Breakfast News: Escalation Fears Hit Futures

Breakfast News: Escalation Fears Hit Futures

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1. Stock Rally Rumbled by Tehran Warning

S&P 500 futures fell over 0.6% this morning following President Trump's early departure from the G7 summit and comments from him urging Iranian civilians to "immediately evacuate Tehran," as the conflict in the Middle East continues to escalate.

• "It certainly has nothing to do with a ceasefire. Much bigger than that": The exact reason for his swift exit is unclear, but investors are clearly cautious this could spell out a larger geopolitical shock in coming days.
• "The typical pattern is for the S&P 500 to pull back about -6% in 3 weeks after the shock but then rally all the way back in another 3": Jim Reid, a research strategist at Deutsche Bank (DB -1.60%), noted both sides have so far avoided the most extreme escalatory steps, which could speed up any market recovery.

2. Microsoft Tussles With OpenAI Partnership

The relationship between Microsoft (MSFT -0.22%) and OpenAI is becoming more strained, with the WSJ reporting OpenAI executives have been accusing Microsoft of anticompetitive behavior during their partnership.

• "Talks are ongoing and we are optimistic we will continue to build together for years to come": A recent joint statement aimed to appease investors followed another closed-door spat regarding OpenAI not wanting Microsoft to have access to Windsurf's intellectual property, a business OpenAI recently bought.
• Needing the blessing for any future conversion into a for-profit company: If OpenAI decides to change status, it would need Microsoft's approval, which is key to then raise more money and go public.

3. Bill Changes Trigger 20% Solar Stock Drop

Solar stocks saw a sharp decline after the closing bell, with Sunrun (RUN -40.04%) and SolarEdge (SEDG -34.15%) falling over 20%, following news the Senate budget bill would include a full phase-out of solar tax credits by 2028.

• Sunrun has around 20% of project economics tied to the credit: Residential solar providers rely heavily on the investment tax credit currently set at 30%. Without these tax breaks, project costs rise, reducing profitability.
• Highlighting the administration's energy focus: Several changes to the draft bill were made, with a focus on extending incentives for hydropower, nuclear, and geothermal energy, but reducing support for solar and wind energy.

4. Lennar Performs Despite Tough Market

Lennar (LEN -2.27%) jumped over 3% following the closing bell after reporting Q2 revenue ahead of market expectations, with sales incentives helping to boost home-buying activity.

• "We drove volume with starts while incentivizing sales to enable affordability and help consumers to purchase homes": Co-CEO Stuart Miller acknowledged the challenge of interest rates remaining high and weaker consumer confidence, requiring different sales initiatives.
• Solid guidance for upcoming quarterly new orders: Investors were reassured with fiscal Q3 new order projections of 22,000-23,000, with the gross margin expected to remain around the 18% mark despite market softness.

5. Your Take

Microsoft is up 147% over the last 5 years. Across the same period, the S&P 500 is up 95%.

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