AI Momentum Drives Markets Through the Fog of War

Oil prices are holding steady at elevated levels on Tuesday morning as a blockade of the Strait of Hormuz takes hold. There is concern about how far the blockade will extend and whether Iran will retaliate by closing other shipping routes, but continued optimism about ongoing negotiations is preventing a negative market reaction.

A Remarkable Winning Streak

The Nasdaq has been higher for nine straight trading sessions, and the S&P 500 and Russell 2000 are up eight of the last nine. It is a remarkable performance given the ongoing problems in Iran and the heightened news flow that accompanies them.

What has helped the market is investors' belief that there will be a positive economic payoff once the Iran situation is finally settled. While energy markets are disrupted, investors appear to believe prices will fall quickly and stay lower once the Iranian disruption is removed.

The bears' primary thesis is that the oil disruption will persist much longer than markets are anticipating and will have a significant impact on both inflation and economic growth. That pessimism is creating a Wall of Worry for markets to climb.

The Wall of Worry

The Wall of Worry is a powerful contrarian dynamic. Investors are cautious amid the worries, but when the market stops falling, they start putting a little more money to work so they don't miss out if strength continues. As the market moves higher, that creates more fear of missing out, and more money is put to work. The indexes keep rising due to increased buying, despite the worries and negativity.

The indexes and many stocks are now extended after this winning streak, and some pullbacks and consolidation would be healthy. The most important thing to keep in mind is that the market is unlikely to suddenly collapse unless there is some surprising shift in the news. Markets that run like this tend to stay sticky to the upside. The action has created a strong desire to buy dips, which will provide support as overbought conditions start to soften.

The AI Theme Takes Center Stage

We are entering earnings season with big banks reporting this morning. JPMorgan Chase (JPM) , Citigroup (C) , and Wells Fargo (WFC) are up first. But the most interesting theme in the market right now is the growing recognition that the AI buildout is still expanding at an extraordinary pace, and there is an acute shortage of computing power.

Without getting too technical, demand for specialized chips called GPUs is running two to three times higher than the reserved capacity. A training run by an AI developer now costs two to three times the budgeted amount, if capacity is even available. This is driving demand for more data centers and everything that goes into building them.

The bottleneck is no longer capital or demand. It is physical infrastructure. Major cloud companies such as Meta Platforms (META) and Alphabet (GOOGL) are expected to spend over $600 billion on capital expenditures in 2026, a 36% increase from 2025, with about $450 billion going to AI infrastructure.

That AI theme is the primary driver of this winning streak and will be an interesting catalyst as technology earnings reports begin to roll in starting next week.

My Game Plan

My plan is to ride the momentum in the leading sectors. I have put some cash to work, but still have plenty left for new buys. I have to keep digging for names showing relative strength that have not gotten too extended. The AI infrastructure theme should continue to stay strong so I will be focusing on the various groups that benefit.

We have a positive open on the way as investors contemplate bank earnings.

At the time of publication, Rev Shark had no positions in any securities mentioned.