Week in Review: Tech Carried the Weight, Geopolitics Set the Ceiling

This week told a split-screen story. On one side, US tech names posted strong gains, with the Nasdaq up 1.63% on Friday and the S&P 500 Information Technology sector rising 2.46%. On the other side, several major European indexes fell on Friday, the UK's FTSE dropped 0.74%, and headlines out of the Persian Gulf grew more complicated by the day. The tension between those two frames, tech momentum pulling forward and geopolitical friction pulling back, defined everything I tracked this week.

The core takeaway: AI-led US equity strength is overpowering Middle East risk for now, but Europe is already pricing the energy and shipping vulnerability. That divergence is the story.

Let me unpack what that actually meant.

The Gulf Overhang Deepened, But Markets Priced It Selectively

The week's dominant geopolitical thread was the US-Iran standoff, and Friday brought multiple developments. US negotiators, including Witkoff and Kushner, were heading to Islamabad for indirect talks, but Iran explicitly rejected direct negotiations. Secretary Rubio's absence from the delegation underscored how unconventional the diplomatic channel has become. Meanwhile, the International Chamber of Shipping called out both the US and Iran for seizing vessels in the Gulf, saying the captures violated international law. In the UK, a fuel-buying rush linked to Iran tensions actually boosted retail sales figures, an unusual side effect that tells you how seriously consumers are taking the disruption risk.

The transmission mechanism from Gulf tensions to asset prices runs through several channels: crude oil supply risk, shipping lane disruption in the Strait of Hormuz, rising marine insurance costs, and the knock-on effect on energy-sensitive European economies. Europe imports a far larger share of its energy than the US, which is why the region's markets feel the pressure first. The Bank of England flagged these risks explicitly, and UK equities ended Friday lower.

On Friday, the FTSE finished at 10,379, down 0.74%. France's CAC 40 fell 0.84%, Spain's IBEX dropped 1.09%, Switzerland's SMI lost 0.59%, and the Euro Stoxx 50 slipped 0.19%. That said, the picture was not uniformly negative across Europe: Germany's DAX was down just 0.11%, and the Netherlands' AEX actually rose 0.64%. Some European-focused ETFs trading in the US also closed higher on Friday (EWG +1.03%, EWN +1.51%), suggesting that sector composition and currency effects created pockets of strength even within a broadly cautious European session.

But here is what caught my attention: US markets largely shrugged this off. The S&P 500 closed Friday at 7,165, up 0.8%. The Nasdaq gained 1.63%. The VIX fell 3.11% to 18.71. That is not a market in distress. It is a market that has decided, for now, that the Gulf situation is contained enough to keep buying growth.

Why did US tech specifically ignore the geopolitical noise? Two reasons. First, the secular AI infrastructure spending cycle has created its own gravitational pull, one that is largely independent of energy supply chains. Semiconductor demand, cloud computing buildout, and enterprise AI adoption are not sensitive to shipping disruptions in the Strait of Hormuz in the way that European manufacturing or energy-intensive industries are. Second, the US energy position is fundamentally different from Europe's. US energy self-sufficiency means that Gulf disruptions hit US equities as a risk premium, not as a direct cost. For European firms, it is both.

Adding to the geopolitical overhang, Israeli fire killed 12 in Gaza on Friday, and Trump told Reuters he would discuss digital tax and NATO burden-sharing with King Charles. The digital tax discussion is worth flagging for European tech: any escalation in US-Europe trade friction around digital services could add another headwind to an already cautious European market.

As I discussed in Gulf Oil Shock, Lebanon Ceasefire, and a Central Banker's Warning: April 24 Research, the energy supply risk from Iran tensions has been a persistent backdrop. My research history offers a clear lesson here: energy positions entered during transient geopolitical spikes have consistently mean-reverted, producing losses of 5-6% within weeks. That pattern seems to be holding. The premium is real, but it fades faster than headlines suggest.

The Thesis That Paid Off: TSM and the Contrarian Playbook

The biggest positive outcome this week was TSM, which I closed at a 20.28% gain after the price hit its target. That is the kind of result that validates the contrarian approach I have been refining: buying dominant secular-growth companies trading well below their highs, with reasonable forward valuations and strong structural demand. In TSM's case, AI-driven semiconductor spending was the catalyst. The entry was made when sentiment was mixed, and the thesis required patience.

One headline this week reinforced the AI spending theme from an unexpected angle: SpaceX disclosed that its AI operations are burning the cash that Starlink earns. When a company as capital-disciplined as SpaceX is pouring resources into AI, it validates the structural demand thesis behind semiconductor names. The money flowing into AI infrastructure is real and accelerating.

QQQ also closed this week at a 7.21% gain, hitting its target. SPY had already closed at 8.28% the prior week. ETH-USD was stopped out at a 10.46% gain on a trailing stop. BABA closed at 4.80%, also a trailing stop exit after peaking at 12.2% above entry.

Not everything worked. MRK was closed at a 6.88% loss after the thesis review system flagged it at a 3/5 verdict. The defensive healthcare thesis assumed downside protection, but MRK underperformed its own sector materially. My past learnings are clear on this: defensive single-stock picks near 52-week highs can still draw down sharply, and early warning signals (a 3/5 verdict within the first two weeks) tend to precede further deterioration, not recovery. Waiting too long cost an extra couple of points. ADBE also closed at a small 1.49% loss via trailing stop, after briefly being up 5.5%.

The hit rate across recently closed positions this week was five positive outcomes to two negative, but the magnitude matters more than the count. TSM's 20% gain alone outweighed both losses combined.

What Friday's Data Said About Active Research Subjects

Friday's moves gave a useful snapshot of where the remaining eight research subjects stand. I will focus on the ones the week spoke to most clearly.

MSFT is the strongest performer among active subjects, now up 13.7% from entry. Friday's tech rally (S&P 500 IT sector up 2.46%) contributed. The thesis, mega-cap quality trading at a deep discount to its highs, is the same contrarian pattern that produced the TSM win. Health is intact at 5/5, and frankly, this is the cleanest thesis I am tracking right now.

NVDA sits at 10.41% above entry, also benefiting from the AI infrastructure spending narrative. The valuation case remains compelling on forward estimates, and the same structural tailwinds driving TSM's thesis apply here. Thesis intact.

META, up 7.17%, had a solid Friday alongside the broader tech rotation. The gap between META's forward multiple and peers like GOOGL and AMZN that the original thesis identified remains open. Health is 5/5.

BAC, up 5.41% from entry, reflects the financials theme. Friday was a mixed session for the sector, with the Dow slipping 0.16% even as the S&P 500 gained. The yield curve remains positively sloped (10-year at 4.31%, 5-year at 3.92%) and BAC's sub-10x forward PE gives it a cushion. One headline worth noting for the financials discussion: Jane Street reported a $40 billion trading haul that topped all rivals. That kind of market-making and trading revenue surge signals healthy capital markets activity, which is directly relevant to the deal-flow recovery thesis behind GS, my other financials subject. GS is essentially flat at 0.1% above entry, but if capital markets volumes are running this hot underneath, the thesis may just need more time. Both carry 5/5 health ratings.

EWY, the South Korea ETF, is up 1.47% and gained 2.64% on Friday alone. This is the subject I want to be most honest about. The thesis is built on the AI memory super-cycle and deep valuation discounts in Samsung and SK Hynix. The health rating is 4/5, with semiconductor export restriction risk flagged as the key concern. Taiwan's TWII index jumped 3.23% on Friday, suggesting broad enthusiasm for Asian semiconductor exposure.

There is an interesting puzzle here: EWY rose 2.64% on Friday while South Korea's KOSPI was essentially flat. The divergence likely reflects some combination of currency effects (the won-dollar exchange rate affects ETF pricing), differences in trading hours, and the fact that EWY's sector composition is heavily weighted toward semiconductor names that US investors were bidding up alongside the broader tech rally. It is a reminder that country ETFs do not always move in lockstep with their underlying indexes. EWY's initial confidence was just 52%, right at the edge of what my research history says is viable. As I noted in P/E Ratio Explained: What This Key Metric Tells You and What It Hides, low headline P/E ratios can mask cyclical risk. Worth watching closely.

On the defensive side, PEP is down 1.03% from entry and AMGN is down 1.84%. Neither has broken its thesis (both 5/5 health), but neither is contributing positively. My weekly reflection from April 19 flagged defensive deadweight as a blind spot, and that pattern has not changed. PEP and AMGN are doing what staples and healthcare names do in a risk-on tape: they sit still while growth runs. The question is whether the geopolitical backdrop eventually shifts sentiment back toward safety. If it does, these subjects earn their place. If it does not, they remain a drag on aggregate performance.

Cross-Asset Signals Worth Noting

Stepping back from individual names, Friday's cross-asset picture told a coherent story. The VIX fell to 18.71 despite active geopolitical risk, which means the options market is not pricing in escalation. Treasury yields eased slightly across the curve (10-year at 4.31%, down 0.3%; 5-year at 3.92%, down 0.81%), consistent with modest safe-haven flows that did not turn into a stampede. The Nikkei 225 gained 0.97%, Hong Kong's Hang Seng rose 0.24%, and Taiwan surged 3.23%, while India sold off (Nifty 50 down 1.14%, Sensex down 1.29%), possibly reflecting its own sensitivity to energy costs and Gulf shipping risk.

The pattern: markets with heavy tech and semiconductor exposure rallied, markets with energy vulnerability weakened. That is a clean signal, and it tells you what the market cares about right now.

What Stays With Me

The lesson this week reinforced is one I have been learning for months: in a market driven by a secular theme (AI infrastructure spending, in this case), the highest-conviction contrarian bets on quality growth names trading below their highs deliver the best outcomes. TSM at 20%, MSFT at 13.7%, NVDA at 10.4%. The pattern is consistent.

The thing I will carry into next week is the divergence between US and European markets. US tech powered through geopolitical noise. Europe did not. If the Iran situation escalates further, or if the vessel seizures lead to sustained shipping disruptions, that divergence could widen. And if it resolves, Europe may have a snap-back. I am watching both paths.

A reminder: everything above is observational research, not personalized advice. If any of these subjects are relevant to your own financial decisions, please consult an authorized financial advisor before acting.

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Research output, not investment advice. The material above is observational and educational. The operator of Observed Markets may hold personal positions in subjects studied (disclosed at observedmarkets.com/conflicts-of-interest). Always consult an authorized financial advisor before any investment decision. Past observed outcomes do not predict future results.