The State of Play: Euphoria Meets the Plumbing

When the Market Wants a Party and the Data Wants a Chaperone

Trump rang the opening bell from the Oval Office this morning alongside the heads of the NYSE and Nasdaq, promoted the new Trump Accounts for children, and told the world the stock market is “going to go through the roof.” I’ll set aside the political theater, because there’s always plenty of that and most of it doesn’t help us understand the tape, and focus instead on what it signals mechanically. Retail equity engagement is being actively encouraged from the highest level at a moment when the market already looks moderately expensive, and that tension matters because sentiment is not a fundamental input by itself, but it does become important when it starts showing up late in the cycle, right when positioning is getting fuller and the market is asking investors to pay more for less margin of error.

That doesn’t mean we run for the hills, but we should definitely pay attention.

The more important signal came out of Ukraine overnight into this morning. Russia launched one of its largest coordinated missile and drone attacks in months, firing 68 missiles and 351 drones across Ukraine, with Kyiv again taking the brunt of it. The human cost was awful, but the market signal was also clear: Ukraine disclosed a serious interceptor shortage, and by Kyiv’s own account all 29 Russian ballistic missiles hit their targets. That’s a capability gap being revealed in real time, and capability gaps are what turn defense spending from a political talking point into an urgent procurement cycle.

Zelensky is pressing NATO hard, and he should be, because this is exactly the kind of moment where the defense story stops being theoretical. Meanwhile, Lockheed Martin announced it is acquiring Ultra Maritime for $3.45 billion, a naval defense company focused on undersea warfare and anti-submarine capabilities. That’s not a flashy AI headline or a meme-stock sugar high, but it is a quiet and telling move, especially when you layer it against the broader push to keep territorial waters and shipping lanes safe around the Strait of Hormuz. The mine countermeasures, undersea surveillance, maritime security, and naval defense story is getting more important, not less, and defense still looks early in its broader re-rating cycle.

The AI infrastructure side gave us another useful confirmation. TeraWulf surged after Anthropic signed a 20-year lease for a Kentucky AI data center campus, a deal expected to generate roughly $19 billion over the term and eventually support about 401 megawatts of capacity. The timing matters because this is not just another chip story, but rather the next layer of the AI buildout showing itself. Hyperscalers and model companies are locking up power, land, cooling, and operational capacity, and the companies that already control those bottlenecks are becoming scarce assets. One honest caveat before anyone chases the ticker. The revenue doesn’t start flowing until the second half of 2027, it depends on a multi-phase buildout executing on schedule, and it’s one campus with one customer.

Morgan Stanley also put out a note flagging a rotation out of semiconductors and into the AI hyperscalers, with Wilson’s team favoring the laggards on the strength of their core businesses while warning the broader indexes stay choppy as the momentum trade unwinds. To be fair to them, that’s an equity positioning call about mega-cap software, not a power-and-plumbing thesis. The extension is mine: first the market prices the chip. Then it prices the rack. Then it prices the power. Then it realizes the grid was the bottleneck the whole time. The rotation is the market taking its first step down that staircase whether it knows it or not.

The Week Ahead

The dominant question this week is not whether the economy is falling apart, because this morning’s ISM Services print says it isn’t. The June Services PMI came in at 54.0, down slightly from 54.5, but still firmly in expansion territory. The more important number was Prices, which cooled from 71.3 to 67.7, and while that is an improvement, it is still not a disinflationary number in any normal sense of the word. Employment also moved back into expansion at 51.2, which matters because it keeps the labor market from giving the Fed clean cover to ease.

So the setup is a little more nuanced than it was before the print. Services are still expanding, prices are still sticky, employment is not cracking, and the Fed is still sitting in a chair it probably doesn’t love very much. Wednesday’s FOMC Minutes from the June 16–17 meeting will either confirm that the committee is comfortable staying patient, or reveal more concern around services prices, energy pass-through, and the risk that inflation gets reheated before it ever fully cools.

The market wants easier money while the data is not giving it an easy path, and parts of the rates market have started to at least flirt with the opposite tail risk. That’s worth sitting with for a second, because it means the risk in Wednesday’s minutes isn’t merely “not dovish,” it’s that the risk is starting to lean hawkish.

Key Events to Watch

ISM Services PMI, today: The headline came in at 54.0, modestly below May’s 54.5, but still comfortably expansionary. Prices cooled to 67.7 from 71.3, which takes some heat out of the inflation scare but doesn’t remove the problem, because anything in the high-60s still says service-sector input costs are rising too fast for the Fed to declare victory. Employment rebounded to 51.2, which matters because a softer inflation number paired with a weaker labor print would have given the market more room to lean dovish, but that’s not what we got. And one detail buried in the report that deserves more attention than it will get. The list of commodities in short supply grew from five in May to nine in June, and many of them feed directly into data center construction, power equipment, or the broader infrastructure stack. The bottleneck thesis isn’t a narrative anymore, it’s now showing up in the survey data.

FOMC Minutes, Wednesday: The June 16–17 meeting is now the key document for understanding how the Fed is thinking about this mix of sticky services prices, lower oil, resilient labor, and a market that has spent most of the year trying to front-run easier policy. I’m specifically looking for language around services inflation, energy pass-through, and whether any members are becoming more comfortable holding beyond year-end, or even hinting at the other direction, if the data refuses to cooperate.

Initial Jobless Claims, Thursday: The estimate is around 220K, and this remains the cleanest weekly read on whether the labor market is actually cracking or just cooling. A move above 235K would be the first real warning shot for the consumer thesis, while anything closer to 215K keeps the Fed boxed in because it says employment is not weak enough to justify easing into sticky prices.

Global Macro

Europe and NATO defense: Europe is still the underappreciated story. NATO’s 5%-of-GDP defense commitment by 2035 is no longer just summit language, it is becoming a real budget fight, and the countries that commit to this trajectory are creating a multi-decade procurement cycle that U.S. investors still are not fully pricing. The catch, of course, is that Europe always has politics, budget math, and industrial capacity constraints, but the direction of travel is clear. More defense spending, more naval security, more air defense, more munitions, more undersea capability, and more pressure to rebuild production capacity.

Ukraine and air defense: The latest Russian strike exposed the procurement gap better than any white paper could. If ballistic missiles are getting through because interceptors are scarce, then air defense is not a discretionary line item, it is the line item. That supports the broader defense thesis, but it especially supports the parts of the defense complex tied to missiles, interceptors, sensors, undersea systems, munitions, and command-and-control.

Energy and oil: WTI around $68–69 is actually helpful for now. It takes pressure off headline CPI without cratering energy equity cash flows, and that is a pretty good zone for the infrastructure layer rather than a pure spot-price bet. Saturday’s Ukrainian drone strike on the St. Petersburg oil terminal keeps Russian energy infrastructure risk alive, but the broader oil market is still acting like it is in a managed decline after the Iran/Hormuz shock, with OPEC+ supply and resumed Gulf flows taking some pressure out of the tape. The key distinction is that midstream and LNG remain infrastructure and contracted-revenue stories first.

European power stress: The wildfire in southern France that forced roughly 10,000 evacuations is an early reminder that Europe’s summer power demand can spike in messy, unpredictable ways. Heat, fires, grid stress, and energy security are all tied together now, and that continues to feed the power infrastructure thesis, especially the parts of the market tied to grid hardening, reliability, backup power, and transmission.

Earnings This Week

This is a quiet earnings week before the real cycle starts in mid-July with the banks, and that is where we will get a better read on credit quality, deposit costs, loan demand, capital markets activity, and whether the financial system is quietly healing or just learning to smile through tight money.

On the broader market, I’ll be watching any early consumer discretionary reads that speak to the July 4th spending environment, especially travel, leisure, restaurants, and anything tied to the lower-oil consumer relief trade. The market wants to believe the consumer is still fine. As many of you know I’m open to that, but I now need receipts.

So Where Does That Leave Us?

The regime remains reflationary expansion with a drift toward rate pressure. Liquidity is not bad enough to force a defensive crouch, but it is not clean enough to justify chasing every green candle either. The cross-asset picture is still mixed, the market is not cheap, and the Fed doesn’t have a clean reason to rescue investors from their own enthusiasm. That means the better posture is invested, but selective.

The structural themes still make sense. We still like power infrastructure, defense, energy/LNG, and the bottleneck assets that sit underneath the stories everyone else is now discovering. The Anthropic/TeraWulf lease and the Lockheed/Ultra Maritime acquisition are exactly the kind of institutional signals worth paying attention to.

The risk I’m watching most carefully is the services inflation trap. If services prices remain sticky while employment refuses to break, the Fed stays on hold, the long end remains vulnerable, and anything priced on easy-money assumptions faces a harder second half than investors want to admit. And I’d go one step further than I did last week and say the market has spent this year debating when the Fed cuts, and the more uncomfortable question, the one starting to leak into rates pricing, is whether the next move is even down at all. Duration still deserves caution, credit still needs discipline, and new exposure should be earned by the data, not forced by a firm tape.

Trump ringing the bell and telling everyone the market is going through the roof is a sentiment signal, not a fundamental one. Maybe he’s right and the market keeps climbing, because markets can absolutely do ridiculous things for longer than serious people think they should. But historically, public euphoria at Stage 3 is something you note, not something you celebrate. We don’t need to be bearish, we just need to stay sober while everyone else is ordering another round.

Luke Perry
Whalen Financial, Portfolio Manager