Operation Midnight Hammer: Analyzing the Impact on Global Markets and Oil Prices

Well, over the weekend, the US launched Operation Midnight Hammer, striking three key Iranian nuclear facilities in a massive air raid.

Now defense officials say these strikes dealt a crushing blow to Iran's nuclear program.

US Secretary of State Marco Rubio called on China to stop Iran from blocking the Strait of Hormuz in response to recent US airstrikes, and the strategic.

Waterway handles about 20% of the world's oil supply.

China, Iran's largest oil buyer maintains close ties with the Islamic Republic, added complexity to the situation.

Meanwhile, Israel continues to target Iran's military infrastructure, but officials say the war could be winding down.

Well, joining me live here at the New York Stock Exchange this morning is Luke Floyd.

President and CEO of Lloyd Financial Group.

Hey Remy.

Good.

Yeah, thank you so much for joining me.

So what a morning to be here.

We're looking at US markets opening higher despite the geopolitical tensions in the Middle East.

So what did you make of the news that we got over the weekend and what does this mean, especially given the reaction in the markets?

It changes everything.

Everything changes because of this weekend.

I'm very surprised the market recovered from, you know, Weekend Wall Street.

If you look at that online, I know it's not a direct great gauge of futures since futures are closed on the weekend.

Weekend Wall Street was down almost 2% and then we opened futures last night we were down almost 1%.

Then we fully recovered and the markets are green right now, right?

But I am extremely surprised because I'm The opposite camp that this does change a lot of things because I wrote in my newsletter even last week that this was the calm before the storm.

The two week pause was the calm before the storm.

This is the storm and the reason being is if you look at exports out of Iran, 80% of oil goes to China.

The Strait of Hormuz, if that gets closed, right, 50% of oil is transmitted through there.

Oil buys 2.

China buys 20% of their oil from Iran.

So my point is what this does from US-China negotiations is it changes things.

And if you remember just 2 to 3 months ago we had like a 20% sell-off in what two week period, 3 week period because of tariffs and because of US-China negotiations not going very well.

I think we're going to see some negative headlines out of China.

In the US relations, as this may escalates even further because China needs their oil from Iran and they don't want to risk any kind of US involvement.

US getting involved changes a lot.

Yeah, and I'm glad that you're breaking this down for us, Luke, because we're keeping a close eye on oil prices, and this morning we're looking at WTI surprisingly pulling back by about 0.5% point.

And given everything that's happening, there's been a lot of concern about oil prices potentially rising and what this could mean for the inflation picture, and it is summer driving season here in the US.

So what does all of this mean for American drivers?

This is a great question because there's a lot of different takes here and different things you've got to think about.

So I'm in the camp that oil is probably to go to $90 a barrel at some point, maybe in the next 3 to 6 months.

I'm in a camp.

Natural gas is going to continue to rocket higher, and the reason being is not only because of what's going on in the Middle East, and maybe China-US relations, but also because of the AI energy demand that we need for natural resources, commodity prices, you know, that's all fueling the energy for AI.

And then you also have potential tailwinds with the heat.

Waves that are coming on.

I think it's 100 degrees.

Of course when I'm in New York it's 100 degrees.

I mean it's ridiculous, but you know you have heat waves in the US, you have heat waves in Europe.

You have all this energy demand being sucked, including the tensions.

So if you have rising oil prices, rising commodity prices, you would think that is actually inflationary.

Of course you can take advantage of that from an investment standpoint, but in my opinion it's not that inflationary because when prices rise and you already have a middle class consumer that's kind of.

A they pull back their spending habits.

If gas goes from 250 to $350 or $4 they don't travel as much.

They don't go spend money or if you have other commodity or other prices going up or the world's getting crazy and they don't want to go out there and spend money because the world's getting crazy, that pullback in spending actually is disinflationary or deflationary, which is why I'm in the camp, and that's just one of the reasons why I'm in the camp that inflation's beat.

We don't have to worry about inflation.

I'd actually be on the opposite side of that trend.

Well, later on this week on Friday morning, we get those PC figures and we'll be watching those closely because that is the Fed's preferred inflation gauge.

But while we're talking about the Fed last week, Powell mentioned that if it was not for the tariffs, then he'd be cutting rates.

And of course that July 9th deadline is coming up.

Trump is going to be at that NATO summit in the Netherlands.

So what's up with Powell?

What's up with the Federal Reserve?

I mean.

It's been crazy to watch the past couple of years.

I mean, I actually got a lot of flak when I said this, but I'll I'll say it again that you know when I graduated college, the Federal Reserve came out.

We talked about it maybe once a month, once every 2 months, right?

It seems like we talk about the Federal Reserve weekly, daily at this point, right?

So they are so involved in our pocketbooks since COVID, but if you look back to 21 and 22, they were late to the game on a hiking cycle.

I think they're gonna make the same mistake on the way down.

They're late to the game on the cutting cycle.

They throw the kind of caveat in there.

That might be gone here very soon with Trump maybe appointing somebody else.

There's a lot of uncertainty around the Federal Reserve.

So I think that they're afraid to make any kind of big policy changes and frankly, in my opinion, the Federal Reserve is very arrogant at this point.

I think they're just disconnected from reality.

They're very data driven, right?

And as you know in this business, you can't just be data driven.

Like you can't just look at CPE.

There's inflation data.

You can't look at you know oil, like what's going on.

You have to look at actual behaviors in the economy, go walk down the Main Street.

Not just Wall Street and actually talk to people and see how they're feeling.

I think that their misconception is they think the consumer and the employment market is way stronger than it actually is.

Yeah, you bring up an important point because what happens on Wall Street, the way that it trickles down to Main Street, that's completely different.

And even with all the headlines that are taking place, a lot of the economic data points are backwards looking.

So if we have new developments on the terrorist front or even Geopolitics in terms of energy prices, the way that it affects Americans is different.

And when we're talking about soft data, hard data, we get labor market figures next week that is backwards looking.

So I do want to break down some of the sectors that you're watching.

So we're seeing a pop in some of those defense names as well as other sectors this year, but we're seeing a pull back in others such as consumer discretionary.

So what are you bullish on right now?

So I think that as you probably have.

Seen in the past couple of minutes, me talking.

I'm very defensive defensively positioned right now.

I don't think it's out of the question.

We have another quick sell off like we saw in March and April.

With that being said, defense stocks in defense of stocks, you have to separate the two, right?

But Lockheed Martin, my clients in Lockheed Martin instead of Raytheon just because they have a little bit better balance sheet, less debt and need to derive more profitability per dollar revenue that they bring on.

I think defense stocks are a phenomenal space to be because I do think geopolitics are going to continue to heat up.

Utilities, I think, are actually.

Sexy right now.

Like I know utilities are usually perceived to be boring.

I think utilities are a great spot to be as well.

And even longer duration treasury, it's a little riskier trade because obviously maybe some debt issues we have here in America, debt downgrades that we're starting to see on the US debt might make it a little more risky.

We could see a quick rise in interest rates if things don't go that way, so you'd be quite quick with the trade, but I think TLT long duration bonds are a great equity replacement at this point with the price it's at at 5%, 30 year treasuries.

I think we're close to the peak right now in 30 years.

Yeah, and speaking of duration of what we're seeing in the bond market, of course all eyes are on the nation's capital to see what happens with the big beautiful bill.

And as we head into the second half of this year, regulation does remain front and center.

So in terms of the bond market, what do you expect on the short and long end?

So I don't, I think, I think that Scott Besson's main job, his sole job, and I've said this to you before, is to get the 10 year Treasury note back down to 3%.

So I expect the 10 year to come back down to 3.

I expect the 30 year to come back down to 4.

This dead Ponzi scheme has to keep on going.

Seriously, I mean, consumers, businesses, like they can't afford these higher interest rates.

The government can't afford these higher rates.

I think 50% of the US debt comes due, right?

So their sole job is to get interest rates lower and frankly, the big beautiful bill you just cited that, I think there could be actually some caveats and different things that we need to pay attention to with.

The Iran situation, I think 4th of July is the deadline for the big beautiful bill.

I think that might get pushed back, which is actually bullish for bonds.

More spendings bearish for bonds, right?

So I'm in the camp that this delay with these tensions rising could actually push back some parts of the bill and actually reduce some government spending, which is actually really bullish for a lot of things.

And finally, Luke, before I let you go, let's talk about artificial intelligence, especially on the heels of what.

Happened this weekend.

There are concerns about cyberattacks and the role that AI plays, but hard to believe last Friday, that does feel like weeks ago, but AI came out with their earnings.

So tell us your take on what sectors you're watching when it comes to artificial intelligence.

Implementation.

It's not about necessarily the arms dealers, I think the Nvidias, AMDs, those were the talk the past couple of years.

The implementation of AI like the centers of the world, I was.

Is it sold off like 8 or 9% on Friday or Thursday of last week, Friday because we were closed on Thursday.

Accenture, you know, a consulting firm that helps with the implementation of AI is the spot to be.

So on that sell off I'm buying the dip.

I bought more for my clients actually on Friday.

So my point is I think you have to really rock the implementation of AI.

You have to rock the energy side of AI, utilities like I mentioned, like natural gas.

You can own LNG, Shane Energy.

On the play of AI demand, I think you actually have to own the commodity itself, natural gas, with 50% of the US energy grid being fueled by natural gas.

So all these side areas, I think, are the place to be and not the direct, you know, business to business or consumer business side of AI at this point like the Nvidia.

OK, Luke, well, we will have to leave it there, but always great having you live here at the New York Stock Exchange, and thank you so much for sharing your insights.

I love being here.

Thank you for having me.

Thank you so much, Luke.