Hormuz Shock, Soaring Yields, and Dell’s Big Beat

Grant Calloway

The, uh, the tape this morning is, well, it is tighter than a drum. You look at the screens before the opening bell, and according to pre market data from Trading Economics, S and P 500 and Dow futures are sitting dead flat, while Nasdaq 100 contracts are sliding about 0.7 percent. And why? Because overnight we had fresh reports of strikes on oil tankers near the Strait of Hormuz as the United States and Iran continue exchanging hits. That sent crude oil spiking, and it pushed the US 10 year Treasury yield right up toward a three year high. Now, when I was working the floor at the New York Stock Exchange back in the day, you saw this movie every time geopolitical shocks hit the energy grid. But today, the mechanics under the hood are a bit different, and frankly, a lot more treacherous.

Grant Calloway

Here is the mechanism driving this bond selloff. We already have soaring public deficits and massive corporate debt issuance flooding the market with paper. You pile fresh energy inflation risks on top of that, and suddenly bond traders are forced to completely reprice what the Federal Reserve is going to do next. The market was hoping for rate cuts, but now, er, now people are whispering about potential rate hikes if oil stays elevated. That lifts sovereign yields across the entire curve. And it is not just a domestic story either. The cross asset ripple effects are spreading globally. UK and European gas futures are surging on supply disruption fears out of the Middle East, right on the heels of Tuesday's trading where the Dow dropped 418 points, or 0.79 percent, to close at 52768. That decline was dragged down by cyclicals and financials like Sherwin Williams, which fell 2.63 percent, and Goldman Sachs, down 2.52 percent.

Grant Calloway

From where I sit, this whole setup feels like a classic late cycle vice grip. When yields jump like this, it acts like gravity on those high multiple growth stocks that rely on easy money decades out in the future. Rising capital costs pinch valuation multiples hard, while favoring cash flow anchors, companies that generate real cash right now and hold actual pricing power. It is an old lesson, but the market has to relearn it every single decade.

Grant Calloway

Now, even with that macro weight on the tape, corporate earnings are still putting up one heck of a fight under the surface. Look at the pre market movers this morning. Dell Technologies is soaring nearly 10 percent after delivering an adjusted earnings beat of 7.04 dollars per share and raising its full year revenue guidance. That shows you that enterprise spending on infrastructure is, er, it is still very real. On the flip side, Palo Alto Networks is slipping about 2.5 percent pre market despite beating earnings estimates at 1.02 dollars per share, which tells you expectations are sky high and investors are showing zero mercy. Meanwhile, other tech names are taking hits, with Marvell, Palantir, and Seagate all dropping more than 2 percent pre market.

Grant Calloway

And then you have Big Tech M and A. Nvidia is trading roughly flat this morning, but reports are out that they are in advanced talks to acquire open source AI platform Hugging Face for a whopping 14 billion dollars. Think about that number for a second. Fourteen billion dollars. It illustrates that despite higher borrowing costs, the relentless capital expenditure arms race in tech is not slowing down one bit. Which brings us right into the core debate locking up this market today, the classic bull versus bear standoff.

Grant Calloway

The bulls look at Dell's monster quarter and Nvidia's aggression and say, look, hardware demand is robust, balance sheets are clean, and corporate earnings are fundamentally holding up the entire market. But the bears look at that 10 year Treasury yield closing in on three year highs, combined with crude oil staying sticky above 85 dollars a barrel, and they say, listen, this financial tightening is going to crush consumer spending and trigger an earnings recession by winter. Both sides have valid points, but something has got to give when macro reality collides with tech optimism.

Grant Calloway

Looking ahead at today's slate, we have ADP private payrolls data dropping, alongside the Fed's Beige Book, which will give us a fresh look at regional economic conditions. Plus, after the bell, we get key earnings reports from Broadcom, Hewlett Packard, and Snowflake. So keep your eyes on the screen and your risk managed tightly. Just remember, as always, everything discussed today is strictly for educational and informational purposes, and not individual investment advice. Enjoy the session, stay disciplined, and I will catch you on the next tape.