The Schizophrenic Dollar: When Bombs Don't Matter and Chips Do

Thursday bounced. That's all that matters if you're long equities. The Nasdaq climbed 0.84%, the S&P 500 gained 0.55%, and the Dow tacked on 0.24% after Wednesday's twin-session decline. Chips led. Semiconductors absolutely ripped. Everything made sense for approximately six hours until you actually started reading the news wires.

Let me paint the picture: A U.S. carrier strike group is moving to the Middle East as tensions simmer over protests in Iran, and President Trump has been weighing military action in recent days. This is not normal market furniture. The USS Abraham Lincoln, 100,000 tons, carrying 90 aircraft, is steaming across open ocean toward a region where American strike scenarios are being actively discussed in the Situation Room.

The nearest U.S. Navy carrier strike group, the USS Abraham Lincoln, was last reported in the South China Sea, some 5,000 miles from the Persian Gulf, with analysts estimating it could take five to seven days to reach the gulf. That's not a photo op timeline. That's a strike timeline.

And yet the stock market rallied on TSMC earnings.

The Cognitive Disconnect

Here's the thing about modern markets that nobody says aloud: price discovery has been severed from reality, and what we're watching is the market's attempt to sew the two back together in ways that don't quite make sense.

Taiwan Semiconductor Manufacturing posted a 35% jump in fourth-quarter profit and announced it plans to ramp up investment to $52 billion to $56 billion in 2026. TSMC shares jumped more than 4%. The message was crystal clear to every trader: the AI capex story isn't a bubble. The hyperscalers are committed. Keep buying semiconductors.

This came on the same day that Tehran was beginning to show signs of a return to normalcy, but some Iranians were still bracing for possible U.S. intervention after weeks of anti-government protests and a brutal crackdown. A day later, Iran reopened its airspace Thursday as President Donald Trump left it unclear whether he would take military action over the regime's deadly crackdown.

Oil tanked. West Texas Intermediate futures sank around 4.5% to $59.15 a barrel as traders sold the risk premium that had built up over the preceding five days. The "Iran risk" — the extra cents per barrel the market charges for the possibility of Tomahawk missiles hitting refineries — evaporated when Trump started making phone calls.

But here's the problem with this narrative: nobody actually believes Trump is done. Trump's top national security officials were relatively sure a decision on military action was close at hand after a late-night Situation Room meeting to discuss options for striking Iran, with the president appearing moved by seeing videos from Iran showing past executions. The positioning is still loaded for conflict. The carrier is still moving. The personnel evacuation from Qatar's Al Udeid airbase was real, not theater.

What happened is that traders priced in a 72-hour window of deescalation, bought chips, sold crude, and congratulated themselves on their risk management. But the underlying conditions haven't changed. The White House said Thursday all options — including military ones — remained in play, with press secretary Karoline Leavitt saying "The president and his team have communicated to the Iranian regime that if the killing continues, there will be grave consequences."

So what we're actually trading is Trump's mood. That's the real commodity now.

The Banking Quarter Was Solid (Does It Matter?)

Let's acknowledge the thing that probably mattered more to Thursday's rally than geopolitical sword-rattling: bank earnings were good.

Goldman Sachs advanced more than 4% after its fourth-quarter profit topped Wall Street estimates, and bank stocks rose following the latest raft of quarterly earnings. Morgan Stanley saw shares climb over 5% after delivering stronger profit and revenue than anticipated, while BlackRock, the world's largest asset manager, rose over 4% after surpassing profit forecasts with Q4 earnings of $13.16 per share.

The dealmaking boom is real. The fee environment is fat. Wall Street is eating well. And that has downstream effects: if the banks are making money on M&A flow and trading, the equity market can sustain higher prices. Institutions have access to cheap capital, and cheap capital always finds yield in risk assets.

But—and this is crucial—none of this insulates you from geopolitical shock. A missile strike on Iranian oil infrastructure doesn't care that Goldman's trading desk had a great quarter. A regional escalation doesn't look at Morgan Stanley's fee income and decide to spare the economy from a 15% drawdown.

What Nobody's Talking About (But Should Be)

The VIX is 15.84. That's low. That's complacent. The CBOE Volatility Index jumped to 17 Wednesday from recent lows below 15. So even though the market showed some anxiety on Wednesday, by Thursday it had collapsed that back into a level that assumes risk is moderating.

The breadth is fine. Market breadth still looks constructive with 70% of S&P 500 stocks above their respective 50-day moving averages and 67% above their 200-day as of late Wednesday. The technicals are fine. Earnings are fine. But Trump is sending carrier strike groups toward a country that's actively cracking down on protesters, and the only thing moving prices is whether the White House spokesperson says "military action is imminent" or "we're hopeful for de-escalation."

This is a market held together by sentiment on a geopolitical tripwire.

The Real Tell

Boston Scientific agreed to acquire Penumbra for $14.5 billion, expanding its vascular pipeline, with Penumbra stock rising 13% before the bell while Boston Scientific shares fell 2% following the announcement. This is a classic M&A signal: an established player is buying innovation at a premium because they can, because the cost of capital is low, and because the deal fees are attractive to whoever's funding it.

When consolidation is accelerating and megacap tech is riding a one-way elevator on AI capex, it doesn't matter much what happens 6,000 miles away—until it does, and then it matters all at once.

That's where we are. The market isn't pricing Iran risk. It's ignoring it, betting that Trump will talk his way out of it or that if it happens, the blow will be surgical and limited. Trump has told his advisers he would want any action to deliver a swift and decisive blow to the regime, but so far his team has not been able to give him that guarantee.

Translation: if Trump orders strikes and they drag on or escalate, all the TSMC upside in the world won't save you.

Thursday's rally was real. It was also built on the foundation of forgetting that volatility was 17 just a day ago. It was built on the assumption that geopolitical theater stays contained to theater.

It won't. Not this time.

Watch the USO (oil ETF) and keep an eye on Treasury spreads. When those move, you'll know the market has remembered what it forgot.