Week in Review: Two Markets in One, and What the Exits Taught Us

The last time U.S. tech pulled this far ahead of international equity markets during an active military conflict near a major shipping lane was late 2015 into early 2016, during the China devaluation scare and oil's collapse below $30. Back then, U.S. large-cap growth held up remarkably well while energy and emerging markets bled. The parallel is loose, but the structural shape rhymes in one key respect: investors facing global uncertainty are once again crowding into the assets they view as most insulated from commodity and geopolitical risk, and that means U.S. mega-cap tech. The S&P 500 information technology sector finished last week up 2.74%, the Nasdaq Composite rose 1.71%, and nearly every major European and Asian index closed the week lower in local-currency terms. The DAX fell 1.32%. France's CAC 40 dropped 1.09%. Hong Kong gave back 0.87%. Australia's ASX 200 declined 1.51%. Two markets in one, again.

But there is an important nuance. For U.S.-based investors holding international ETFs, the picture looked quite different. VXUS, the broad international equity ETF, actually rose 1.40% on the week in dollar terms. VEA, the developed markets ETF, gained 1.66%. EFA was up 1.04%. Even EWG, the Germany ETF, rose 0.35% while the DAX itself fell 1.32%. The explanation is likely a weakening U.S. dollar during the week, which inflated the dollar value of foreign holdings even as local stock prices declined. This is a critical distinction: if you are a European investor watching the DAX, it was a bad week. If you are a U.S. investor holding EWG, it was a mildly positive one. The "two markets in one" theme is real in local terms, but the currency lens complicates it for anyone investing across borders.

This is the central tension I have been tracking, and it only deepened this past week. As I wrote in Week in Review: Tech Leads While the World Gets Louder, the divergence between U.S. tech and the rest of the world feels more structural than episodic. Sunday morning, with markets closed and time to reflect, the question is whether the week just ended confirmed that thesis, complicated it, or both. The honest answer: both.

What Drove the Week

The dominant force remains the Iran conflict and its ripple effects through energy markets and global shipping lanes. Three headlines this week made that clear.

First, Qatar dispatched its first LNG shipment through the Strait of Hormuz since the start of hostilities. This is both a sign of courage and a reminder that the strait remains contested. The fact that it was newsworthy for a tanker to make a routine transit tells you how abnormal conditions remain. Second, Malaysia announced it is preparing an oil supply continuity plan as the conflict strains reserves, a signal that Southeast Asian economies are bracing for a prolonged disruption, not a short one. Third, Saudi Aramco reported higher profits, aided in part by its east-west pipeline that allows crude exports to bypass the Strait entirely. Aramco's pipeline advantage helps explain a puzzle I will get to in a moment: why energy stocks did not rally more despite Hormuz risk. The market is increasingly pricing in adaptation, not escalation, and Aramco's infrastructure is Exhibit A.

Meanwhile, the OpenAI trial laid bare the internal rivalries behind the startup's $852 billion rise, a headline that matters for two reasons. It underscored just how much capital and attention continues to flow into AI, which directly supports the thesis behind the tech sector's outperformance. And for Microsoft specifically, the trial's revelations about OpenAI's trajectory reinforced the strategic value of Azure's AI partnership, a catalyst that underpins MSFT's research thesis.

So why does U.S. tech keep winning while the rest of the world struggles? The causal chain runs like this: Hormuz risk and broader conflict uncertainty pressure energy-dependent economies in Europe and Asia, weighing on their cyclical sectors. Meanwhile, U.S. mega-cap tech companies derive relatively little revenue from commodity supply chains. They benefit from AI-driven capital expenditure cycles and from the flight-to-quality dynamic that sends global capital toward perceived safe havens with strong earnings growth. The result is persistent divergence.

U.S. equities broadly shrugged off the geopolitical noise. The S&P 500 rose 0.84% on the week, with the technology sector doing most of the lifting. The Dow, which is heavier on industrials, energy, and financials, barely moved at 0.02%. That spread, tech up nearly 3% while the Dow was flat, tells you exactly where money was flowing.

What surprised me was that energy stocks did not benefit more from the ongoing conflict. XLE, the energy sector ETF, declined on the week despite the headlines about strained reserves and Hormuz risk. The research history has a clear lesson here, one learned the hard way: energy positions entered on geopolitical catalyst momentum consistently fade within two to three weeks as the market prices in adaptation rather than escalation. Saudi Arabia's pipeline infrastructure, growing U.S. production capacity, and strategic reserve levels all give the market reasons to believe supply will adjust. This week felt like that pattern repeating. The geopolitical premium in oil names is compressing even while the conflict persists.

On the other side of the globe, India's BSE Sensex fell 0.66% as tensions between India and Pakistan continue to simmer a year after their four-day conflict. Singapore's STI dropped 0.41%, weighed down by the tragic Indonesia volcano eruption that killed at least two Singaporean nationals, a human tragedy that also dampened regional sentiment. The broader Southeast Asian picture was one of caution, with Malaysia's supply continuity announcement reinforcing the sense that governments in the region are preparing for a harder environment.

What the Exits Taught Us

Four research subjects closed this week, and they tell a story about what this process does well and where it still needs to improve.

The standout was MU, Micron Technology, which closed at a positive tracked outcome of +18.07%. The thesis was built on an extreme valuation dislocation in the semiconductor space, exactly the pattern that has produced the highest-conviction wins. EWY, the South Korea ETF, closed at +13.88%, also a thesis-confirmed exit driven by semiconductor supply chain strength. These two reinforce what the research history shows clearly: AI and semiconductor supply chain subjects with deeply compressed valuations and strong earnings growth tend to hit targets fast, often well inside the stated time horizon.

BAC, Bank of America, closed at +3.91% via trailing stop after peaking at a 10% gain. This is a textbook example of a trailing stop weakness: the position gave back more than half the peak gain before closing. The average peak-to-close giveback on trailing-stopped winners has been roughly 40% of the peak gain across the research history. BAC fit that pattern almost exactly. Tighter stop calibration is something I am actively working on.

Then there was AMGN, Amgen, which closed at a negative tracked outcome of -6.11%. I will be honest: this one validated a pattern documented multiple times. Healthcare and defensive stocks entered primarily as diversification plays during risk-on environments tend to underperform. The defensive rotation thesis never materialized because the VIX stayed relatively subdued at 17.19, and risk appetite favored growth. Every defensive sector miss in the research history shares this DNA.

Checking In on Active Research Subjects

With eight active subjects, here is where the week left things and what matters going forward.

MSFT continues to track quietly, up 0.16% from entry, with its thesis intact. Microsoft benefits directly from the tech-led rally, and the Azure AI catalyst gained additional relevance this week with the OpenAI trial in the headlines. The trial's disclosures about OpenAI's internal dynamics and valuation trajectory underscore just how central the Microsoft partnership is to the AI infrastructure buildout. Nothing dramatic on the price front this week, which is sometimes exactly what you want from a low-risk subject.

ADBE, Adobe, was the strongest active performer on a thesis-confirmation basis, now up 3.1% from entry. For a stock that was trading 42% below its 52-week high at entry, that early movement in the right direction is encouraging.

META is down 3.21% from entry, which sits against an intact thesis. The week's tech rally benefited large-cap growth broadly, and META's advertising business should capture some of that sentiment over the research horizon. But the gap between where it sits and where the thesis expects it to go is worth watching.

GS, Goldman Sachs, edged up to +1.14% from entry. Capital markets activity and elevated trading volumes from geopolitical volatility support the thesis. Goldman's relative stability is notable given broader financial sector weakness on the week.

EWT, the Taiwan ETF, is the strongest active subject at +9.10% from entry, riding the same semiconductor wave that propelled MU and EWY to their exits. The question now is whether the trailing stop system will capture this gain more effectively than it did with BAC. This is the position I am watching most closely for execution discipline.

LLY, Eli Lilly, is modestly below entry at -1.54%. Healthcare broadly had a soft week. The GLP-1 revenue acceleration thesis remains intact, but the AMGN experience is a reminder that healthcare subjects require strong standalone catalysts, not just sector allocation logic.

PFE, Pfizer, is the weakest active subject at -4.89% from entry, and the latest review flagged minor concerns. Revenue continues to decline, and the defensive yield thesis has the same structural vulnerability that hurt AMGN. If conditions do not improve, the review process will evaluate whether the thesis still holds.

PEP, PepsiCo, is down 1.55% from entry. The consumer staples anchor thesis was built around providing ballast during volatility. With the VIX at 17.19, relatively calm, the defensive premium has not been needed. PEP will prove its value during a risk-off rotation, not during weeks like this one.

Rates and Liquidity: A Quiet Tailwind

One underappreciated development this week: Treasury yields declined modestly across the curve. The 10-year fell to 4.364%, the 30-year to 4.947%, and the 5-year to 4.013%. The 3-month T-bill yield sits at 3.595%, keeping the yield curve in a normal upward slope. As I explored in The Yield Curve Isn't Inverted, So Why Does Everyone Think a Recession Is Coming?, the macro signals are not as alarming as the headlines suggest. The modest decline in yields provided a quiet tailwind for growth stocks this week, since lower rates make the present value of future earnings more attractive. This is another piece of the puzzle explaining why tech outperformed: falling rates plus AI enthusiasm plus perceived insulation from commodity risk created a convergence of tailwinds that other sectors simply did not have.

What Stays With Us

The number I will carry into next week is that spread between the Nasdaq's 1.71% gain and the Dow's 0.02%. Two different markets, sitting inside the same exchange. But the nuance of currency effects on international returns is a reminder that clean narratives can obscure messy realities. The divergence is real in local terms and in sector terms, but the dollar's moves are partially masking it for cross-border investors.

The research calibration data backs up the broader pattern: subjects in the medium-to-high confidence range have produced a 77% hit rate with average returns around 7-8% based on internal tracking. The misses cluster in narrative-driven entries, the defensive plays, the geopolitical momentum trades. The wins cluster in valuation-dislocation entries, especially in tech and semiconductors.

What I am watching next week: whether EWT's gain holds or follows the BAC pattern of giving back at the stop. Whether the Hormuz headlines shift from adaptation stories to escalation stories. Whether PFE's concerns deepen or stabilize. And whether the currency dynamic that cushioned international ETF returns continues or reverses. The process is doing its job. The question, as always, is whether the market cooperates.

As a reminder, everything above is observational research output, not personalized advice. Please consult an authorized financial advisor before making any investment decisions.

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.