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Geopolitical pullbacks lead to opportunities for savvy investors.
The Geopolitical Turmoil was Already Priced In
Friday, the United States and Israel launched a massive coordinated air attack against Iran. After months of failed nuclear negotiations (and decades before that), President Trump decided to take action. Over the weekend, U.S. air strikes hit several major Iranian cities, ultimately ending Iranian Ayatollah Ali Khamenei’s 36-year iron rule.
Despite no progress on nuclear negotiations and proxy attacks on U.S. citizens, U.S. presidents have avoided direct military conflict with Iran for years. That ended this weekend. So why were stocks up on Monday?
1. Markets Discount the Future: Although the attack news was not confirmed until Friday, the stock market has a way of discounting the future. For instance, the United States Oil Fund ETF ((USO - Free Report) ) gained 15.9% in the past three months leading up to the attack.
Image Source: Zacks Investment Research
Meanwhile, defense stocks and drone makers like Red Cat Holdings ((RCAT - Free Report) ) rallied strongly as investors as investors observed the massive U.S. Middle East military build-up and predicted the attack.
2. The Military Operation Has Been Largely Successful (thus far): Prior to this weekend’s attack, a U.S. military offensive against Iran was seen as risky. However, thus far, the operation has been relatively smooth (especially when compared to expectations). The U.S. has killed much of Iran’s key leadership, U.S. forces have disabled much of the Iranian Navy, and there have been minimal U.S. casualties.
3. Geopolitical Fears Often Create Opportunity: Although geopolitical conflicts are scary for investors, they often create some of the best buying opportunities.
Image Source: Carson Investment Research
AI Infrastructure Investment Remains Robust
Artificial Intelligence is currently the hottest growth area on Wall Street. Monday, AI leader NVIDIA ((NVDA - Free Report) ) announced that it invested $2B in Lumentum ((LITE - Free Report) ) and another $2B in Coherent ((COHR - Free Report) ) under separate, multi-year, non-exclusive fiber-optics deals. Applied Optoelectronics ((AAOI - Free Report) ) also shot higher in sympathy. Optics companies are critical to the AI revolution because no matter how fast AI chips are, if the optical networks carrying the data are slow, the system gets clogged.
Beaten-Down Stocks (Software, Bitcoin) Rebound
Beaten-down industries like Bitcoin and software finally saw some relief on Monday. Earlier, I wrote “The Contrarian Case for Strategy ((MSTR - Free Report) ),” which you can read here. Meanwhile, the iShares Software ETF ((IGV - Free Report) ) is retreating to its 200-week moving average for the first time in more than two years. As Charlie Munger once said, “If all you ever did was buy high-quality stocks on the 200-week moving average, you would beat the S&P 500 by a large margin over time. The problem is, few human beings have that kind of discipline.”
Image Source: TradingView
Bottom Line
While the headlines are dominated by a massive geopolitical shift in the Middle East, the market's resilient reaction serves as a masterclass in forward-looking "discounting." By the time the first strikes landed, savvy investors had already positioned themselves, moving capital into energy and defense months in advance. With the military operation exceeding efficiency expectations and AI infrastructure investment continuing to pour billions into the fiber-optics sector, the broader bull case remains intact.
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As Missiles Fly, is it Time to Buy?
Key Takeaways
The Geopolitical Turmoil was Already Priced In
Friday, the United States and Israel launched a massive coordinated air attack against Iran. After months of failed nuclear negotiations (and decades before that), President Trump decided to take action. Over the weekend, U.S. air strikes hit several major Iranian cities, ultimately ending Iranian Ayatollah Ali Khamenei’s 36-year iron rule.
Despite no progress on nuclear negotiations and proxy attacks on U.S. citizens, U.S. presidents have avoided direct military conflict with Iran for years. That ended this weekend. So why were stocks up on Monday?
1. Markets Discount the Future: Although the attack news was not confirmed until Friday, the stock market has a way of discounting the future. For instance, the United States Oil Fund ETF ((USO - Free Report) ) gained 15.9% in the past three months leading up to the attack.
Image Source: Zacks Investment Research
Meanwhile, defense stocks and drone makers like Red Cat Holdings ((RCAT - Free Report) ) rallied strongly as investors as investors observed the massive U.S. Middle East military build-up and predicted the attack.
2. The Military Operation Has Been Largely Successful (thus far): Prior to this weekend’s attack, a U.S. military offensive against Iran was seen as risky. However, thus far, the operation has been relatively smooth (especially when compared to expectations). The U.S. has killed much of Iran’s key leadership, U.S. forces have disabled much of the Iranian Navy, and there have been minimal U.S. casualties.
3. Geopolitical Fears Often Create Opportunity: Although geopolitical conflicts are scary for investors, they often create some of the best buying opportunities.
Image Source: Carson Investment Research
AI Infrastructure Investment Remains Robust
Artificial Intelligence is currently the hottest growth area on Wall Street. Monday, AI leader NVIDIA ((NVDA - Free Report) ) announced that it invested $2B in Lumentum ((LITE - Free Report) ) and another $2B in Coherent ((COHR - Free Report) ) under separate, multi-year, non-exclusive fiber-optics deals. Applied Optoelectronics ((AAOI - Free Report) ) also shot higher in sympathy. Optics companies are critical to the AI revolution because no matter how fast AI chips are, if the optical networks carrying the data are slow, the system gets clogged.
Beaten-Down Stocks (Software, Bitcoin) Rebound
Beaten-down industries like Bitcoin and software finally saw some relief on Monday. Earlier, I wrote “The Contrarian Case for Strategy ((MSTR - Free Report) ),” which you can read here. Meanwhile, the iShares Software ETF ((IGV - Free Report) ) is retreating to its 200-week moving average for the first time in more than two years. As Charlie Munger once said, “If all you ever did was buy high-quality stocks on the 200-week moving average, you would beat the S&P 500 by a large margin over time. The problem is, few human beings have that kind of discipline.”
Image Source: TradingView
Bottom Line
While the headlines are dominated by a massive geopolitical shift in the Middle East, the market's resilient reaction serves as a masterclass in forward-looking "discounting." By the time the first strikes landed, savvy investors had already positioned themselves, moving capital into energy and defense months in advance. With the military operation exceeding efficiency expectations and AI infrastructure investment continuing to pour billions into the fiber-optics sector, the broader bull case remains intact.