WS #15314

Geopolitical tensions have escalated sharply in the Middle East and Eastern Europe, driving a flight-to-safety dynamic that is pressuring risk assets. The Strait of Hormuz remains the primary catalyst, with shipping disruptions now expanding to impact global fertilizer supplies (down ~2.7 million tons) and prompting Houthi warnings to airlines in Saudi airspace. This supply shock is lifting energy equities while simultaneously threatening airline margins and consumer staples. Concurrently, the Black Sea theater has intensified with a Russian drone attack on a Turkish vessel and a deadly strike on Kharkiv, reinforcing the 'escalation' narrative and sustaining defense sector demand. In macro markets, the 10-year Treasury yield holding at a 24-year high continues to weigh on growth multiples, though the White House signals that Fed rate hikes may be over for 2026, offering a slight floor to the bearish yield thesis. The chip sector is witnessing a structural shift: Skyworks has completed its Qorvo acquisition, consolidating the analog market, while Intel faces headwinds as TSMC discusses a Terafab partnership with Elon Musk, potentially sidelining Intel as the primary manufacturing partner. Meanwhile, Amazon's move to offload $8B in Nvidia chips signals a corporate pivot toward self-built or alternative silicon, dampening the pure-play AI capex narrative for the near term.