Is the Iran War Trade Back in Stock Markets? This is What Ilya Spivak is Buying

Key Concepts

• War Trade: A market phenomenon where geopolitical conflict drives up crude oil prices, inflation expectations, and interest rates, while pressuring bonds and equities.
• Hyperscalers: Large-scale technology companies (e.g., Microsoft, Google, Meta, Amazon) driving massive capital expenditure (capex) in AI infrastructure.
• Non-Residential Fixed Investment: Business spending on structures like data centers, which has become a primary driver of GDP growth.
• Break-even Inflation Rates: The difference between nominal Treasury yields and Treasury Inflation-Protected Securities (TIPS) yields, representing market-implied inflation expectations.
• Strait of Hormuz: A critical global shipping choke point for energy and industrial precursors (e.g., polyethylene) that exacerbates supply chain inflation.
• Relative Strength Index (RSI): A momentum oscillator used to measure the speed and change of price movements.

1. Market Sentiment and Price Action

The stock market experienced a significant rally in late April, decoupling from the "war trade" narrative. However, this move lacked confirmation from other asset classes.

• Divergence: While stocks hit record highs, volumes were declining, and momentum (as measured by RSI) was fading, indicating a lack of conviction.
• Earnings Lull: The rally was fueled by mega-cap tech earnings. With a lull in reporting until Nvidia’s upcoming announcement, the market is reverting to the "war trade" reality.
• Palantir Case Study: Despite strong earnings (18% EPS beat, 85% revenue growth), the market response was muted, suggesting that the "AI hype" sentiment may have already been fully priced in by previous mega-cap reports.

2. The Macroeconomic Framework: GDP and Capex

The speaker highlights a structural shift in the U.S. economy where business investment is outpacing consumer spending.

• GDP Composition: Non-residential investment (14% of GDP) contributed 1.39 percentage points to the 2% growth figure, while consumption (68% of GDP) added only 1.8%.
• The AI Capex Story: The "Magnificent Seven" companies announced approximately $750 billion in additional capex. The speaker argues this is a double-edged sword: while it drives growth, it also fuels inflation by increasing demand for scarce, supply-chain-disrupted components.

3. The Return of the "War Trade"

The market is currently re-engaging with the inflationary pressures caused by geopolitical instability:

• Crude Oil: Prices are rising, which acts as a leading indicator for CPI inflation with a roughly one-month lag.
• Interest Rates: As inflation expectations rise, bond prices are falling, and yields are climbing.
• Asset Correlations:
  • Gold: Leaking lower due to higher interest rates (opportunity cost).
  • US Dollar: Strengthening as a defensive asset and beneficiary of higher yields.
  • Bitcoin: Noted as an outlier, continuing to trend higher regardless of the war trade or yield environment.

4. Inflationary Pressures and Monetary Policy

The speaker argues that the "disinflationary" narrative of late 2023 is failing.

• Sticky Inflation: Housing, services, and goods inflation are all showing signs of re-acceleration.
• Central Bank Outlook: Market expectations for rate cuts have evaporated. The Fed is now expected to remain on hold for most of 2025, with a higher probability of hiking than cutting. Other central banks (ECB, Bank of England, Bank of Canada) are also shifting toward a more hawkish stance.

5. Methodology and Strategic Outlook

The speaker utilizes a "top-down" global macro approach, monitoring the interplay between geopolitical events, supply chain bottlenecks, and central bank policy.

• Key Indicator: The ISM Service Sector data is the next critical monitor, specifically focusing on the "internals"—employment and pricing—rather than just headline demand.
• Current Positioning:
  • Short: Stock indices (S&P 500, NASDAQ) via put verticals; Gold; Long-term bonds (betting on higher yields).
  • Long: US Dollar; Bitcoin (via IBIT call verticals).

Notable Quotes

• "This aggressive move higher is not sucking in greater participation... conviction here isn't showing up."
• "It is really and truly data center construction that seems to be powering the economy more so than the consumer."
• "If both [consumer and business spending] start to get more sluggish around this [inflationary] narrative, it starts to become difficult to envision that something that's only 14% of GDP can continue to outpace something that's 68%."

Synthesis

The market is currently transitioning from an "AI-fueled optimism" phase back to a "geopolitical reality" phase. The core argument is that the massive capex spending by hyperscalers is inherently inflationary, especially when filtered through global supply chain choke points. As inflation expectations rise and the Fed signals a "higher for longer" stance, the stock market's recent decoupling from the bond and commodity markets is likely unsustainable, favoring a defensive, anti-inflationary portfolio strategy.