AI Trade: From Cloud to Concrete June began with the market still trading every Iran headline like a live grenade. By month’s end, investors had something more comforting: not peace, exactly, but enough of a pause to stop pricing in catastrophe.
The U.S. and Iran moved toward an interim arrangement to halt hostilities and allow commercial shipping through the Strait of Hormuz. Oil, the market’s most visible anxiety gauge, retreated sharply. Stocks responded as they have throughout this conflict: not by demanding resolution, but by rewarding evidence that the worst outcomes are not taking hold.
That was the good news.
The U.S. and Iran moved toward an interim arrangement to halt hostilities and allow commercial shipping through the Strait of Hormuz. Oil, the market’s most visible anxiety gauge, retreated sharply. Stocks responded as they have throughout this conflict: not by demanding resolution, but by rewarding evidence that the worst outcomes are not taking hold.
That was the good news.
The less cheerful news is that the oil shock has already worked into the economy. The Fed’s preferred inflation gauge rose 4.1% in May from a year earlier, the highest reading in three years. Core inflation climbed to 3.4%. In other words, this is no longer just a gasoline story. Price pressure has broadened enough that the Federal Reserve can no longer wave it away as temporary inconvenience. Both the S&P 500 and Nasdaq will close down for the month.
The Fed Gets Religion
Kevin Warsh’s first meeting as Fed chair was not dramatic in the usual sense. The Fed held rates steady at 3.50%–3.75%, exactly as expected. But the message underneath the decision changed: officials are no longer leaning toward lower rates later this year. In March, the market could still imagine a rate cut. By June, that door had mostly closed. If inflation stays hot, the next move may be higher rates, not lower ones.
The market began the year assuming Warsh would be friendlier to lower rates than Powell. Maybe he still will be over time. But inflation forces discipline on even ambitious central bankers. Warsh arrived with reformist instincts, but inherited an inflation problem, an energy shock, and a market that has already priced in plenty of good news.
AI Goes Physical
Fortunately for the bulls, the market still has a powerful engine: artificial intelligence.
But the AI trade is changing shape. Earlier phases rewarded software, cloud platforms, language models, and anything with enough buzzwords to frighten a corporate board. Now the money is moving closer to the machinery itself: memory chips, storage, networking, power, cooling, data centers, utilities, electrical equipment, and the industrial plumbing needed to make AI function.
This is the move from cloud to concrete.
AI may be digital, but in practice it is very physical. It needs land, power, copper, chips, cooling systems, and grid upgrades. Investors are rewarding the companies supplying the picks and shovels, not just the companies promising productivity miracles somewhere over the rainbow.
The downside is that this has become a momentum market, and momentum stocks do not walk down stairs politely. They fall out windows. Micron and other memory names pulled back sharply late in the month, reminding investors that even strong themes can become crowded trades.
“We’re in the biggest momentum market in decades, and those momentum stocks are going to be exceptionally volatile,” says Jed Ellerbroek, a portfolio manager at Argent Capital Management.
Going Forward
The bullish case remains intact but narrower. Iran tensions cool. Oil stays contained. Inflation peaks. The Fed holds. Earnings remain strong. AI spending keeps flowing into companies with real orders, pricing power, and profit leverage.
That is enough to keep stocks moving higher.
The bearish case is equally clear. The ceasefire frays. Oil rises again. Inflation remains above 4%. The Fed tightens. AI leaders stumble. Valuations stop receiving the benefit of the doubt.
That would not require a recession. It would only require disappointment.
Bottom Line
June did not resolve the market’s biggest questions. It rearranged them.
The Iran shock eased, but inflation did not. The Fed held steady, but sounded less forgiving. AI remains the market’s central growth story, but leadership has shifted from software dreams to physical infrastructure.
That may be healthier than the old AI trade. Concrete is harder to fake than hype. But it also means the market is leaning on a capital-spending cycle that must keep delivering.
For now, earnings and AI are winning. Just don’t confuse “winning” for risk-free.
And For What It’s Worth…
A 70-year-old Texas man intentionally drove his Tesla Cybertruck into Grapevine Lake near Dallas to test its "Wade Mode." After driver Jimmy Jack McDaniel abandoned the partially-submerged vehicle, he was arrested and charged with offenses including boating without a license.
According to the Tesla manual, “Wade Mode” is designed for crossing shallow bodies of water (rivers or creeks) up to a maximum depth of 32 inches.
Sounds to me like “Wade Mode” works fine — right up until you need “Float Mode.”
_____
As noted before, long term, the strategies will get the trends right. Short term, there may be a miss or two as the market juggles conflicting signals. So keep allocations of strategies reasonable within your portfolio, and remember that protection remains paramount.
--David
The Fed Gets Religion
Kevin Warsh’s first meeting as Fed chair was not dramatic in the usual sense. The Fed held rates steady at 3.50%–3.75%, exactly as expected. But the message underneath the decision changed: officials are no longer leaning toward lower rates later this year. In March, the market could still imagine a rate cut. By June, that door had mostly closed. If inflation stays hot, the next move may be higher rates, not lower ones.
The market began the year assuming Warsh would be friendlier to lower rates than Powell. Maybe he still will be over time. But inflation forces discipline on even ambitious central bankers. Warsh arrived with reformist instincts, but inherited an inflation problem, an energy shock, and a market that has already priced in plenty of good news.
AI Goes Physical
Fortunately for the bulls, the market still has a powerful engine: artificial intelligence.
But the AI trade is changing shape. Earlier phases rewarded software, cloud platforms, language models, and anything with enough buzzwords to frighten a corporate board. Now the money is moving closer to the machinery itself: memory chips, storage, networking, power, cooling, data centers, utilities, electrical equipment, and the industrial plumbing needed to make AI function.
This is the move from cloud to concrete.
AI may be digital, but in practice it is very physical. It needs land, power, copper, chips, cooling systems, and grid upgrades. Investors are rewarding the companies supplying the picks and shovels, not just the companies promising productivity miracles somewhere over the rainbow.
The downside is that this has become a momentum market, and momentum stocks do not walk down stairs politely. They fall out windows. Micron and other memory names pulled back sharply late in the month, reminding investors that even strong themes can become crowded trades.
“We’re in the biggest momentum market in decades, and those momentum stocks are going to be exceptionally volatile,” says Jed Ellerbroek, a portfolio manager at Argent Capital Management.
Going Forward
The bullish case remains intact but narrower. Iran tensions cool. Oil stays contained. Inflation peaks. The Fed holds. Earnings remain strong. AI spending keeps flowing into companies with real orders, pricing power, and profit leverage.
That is enough to keep stocks moving higher.
The bearish case is equally clear. The ceasefire frays. Oil rises again. Inflation remains above 4%. The Fed tightens. AI leaders stumble. Valuations stop receiving the benefit of the doubt.
That would not require a recession. It would only require disappointment.
Bottom Line
June did not resolve the market’s biggest questions. It rearranged them.
The Iran shock eased, but inflation did not. The Fed held steady, but sounded less forgiving. AI remains the market’s central growth story, but leadership has shifted from software dreams to physical infrastructure.
That may be healthier than the old AI trade. Concrete is harder to fake than hype. But it also means the market is leaning on a capital-spending cycle that must keep delivering.
For now, earnings and AI are winning. Just don’t confuse “winning” for risk-free.
And For What It’s Worth…
A 70-year-old Texas man intentionally drove his Tesla Cybertruck into Grapevine Lake near Dallas to test its "Wade Mode." After driver Jimmy Jack McDaniel abandoned the partially-submerged vehicle, he was arrested and charged with offenses including boating without a license.
According to the Tesla manual, “Wade Mode” is designed for crossing shallow bodies of water (rivers or creeks) up to a maximum depth of 32 inches.
Sounds to me like “Wade Mode” works fine — right up until you need “Float Mode.”
_____
As noted before, long term, the strategies will get the trends right. Short term, there may be a miss or two as the market juggles conflicting signals. So keep allocations of strategies reasonable within your portfolio, and remember that protection remains paramount.
--David
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