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Geopolitical risk increased on Saturday after a rocket strike from Lebanon killed 12 people in Israel's Golan Heights. Israel retaliated with a strike on Hezbollah weapons caches and infrastructure on Sunday. This is all stoking fear of a wider war in the Middle East. So far, the region's turmoil since October 7, 2023 (when Hamas terrorists attacked and massacred Israelis) hasn't weighed on the stock market.
Instead, stock market investors are focusing on the upturn in earnings since early 2023, stretched valuations, and a rotation out of MegaCap stocks to Large Caps and SMidCaps on expectations of a Fed rate cut in September. In addition, technology stocks, especially the Magnificent-7, have been hit by concerns that AI costs a lot to implement while returns on this costly investment are uncertain. Consider the following:
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