Value or conflict?

06/18/25 Prospero.ai Investing (230th) Edition (Midweek)

After Monday's sharp rally, which appeared overzealous considering the geopolitical backdrop, markets pulled back Tuesday—seemingly digesting the prior day's enthusiasm. Monday’s price action resembled a reaction more suited to a conflict resolution rather than merely a de-escalation, making Tuesday feel like a hangover from premature optimism. The Wall St. Journal had an interesting take: Mideast Conflict, Trade Tensions weigh on Stocks.

Notably, energy stocks rebounded alongside broader market weakness, a pattern reminiscent of last Friday's response during the escalation phase. This rotation suggests the market is still highly sensitive to developments in the conflict, with risk sentiment shifting quickly based on headlines.

However, it's important to also consider broader macro data—retail sales were down 0.9% month-over-month. That kind of softness may be feeding into growing concerns over valuation and the risk premium around this conflict. Despite a bull run leaving markets hovering near all-time highs, cracks in consumer strength are worth watching.

In short, this environment is shaped by both geopolitical risk and fundamental crosscurrents. Investors should resist overcommitting to either the bullish or bearish narrative for now. Elevated volatility is likely to persist until greater clarity emerges, especially around the conflict and its potential economic spillovers.

A WORD FROM OUR CEO

Our bet on CRWVs turn is definitely lagging our returns but as we explained in our Sunday letter we will be patient around the turnaround and perhaps even double down on our position if we see more weakness. Overall, our strong year continues as we approach the half way mark. With our paper trading portfolio beating the S&P 500 by 89% annualized, with a win rate of 60% against SPY benchmarks.

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Value or conflict?

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