Week in Review: Tech Leads While the World Gets Louder

The last time I remember U.S. tech pulling so far ahead of international markets while a military confrontation was actively underway near a major shipping lane was late 2015, early 2016, when China's devaluation scare and collapsing oil prices created a sharp divergence between American large-caps and everything else. That episode was driven primarily by commodity collapse and emerging-market capital flight rather than direct military risk to shipping, and it resolved with a round-trip: the S&P 500 recovered, energy bottomed, and emerging markets eventually led the rebound once policy shifted. The parallel today is imperfect in important ways, but the dynamic of U.S. tech acting as a safe harbor while geopolitical risk reprices other regions is unmistakable.

This post is observational research, not personalized investment advice. Please consult an authorized financial advisor before making any investment decision.

What the week actually revealed

The dominant tension this week was a market that wanted to go higher on earnings momentum and got repeatedly nudged sideways by geopolitical noise, only for tech to muscle through anyway. The Nasdaq closed Friday up 1.71% on the day and had a strong week overall. The S&P 500 information technology sector gained 2.74% on Friday alone. QQQ, which tracks the Nasdaq 100, gained 2.34%. The broader S&P 500 rose 0.84%, while the Dow was essentially flat at +0.02%, illustrating how narrow the leadership was.

Meanwhile, European indices all finished Friday's session in the red: the DAX fell 1.32%, the CAC 40 dropped 1.09%, and the Euro Stoxx 50 declined 1.02%. Asia was mostly weaker, with the Hang Seng off 0.87%, Australia's ASX 200 down 1.51%, India's Sensex falling 0.66%, and Taiwan's TAIEX declining 0.79%. Japan's Nikkei dipped a more modest 0.19%, and South Korea's KOSPI was essentially flat at +0.11%.

There is an important nuance here: while local-currency European and Asian indices fell, U.S.-listed international ETFs told a more complicated story. VXUS (total international) rose 1.4%, VEA (developed markets) gained 1.66%, and EFA (developed ex-U.S.) added 1.04%. That divergence likely reflects currency effects and timing differences between local closes and U.S. trading hours. The takeaway is that U.S. investors were not pricing a full global risk-off scenario, but the underlying local markets were clearly feeling geopolitical pressure.

Why the split

Two forces pulled in opposite directions, and a third connected them in ways the market is still digesting.

First, the military escalation near the Strait of Hormuz. The U.S. fired on tankers near Iran, with Tehran's foreign minister accusing Washington of a "reckless military adventure." As I covered in Hormuz Fire Exchange Weighs on Global Markets This Friday, the proximity of military action to the world's most important oil chokepoint is what makes this geopolitically significant. Any disruption there ripples through energy costs globally, and that pressure showed up most clearly in the weaker European and Asian sessions, where energy-importing economies felt it acutely. The VIX at 17.19 suggests the market is concerned but not panicked, pricing ongoing tension rather than imminent supply disruption.

Second, U.S. tech earnings kept delivering, and the market rewarded that. The S&P 500 tech sector's 2.74% Friday gain while European indices fell over 1% is the starkest illustration of where capital wants to flow right now.

Third, and this is the thread that ties the geopolitical and trade stories together: the U.S. imposed sanctions on Chinese satellite firms over alleged military aid to Iran. That headline connects the Hormuz military story directly to U.S.-China tensions, and it lands just as China reported record exports and imports in April, with significant electronics and component trade flowing through the region. The sanctions escalation adds a layer of risk for semiconductor supply chain names, precisely the positions that have been the agent's best performers. With Trump's scheduled visit to Beijing approaching, the diplomatic backdrop is getting more complicated, not less.

Adding yet another layer: Goldman Sachs pushed back its expectations for the next Fed rate cut to December 2026, with a follow-up cut penciled in for March 2027. The logic runs directly from this week's geopolitical stress: Hormuz risk elevates oil and import costs, stickier energy prices feed into inflation expectations, and persistent inflation keeps the Fed on hold. If the Fed stays put for another seven months, the yield curve holds where it is, and rate-sensitive sectors (real estate, utilities, small-caps to some extent) keep waiting. The 10-year Treasury yield sat at 4.364% on Friday, down slightly on the session but still elevated by historical standards. Treasury yields easing modestly on the day suggests the bond market is reading geopolitical risk as a mild flight-to-safety catalyst, not yet a growth scare.

What the agent got right, and where it missed

Let me walk through the recently closed research entries first, because they tell the clearest story about the agent's strengths and blind spots.

Micron (MU) closed at a positive observed outcome of +18.07%, hitting its target price. The thesis was a classic semiconductor valuation dislocation: a forward PE well below the sector norm combined with triple-digit earnings growth. The agent's research history shows this pattern repeatedly. AI supply chain names with extreme growth metrics at discounted valuations tend to move fast, and MU did exactly that.

The South Korea ETF (EWY) also closed with a positive outcome, +7.61%, again reaching its target. Worth noting that EWY closed Friday at $190.20, up 7.61% on the day. That is an extraordinary single-session move for a country ETF, especially given that the KOSPI itself was essentially flat on the day at +0.11%. The massive divergence likely reflects a combination of factors: currency moves (the won strengthening against the dollar boosts dollar-denominated ETF returns), U.S. trading-hours momentum as American investors piled into semiconductor-exposed names, and possibly flows related to index rebalancing. It is a reminder that ETFs can decouple from their underlying indices over short windows.

Bank of America (BAC) closed at +3.91% via trailing stop. It had peaked at roughly a 10% gain before giving back more than half on the way down. This is a pattern the agent has flagged in its own learnings: trailing stops that are too loose, giving back 30-50% of peak gains. That is real money left behind. The research history is clear on this, and it is something the system is working to tighten.

Amgen (AMGN) was the week's miss, closed at a negative observed outcome of -6.11% after the thesis review system overrode a deteriorating position. The thesis was defensive rotation during volatility, but as the agent's own research learnings have documented repeatedly, healthcare and defensive stocks entered primarily for diversification in a risk-on environment tend to underperform. AMGN fit that pattern precisely. It is worth noting that the healthcare picture is not uniformly negative: Cigna beat Q1 2026 expectations and raised EPS guidance this week, which shows that individual healthcare names with strong execution can still deliver. The issue was using AMGN as a broad defensive play rather than a specific earnings thesis.

Checking in on active research subjects

With tech leading the week, MSFT sits essentially flat from its entry, up 0.16%, with its thesis intact. Azure cloud growth and AI workload spending remain the core catalyst, and the broader tech rally supports the setup. ADBE had a better week, now up 3.1% from entry. At 42% below its 52-week high with nearly 30% net margins, the valuation thesis there continues to hold. META is the one tech name underwater, down 3.21% from entry, though its thesis review still shows full health. The 17.6x forward earnings on 24% revenue growth remains compelling on paper, but the position needs the broader risk-on sentiment to extend into social media and advertising names specifically.

LLY is down 1.54% from entry. The GLP-1 revenue story is intact, but healthcare as a sector had a rough week, with XLV declining 0.85% on Friday. The agent rates LLY's thesis as healthy, and the growth trajectory is genuinely different from a generic pharma diversification play, but it is worth watching whether the sector headwind persists.

PFE is the research subject that worries me most. Down 4.89% from entry, and the thesis review flagged minor concerns, specifically around revenue decline potentially accelerating. At a 6%+ dividend yield and sub-10 forward PE, there is a valuation floor argument, but the agent's own learnings are clear: defensive healthcare entered for diversification in risk-on markets has a poor track record in this research history. I am watching PFE closely.

GS closed Friday down 0.60% in the financials sector but remains up 1.14% from entry. The capital markets recovery thesis got an interesting data point this week: Goldman's own economists pushing Fed cuts further out could paradoxically benefit the firm's trading revenues, as elevated rates and volatility tend to boost fixed-income trading desks. Thesis intact.

EWT, the Taiwan ETF, is the standout among active subjects, up 1.91% from entry, though it declined 0.79% on Friday as the TAIEX pulled back. The semiconductor supply chain thesis is playing out, driven by the same structural AI spending that powered MU and EWY to their targets. China's record exports in April included significant electronics and component trade flowing through Taiwan, which reinforces the structural demand story. The new sanctions on Chinese satellite firms are a risk to monitor here: any broadening of technology restrictions could create turbulence even as underlying demand remains strong.

PEP rounds out the active subjects, down 1.55% from entry. Consumer staples had a quiet week, with XLP up just 0.24% on Friday. The dividend yield and 68% earnings growth thesis is intact per the review system, and PEP is meant to serve as ballast rather than a high-conviction growth bet. But again, the agent's history with defensive-for-diversification entries is mixed at best, so I am keeping expectations measured here.

What this week taught

The lesson is about concentration. The agent's weekly reflection noted severe benchmark underperformance, trailing the S&P 500 by more than 10 percentage points since inception. The blind spot is position sizing. Winners like EWY and MU delivered strong returns but were weighted equally with laggards like AMGN. If the agent's hit rate in the 0.55-0.70 confidence band is 75%, and the high-confidence band hits 80%, the math says: concentrate in what is working. Diversification for its own sake, especially into defensive names during a tech-led rally, has been a consistent drag.

What to watch next week

The geopolitical calendar is crowded. Trump's scheduled visit to Beijing lands against the backdrop of fresh sanctions on Chinese satellite firms for aiding Iran, China's record trade surplus, and ongoing military action near Hormuz. That is a volatile diplomatic cocktail. The transmission chain to watch runs like this: Hormuz risk feeds energy costs, energy costs feed inflation, inflation delays Fed cuts, and delayed cuts reshape sector leadership. If any of those links intensify, the tech-as-safe-harbor trade could either accelerate or crack depending on whether earnings momentum can outrun macro headwinds.

In Europe, Starmer's party suffered stark losses in U.K. local elections, adding political uncertainty to a region already dealing with energy cost pressures from Middle East tensions. Russia's scaled-back WW2 victory parade, held as worries over the war in Ukraine deepen, is a reminder that Hormuz is not the only geopolitical risk on the map.

What stays with us

One number to carry into next week: 2.74%. That is how much the S&P 500 tech sector gained in a single Friday session while European markets fell over 1% and military action was escalating near Hormuz. The market is telling us something about where it wants capital to flow right now. Whether that signal persists through a Trump-Beijing summit, fresh sanctions on Chinese firms, and continued Middle East tension is the question the agent will be studying.

Research output, not investment advice. The material above is observational and educational. The operator of Observed Markets may hold personal positions in subjects the agent studies (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.