Nasdaq in lead as stocks continue to rise despite Middle East conflict

US equities opened higher with the Nasdaq leading gains (around +0.8% early) despite ongoing Middle East hostilities; the market backdrop includes retreating oil from 18‑month highs and a jump in services activity (ISM Services PMI 56.1, Services Index at a 3½‑year high; Prices Paid down to an 11‑month low of 63). Corporate headlines were mixed: GitLab beat fiscal Q4 EPS at $0.30 but fell ~7% on cautious guidance, Wix beat Q4 EPS at $1.81 and jumped ~14%, Abercrombie & Fitch reported record Q4 sales of $1.67bn but dropped ~6.4% on a cautious 2026 outlook, Ross Stores beat with Q4 sales $6.6bn and raised guidance, Bath & Body Works beat Q4 expectations, and Moderna rallied ~9% after agreeing to pay up to $2.25bn to settle global LNP patent litigation. Tech product launches (Apple’s M5 Pro/Max chips and iPhone 17e touting improved AI performance) and persistent geopolitical risk (Iran strikes, US defense responses) leave markets constructive yet cautious for positioning.

Analysis

Market structure: The immediate winners are defence primes (LMT, RTX) and selective retail/value plays (ROST, BBWI) as risk-savvy spending and government orders ramp; losers are margin-sensitive apparel names (ANF) and airlines/transportation if oil stays >$95–100/bbl. Tech bifurcates: AI-enabled hardware/software (AAPL, AVGO, DDOG) gain pricing power while high-beta cyclical tech can be hit by risk-off; services PMI at 56.1 and rebuilding inventories signal demand-led growth shifting away from goods into higher-margin services over the next 3–12 months.

Risk assessment: Tail risk is an escalation that closes the Strait of Hormuz (oil >$120 within days), producing a rapid spike in yields (+50–100bp), USD strength and equity drawdown >10%; alternatively, a negotiated de-escalation could collapse energy vols (TTF-style 60% moves revert). Hidden dependencies include defence supply-chain lead times (order flow not immediate P&L), semiconductor lead times for AI chip adoption, and patent settlements (MRNA) that clean legal overhang but create cash outflows (up to $2.25bn).

Trade implications: Tactical allocation favors 3–6 month overweight to LMT/RTX and 1–3 month long ROST vs short ANF; hedge macro with a 3‑month QQQ put spread sized to 0.75–1% portfolio if VIX >20 or Brent >$95. Buy AAPL on directional weakness tied to product cycle uptake; use call spreads on XLE to express energy upside instead of outright crude futures to limit tail losses.

Contrarian angles: The market overprices persistent inflation from oil spikes while underestimating services-driven margin expansion and AI-driven desktop/mobile replacement cycles; Apple’s new M5/A19 narrative is under-penetrated given nearly 50% new Mac buyers — upside of 8–15% if adoption accelerates. The MRNA settlement removes a binary downside — this is a buy-on-weakness setup, not a speculative momentum play.

Key Decisions for Investors

• Establish a combined 2.5% long position in defence: 1.5% LMT and 1.0% RTX—time horizon 3–6 months; target +12% upside if U.S. orders accelerate, hard stop -8% if guidance/contract awards don’t materialize within 90 days.
• Initiate a 1.5% long ROST / 1.5% short ANF pair (net zero-ish exposure) over 1–3 months to capture relative operational strength after ROST raised guidance and ANF issued cautious FY outlook; close if spread narrows <3% or ANF outperforms by 7% in 10 trading days.
• Buy a 3‑month QQQ put spread (ATM-5% / ATM-15%) sized at 0.75% portfolio value as portfolio tail insurance; only execute if VIX >20 or Brent crude >$95 to control timing and premium burn.
• Establish a 2.0% long AAPL position over next 30 days, trim into strength; investment thesis: M5/A19 adoption drives Mac/iPhone unit ASP and services upside — target +10% in 6 months, stop-loss if revenue guidance misses by >3% on next print.
• Add a 1.0% long MRNA post-settlement as litigation risk is reduced; horizon 6–12 months, target +15–20% if pipeline execution continues and settlement burden ≤$2.25bn; reduce exposure if trial outcomes or regulatory risks re-emerge.