Good morning, investors. AI has been the primary and only catalyst for stocks this year, but geopolitics seem to have caught up to the market. Exuberance has tempered and investors are suddenly much more concerned about outcomes in the Middle East.

Wall Street has spent three months treating the Iran conflict as background noise but that’s switched over the last handful of trading sessions.

The US launched a second straight night of strikes on Iran Wednesday evening and stocks quickly repriced what this escalation actually means.

The S&P 500 fell 1.6% Wednesday to close at 7,267, down 4.5% in six trading days.

The VIX pushed above 22 intraday after closing below 19 on Tuesday.

President Trump had announced that Iran shot down a US Army Apache helicopter off the coast of Oman on Monday night, and the retaliation ladder has climbed since.

American forces hit Iranian air defense and radar sites near the Strait of Hormuz on Tuesday. Iran answered with a drone attack on the Navy's Fifth Fleet headquarters in Bahrain and missiles aimed at a US base in Jordan.

As it happens, Wednesday's strikes began shortly after the closing bell rang in New York.

President Trump had telegraphed the move all day, telling reporters "we're going to hit them again hard today."

As I have documented on several occasions in this newsletter, stocks have fared well in absorbing more than 100 days of war.

The index set a record at the start of June with the Strait of Hormuz still effectively shut and oil prices up more than 40% since the conflict began.

Yet that resilience in part was a bet that tensions would stay regional and American forces would stay out of the line of fire.

That assumption folded this week.

Indeed, Wall Street strategists have cautioned for weeks that a prolonged conflict would drive energy prices higher and in turn fuel greater uncertainty in markets.

Buying the dip, however, has become the most popular response to those warnings.

For three months investors shrugged off a conflict that it could monitor — and mostly ignore — from a distance.

As of last night, that distance feels suddenly much more narrow and pressing.

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📊 Inflation hit its highest level in three years. May CPI rose 4.2% from a year earlier as energy costs surged 23.5%, the clearest read yet on the Iran war's drag on US households. (CNBC)

📈 Robinhood jumped more than 8% on a wave of bullish updates. Platform assets hit a record $377 billion in May and Wall Street firms lifted price targets toward $115 after the broker rolled out new AI trading tools and secured underwriter status. (Yahoo Finance)

📉 Super Micro Computer plunged 30% after announcing a $7 billion capital raise. The AI server maker plans to sell stock and mandatory convertibles to fund a record $39 billion order backlog, diluting investors roughly 35%. (CNBC)

I sat down with Wall Street legend Liz Ann Sonders, chief investment strategist for Charles Schwab, to discuss the AI earnings boom, the inflation-vs-deflation debate, bubble signals and why AI supply constraints could matter more than demand.

Tune in on Spotify, Apple Podcasts, or YouTube.

🗓 June 11, 2020: The Dow plunged 1,861 points or 6.9% in its worst session since the initial March COVID crash. The selloff hit after Fed Chair Jerome Powell warned of a long recovery.

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