Operation Epic Fury is now in motion, and investors are recalculating risk. Almost every industry in the market felt the effects of the joint US-Israel attack on Iran over the weekend, but here are three key industries that were in the spotlight today, and what lies ahead for each:

Energy

Brent crude surged 6.82% today as traders added a fresh risk premium tied to Middle East supply uncertainty.

The immediate focus is the Strait of Hormuz, the key shipping lane connecting Gulf oil producers to global markets, through which 20% of the world’s crude supply passes. Insurers began pulling coverage for tankers using the route over the weekend, and as a result, only about 4 million barrels transited on Saturday—a sharp drop from the typical 16 million that move through each day.

Then, late this afternoon, Reuters reported that Iran has closed the Strait, threatening to set fire to any ships that try to pass.

Some analysts say a prolonged disruption could push oil above $100, with JP Morgan’s Natasha Kaneva warning prices could reach $120 in a worst-case scenario. Others argue supply buffers may limit the upside, but agree that a full shutdown of the Strait will trigger a major global shock.

All of that is good news for oil companies like Exxon Mobil (up 1.13%), Occidental Petroleum (up 2.13%), and Chevron (up 1.48%, hitting a record closing high).

Defense

Defense stocks jumped as expectations for higher military spending increased. Classic contractors rose, with Lockheed Martin up 3.37%, RTX gaining 4.71%, and Northrop Grumman advancing 6.02%. But the new nature of warfare has prompted a new wave of companies also worth watching: AI company Palantir climbed 5.78%, missile system provider Karman gained 5.6%, and drone manufacturer Ondas jumped 5.85%.

The rally wasn’t limited to US players. European names such as BAE Systems, Renk, Leonardo DRS, and QinetiQ also moved higher, reflecting the view that governments around the globe may accelerate defense outlays amid rising geopolitical tensions.

Travel

Fuel represents roughly 20% of operating expenses at American Airlines, 17% at Delta Air Lines, and 21% at United Airlines. Oil supply disruptions, combined with expectations of softer travel demand in the region around Iran (and around the world in general), sent shares of all three airlines tumbling.

Cruise operators also felt the pressure of higher fuel costs and lower demand: Carnival fell 7.64%, Norwegian Cruise Line slipped 10.53%, and Royal Caribbean declined 3.25%

So, what happens next?

History provides context: since 1980, geopolitical shocks have rarely had a lasting impact on equities. Barclays data shows that the S&P 500 is typically flat the following day and often steadies within weeks.

That’s the view of Steve Eisman, the investor well known for betting against the housing bubble before the 2008 financial crisis. He argues that investors shouldn’t rush to conclusions, and that the conflict in Iran could even be a long-term positive for markets. “People react because of what’s happening, oil prices are obviously up. But if it goes well, two months from now, prices will be back to where they were,” Eisman told CNBC.

Still, the key variable is duration. “In a prolonged period of uncertainty, increases in oil prices could generate a global inflationary scare, which in turn may reduce the likelihood of interest rate cuts by the US Federal Reserve, currently expected for later this year,” Adam Hetts, Global Head of Multi-Asset at Janus Henderson, wrote in a note.

For now, Hetts suggests taking a long-term view and staying diversified, with exposure to high-quality and safe-haven assets.—SY

🟢 What’s up

• Nvidia gained 2.93% after announcing it will invest $2 billion each in Coherent and Lumentum to accelerate optical networking technology for AI infrastructure. Coherent rose 15.44% and Lumentum jumped 11.75% on the news.
• Telecommunications company EchoStar added 2.73% after posting a Q4 revenue beat, despite continued subscriber losses.
• Rallybio surged 45.89% on news it will acquire Candid Therapeutics to expand into autoimmune T-cell therapies.
• Equinor rose 7.51% after announcing a commercial oil discovery near the Snorre field in the North Sea.
• Strategy climbed 6.29% and Coinbase popped 5.34% as bitcoin prices moved higher.

What’s down

• AES fell 17.77% after agreeing to be taken private by a consortium that includes an EQT infrastructure fund and Global Infrastructure Partners.
• Live Nation Entertainment slipped 0.2% as the Justice Department’s antitrust trial kicked off, with regulators alleging the company illegally dominates the concert market.
• Elevance Health dropped 8.1% after saying the Centers for Medicare and Medicaid Services planned to impose sanctions tied to its Medicare drug plans.
• AeroVironment declined 17.42% after losing exclusivity on a $1.4 billion US Space Force satellite communications contract.

Warren Buffett is synonymous with Berkshire Hathaway, but with the GOAT investor sailing off into the sweet sunset of retirement at the end of 2025, it’s time for successor Greg Abel to step into the limelight. So, how’s he doing in his first quarter at the helm?

Shares of Berkshire Hathaway are down 4.91% after earnings tumbled 30%.

Don’t worry, it’s not Abel’s fault. First, Q4 was Buffett’s final quarter as CEO of Berkshire, and second, $1.56 billion of that loss was due to a one-time noncash goodwill charge related to several subsidiaries—without that, the loss would have been much smaller.

While the headline loss might have made longtime Berkshire shareholders choke on their morning coffee, Abel’s inaugural shareholder letter went a long way in soothing their fears. Abel wrote that he will let the CEOs of Berkshire’s many subsidiaries continue to lead their companies without his interference, and he has no plans to buy back shares or issue a dividend using Berkshire’s $373 billion in cash.

Abel’s letter may not have contained the wit of Buffett’s missives, but at least it’s clear that he isn’t about to rock the boat anytime soon. The real question is where he’ll deploy the company’s massive cash hoard, and how shareholders will receive his first choice of investment as CEO. Abel noted that he would “act quickly and concentrate our capital in a few high conviction ideas,” but with yet another quarter of no new investments, shareholders are starting to get antsy.—MR

Circular financing among AI companies paying each other for the privilege of using one another’s semiconductors and to build data centers has fueled the AI trade, which in turn has buoyed the entire stock market.

So what happens when that circle is broken?

Last Friday, the Pentagon gave AI startup Anthropic until 5pm to loosen its AI guardrails, reportedly so that the Department of Defense could use Anthropic’s large language model Claude in autonomous weapons and to surveil American citizens. Anthropic refused to back down, so Defense Secretary Pete Hegseth designated the company “a supply chain risk to national security,” while President Trump ordered US government agencies to “immediately cease” using Anthropic products.

Meanwhile, archrival OpenAI swooped in and inked a deal with the US government, leaving Anthropic blacklisted and kicked to the curb.

A tangled AI web

Last week’s drama is a major blow to Anthropic. Claude was the only LLM that had been approved by the Defense Department for use in classified settings (until the Pentagon’s deal with xAI last month), which was an enormous competitive advantage, and it had a $200 million contract with the US military. That contract will likely be torn up and Claude’s security clearance demoted following Friday’s decision.

Here’s the real problem for investors like us: Anthropic may not be publicly traded, but its backers certainly are. Microsoft and Nvidia struck a deal late last year to invest up to a combined $15 billion in Anthropic. In exchange, Anthropic will buy up to $30 billion of cloud compute capacity from Microsoft, and utilize up to 1 gigawatt of computing power from Nvidia.

Meanwhile, Amazon invested $8 billion in Anthropic so that the startup will use Amazon Web Services as its primary cloud partner. But then Alphabet began throwing its weight around, supplying Anthropic with a million of its specialized TPU chips in a deal worth tens of billions of dollars, on top of the $3 billion the Google parent company has already invested in Anthropic.

Anthropic is clearly well liked by hyperscalers, but if it loses out on deals with government entities, it could be a blow to its allies in Silicon Valley. Not only will their stakes in Anthropic be worth less if the company’s business slows, Anthropic might not be able to pay what it owes for all the chips, cloud computing capacity, and power it has purchased from the tech behemoths.

That’s exactly what investors are already worried about. We’ve seen the market shift from pro-tech to HALO investments this year as investors fret that hyperscalers are spending too much money on tech that may ultimately not live up to expectations. Anthropic is a key part of the AI ecosystem, and if it starts to flounder, it could drag the rest of the AI trade—and the market—down with it.

Don’t panic just yet

Anthropic has vowed to contest the government’s decision in court, so the market could wait to see how things play out before any selling starts. And for now, the blacklisting has played in Anthropic’s favor: Chatbot users have revolted against OpenAI, which they suspect acquiesced to the government’s demands, despite CEO Sam Altman’s promises otherwise. OpenAI’s ChatGPT fell out of the top spot on Apple’s free app list over the weekend and was replaced by Claude, seemingly indicating that Anthropic is now a fan favorite.

How long that goodwill lasts, and whether or not Anthropic can capitalize on it, remains to be seen.—MR

• Accusations of insider trading are flying fast and thick after bettors on Polymarket wagered $529 million that the US would attack Iran over the weekend.
• All eyes are on oil, but liquified natural gas prices are climbing after Qatar halted production of LNG following Iranian drone strikes.
• Your list of streaming services just got a bit smaller: Paramount plans to combine HBO Max and Paramount+ after its merger with Warner Bros. Discovery.
• Apple unveiled a new affordable iPhone today, with more announcements planned for the rest of the week.
• A civil trial of Elon Musk’s purchase of Twitter back in 2022 is off to a rough start this week after dozens of potential jurors were rejected because they hate Musk.
• Two senators plan to introduce a bill imposing a wealth tax on billionaires.
• Take a look at the best and worst investments for the conflict with Iran, according to JPMorgan.

Economic reports: No reports of note, but New York Fed President John Williams and Minneapolis Fed President Neel Kashkari will both be speaking

Earnings announcements: Target, Best Buy, AutoZone, British American Tobacco, Thor Industries, CrowdStrike, Box Inc., Ross Stores, and Webtoon Entertainment

Everything else: Holi, the Hindu Festival of Colors, kicks off