Friday Fulcrum: Navigating the Tense Calm Before a Binary Storm

Good morning, PSW Members!

Here we are, at the end of another volatile week, staring into the haze of what is shaping up to be a monumental July. The market’s movements may seem erratic, driven by a chaotic stream of headlines, but a clear and dramatic narrative is taking shape. It’s a narrative that culminates in a single, high-stakes week—July 7th to the 11th—a period that now appears engineered to be a “make or break” moment for the global markets.

As you know, our portfolios remain safely in cash (see our June Portfolio Review). This isn’t a position of fear, but one of clarity and power. While others are whipsawed by every tweet and rumor, we have the luxury of observing, analyzing, and preparing to act decisively when the dust settles, one way or the other. Today, let’s connect the dots to understand how we arrived at this precipice and what to expect as the countdown to this July fulcrum begins.

How We Got Here: The Path to a Manufactured Climax

The journey through June has been a masterclass in market manipulation and conflicting signals. We began the month with a glimmer of hope from cooling PCE inflation data, suggesting the Fed might find room to ease. That optimism was short-lived. The subsequent weeks were dominated by:

• • The Tariff Drumbeat: Renewed threats of escalating tariffs, including the doubling of levies on steel and aluminum, kept risk assets on edge.
  • A Hawkish Fed: The FOMC’s latest meeting (see Warren’s report) confirmed our skepticism about imminent, deep rate cuts, with their dot plot projecting only two cuts in all of 2025, citing the very tariff uncertainty their political counterparts are creating.
  • Geopolitical Saber-Rattling: And now, the latest and most explosive variable—heightened tensions with Iran.

The critical development, however, is the timing. President Trump has reportedly pushed his “decision” on a potential military response back by two weeks. This is no coincidence. This delay aligns the geopolitical deadline squarely with the July tariff deadline, creating a single, massive binary event. All major risk factors are now being deliberately funneled into the week following the July 4th holiday.

Today’s Market: The Noise of Triple Witching

Before we get to July, we must navigate the rest of June. The mood this morning is predictably tense. U.S. futures are drifting lower (S&P 500 futures -0.24%), European markets are in the red, and Asian markets were mixed, with Japan’s Nikkei falling 1% on inflation data that fuels rate hike fears over there. Mainland Chinese shares saw modest gains after the PBOC kept lending rates unchanged and the Bank of England held rates steady, while Switzerland implemented another rate cut – to 0%- we should all go buy chalets! 

The primary driver is the geopolitical uncertainty we just discussed. However, adding to the complexity today is a significant mechanical event: Triple Witching.

Over $6 TRILLION in stock options, index futures, and index options will expire today. This will generate massive trading volume and can lead to sharp, unpredictable intraday swings. It is crucial to view today’s price action through this lens. Triple witching is often just noise—the frantic repositioning of large institutional players. Do not mistake this mechanical volatility for a new, definitive trend. The VIX remains elevated above 20, reflecting this underlying anxiety.

The Countdown to the July Fulcrum (Week of July 7th-11th)

Let’s be clear about what has been set up for that week. We are facing a truly binary outcome, a “quantum event” where the market’s state will likely collapse into one of two realities:

• • Scenario A: The “Deal is Done” Relief Rally. In this scenario, a last-minute agreement is reached to moderate or further delay tariffs, and the geopolitical saber is put back in its sheath with Iran (Ukraine is a trouble we are already used to). The sheer amount of cash sitting on the sidelines, combined with the removal of this immense overhang, could trigger an explosive rally. This could be a face-ripping melt-up fueled by relief and a frantic chase for performance.

  • Scenario B: The “Leap into Chaos” Sell-Off. In this scenario, the deadlines pass without resolution. Full tariffs are implemented and/or military action is initiated – causing oil to skyrocket, spurring inflation. This would confirm the market’s worst fears, shattering the fragile confidence that remains. The resulting sell-off would likely be swift and severe, creating exactly the kind of deep-value bargains we have been patiently waiting for.

Our Game Plan: From Shielded Spectators to Decisive Actors

The outcome of the July fulcrum is unpredictable. But our strategy is not. Our cash position is not just a shield; it is a weapon in waiting.

1. 1. For the Relief Rally (Scenario A): We must be prepared. The rally would be fast, leaving unprepared investors behind. We are using this time to finalize our “Watch List,” focusing on high-quality companies that have been unfairly punished by the uncertainty. If the green light flashes, we will be ready to deploy capital into undervalued assets before the rest of the market catches on.

   2. For the Sell-Off (Scenario B): This is the scenario that validates our prudence. A market in panic is a market of opportunity for the calm, cash-rich investor. We will not be catching falling knives on day one. We will be watching for signs of capitulation, for extreme fear, and for the moment when fundamentally sound enterprises are priced for disaster. That is when we will step in. We will also be ready with our hedging strategies, using inverse ETFs and options to profit from the downturn itself.

The bottom line is this: an artificial, high-stakes event has been created. It is designed to force a major market move. We don’t have to guess the direction of that move. We simply have to be prepared for either outcome. Let others be swayed by the noise and drama of the coming weeks. We will watch, we will wait, and when the moment of decision arrives, we will be ready.

Today, the Philadelphia Fed Business Outlook for June is a key piece of economic data to watch. There has not been much reaction to the Fed’s interest rate decision and projections on Wednesday – just two market hours ago as they were closed yesterday. Next week, flash PMI data for major economies will provide the earliest insights into June’s economic trends amidst the current geopolitical and trade uncertainties while Consumer Confidence and Consumer Sentiment might be trending down along with president Trump’s recent polling numbers. 

Stay nimble and have a great weekend, 

— Anya