only about $4.5 billion of SpaceX stock that index funds need to buy. Not much of a boost there, either.
• Private Equity and the Boston Celtics: Winning isn’t everything, profits are. Legendary Packers’ coach Vince Lombardi would have been shocked, shocked. The fiercely competitive Lombardi liked to tell his team that “Winning isn’t everything, it’s the only thing.” But that’s not how the private equity owners of the Boston Celtics, one of the most storied, and winningest, teams in pro basketball, see it. Last week they announced they were trading away cornerstone player Jaylen Brown, the 29-year-old guard and forward, after 10 years with the team, for an aging 34-year old and some draft picks. The sports world consensus is that without Brown, the Celtics have less chance of repeating their 2024 NBA championship win. So why trade him? Salary. Brown was the NBA’s highest-paid player in 2023, and he is still owed more than $180 million over the next three seasons. That may make up 35% of the Celtics salary cap, but it seems the bigger lesson is that paying Brown that kind of money extends the payback timeline for the private equity limited partners who financed owner Bill Chisholm’s $6 billion purchase of the team after the 2024 championship.
• Twinkie’s multi-billion-dollar turmoil: It turns out that Hostess Twinkies will not survive nuclear armageddon, or even a rocket journey to Mars. And the actual shelf life of a Twinkie, about 65 days, has cost its new owner several billion dollars. J.M. Smucker $SJM ( ▼ 1.29% ), the jam and dog food maker that bought Twinkie parent Hostess for $5 billion in 2024, found that Hostess’s products don’t fit neatly into Smucker’s own distribution network, where products, including jams, coffee and dog food, last on shelves for a year or more. Puzzling that through and tossing out the alleged synergies of the purchase have cost Smucker’s three impairment charges, totaling almost $3 billion, the Wall Street Journal reports, and forced it to hand two board seats to activist investor Elliott Investment Management. Shares in Smucker’s have fallen about 14% since the purchase.

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Tech Talk

• Here’s looking at you, Zuck. Meta $META ( ▲ 4.7% )  is introducing new AI glasses that would continuously record everything you hear and see, feed it back to Meta’s servers, and use the data to train Meta’s laggard AI LLMs. As Zuck recently told investors, the glasses aim to be your “personal agent.” According to the Financial Times, many of the same features can already be accessed with a software upgrade to Meta’s existing Ray-Bans. But the new glasses are likely to face challenges from government and civil liberties groups that see them more as secret agents than personal agents. Last month, Wired magazine found code for a facial recognition system embedded in Meta’s smart glasses platform. The company then removed the system. It says.
• Speaking of surveillance: Ali Baba, the Amazon $AMZN ( ▲ 1.4% )  of China, is one of several Chinese AI firms that U.S. tech companies have accused of pirating U.S. AI systems. In a letter to Senators Tim Scott and Elizabeth Warren, Anthropic $ANTHZZX ( ▲ 0.37% )  charged that Chinese firms are creating hundreds of accounts on Anthropic, then using those accounts to crib Anthropic’s tech and replicate it. “These distillation attacks are carried out illicitly, systematically and at industrial scale to harvest U.S. A.I. capabilities across frontier labs and repackage them as their own,” Anthropic told the two senators, referring to companies on the frontier of A.I. development. Distilling has been a problem for U.S. AI companies for several years, and it’s beginning to cost them their edge. OpenAI said China’s DeepSeek was built by distilling OpenAI, and xAI $SPCX ( ▲ 2.6% )  founder Elon Musk conceded in court that his firm had “partly”  distilled OpenAI work as well. But it’s not clear yet if courts would find distilling illegal,Ali Baba may be regretting that decision, but not for legal reasons: Reporting only $1.4 billion in AI revenue in the first quarter, alongside a planned $55 billion Ai hardware buildout through 2027, the Chinese firm is struggling to generate profits from AI.
• Ex-Box? XBOX, the video game platform that brings in about 6% of Microsoft’s $MSFT ( ▲ 0.27% ) revenue, is about to have a lot fewer employees and a lot more ex-employees. Some 2,850 Xbox workers will be laid off by the end of 2027, part of 4,800 firings at the tech giant, as it refocuses on AI. It’s not really clear how AI will fill the closed roles, but XBOX CEO Asha Sharma told employees that its teams were 40% larger than they were a generation ago, but “the player base and playtime have declined.” Sharma also plans to shutter or sell off some of the game design studios it acquired. No word yet on the $69 billion purchase of Activision Blizzard, the maker of Candy Crush and Line of Duty (you do understand the connection there, right?). But it’s lost 64 cents for every dollar its invested in the studios. Microsoft CEO Satya Nadella explained the challenge: “We have to turn this into a sustainable business,” he said on a tech podcast.

Car Talk

• Toyota’s border hop: Japanese carmaker Toyota $TM ( ▼ 1.6% ) , says it will move the Mexican plant that makes its mid-size Tacoma pickup to the U.S border town of San Antonio, Texas. Toyota expects to spend $3.6 billion on the move, creating 2,000 new jobs and boosting production from 200,000 pickups a year to 350,000 by 2030. Toyota said it will continue to make cars at the Mexico plant near Tijuana. The move to Texas comes six years after Toyota announced it was moving Tacoma production to Mexico. Toyota is close to outselling General Motors $GM ( ▲ 0.54% ) to become the biggest car brand in the U.S. Sales rose 0.5% through the end of June from a year earlier, to 1.24 million vehicles, as GM reported a 6.8% sales drop, to 1.34 million. Toyota has been investing in hybrids, while GM’s turn to EVs has faltered.
• Rivian shares rattled by stock sale: Rivian $RIVN ( ▲ 8.76% ) , the U.S. EV maker that’must have thought it was on to a good thing when it aimed to raise about $1.5 billion with a share sale on Monday, following a 19% jump in its share price last week, and an 8.1% zoom on Monday. But after the share sale was announced, Rivian’s stock price fell 18%. Oops. Rivian has been struggling to compete with Tesla $TSLA ( ▲ 3.17% ) , and the one place it’s matched its rival is by also never turning a profit. Since its debut in 2021 at $130 a share, Rivian has lost 87% of its value, closing Wednesday at $16.66, costing shareholders about $85 billion. Still, things have been good for CEO Robert Scaringe, who made $402.6 million last year, or 4,458 times the company’s median employee pay.

Trumplandia

• Are we measuring inflation the right way?Probably not. With headline inflation numbers taking the economy ever further from the Fed’s 2%-ish target, thus pushing off, seemingly forever, the prospect of a rate cut. But maybe we don’t really know what we’re talking about. That’s the gist of several conversations among economists and econometricians right now. And it carries big implications for the Trump Economy, the war on Iran, the Holy Grail of a rate cut, and the November mid-term elections. Here’s a short version, which BBTW will return to when we finish reading the stacks of academic papers and untangling the blue lines and the red lines (and the pink lines and yellow lines) on several hundred pages of charts.But the gist is that using inflation to measure the health of the economy is a fraught notion.Simply gauging the effect of real-world activity on a consumer’s bank account means different things at different times. So energy prices shoot up for a few months, then collapse back down. Is that real inflation, or just momentary turbulence? Does a spike in the price of one item matter? Sure, beef has gone from $4 a pound to nearly $7since 2020, but it represents about 0.64% of the average U.S. consumer’s budget, so it may seem expensive, but it’s hardly moving the needle. Gasoline is 3% to 4%, so that hurts more. Housing is 30-35% of the average household budget, so that’s where the pain really comes in.So, with oil prices bumping around right now, what does that mean for real inflation?As a first step, the Bureau of Economic Analysis, part of the Commerce Dept., is reworking how it tabulates inflation, and should start using the new method next year (and backdating its data to 2021 for comparison). But the long and the short of it is that for now, inflation remains high, whether things like energy, steak or medical costs are driving it up, and a look at the most recently released minutes of the Fed’s Open Market Committee, the first chaired by Kevin Warsh, shows the chances of a rate cut are essentially zero for the rest of this year.