The U.S. stock market is feeling the heat and faces a long, volatile summer.

The Iran war has flared up again and stocks were hit Monday. Yet, under the surface things weren’t actually that bad. More S&P 500 stocks rose than fell, 273 vs 230. 

The chip sector did most of the damage—the PHLX Semiconductor, or SOX, index fell 4.8% Monday with all 30 of its constituents down. Some of the year’s biggest winners—Sandisk, Marvell and Intel—were yesterday’s biggest losers.

Maybe it’s not really about oil at all? The stocks that have typically reacted most to oil-price spikes, including Delta Air Lines and Carnival, barely moved.

Maybe it’s a response to inflationary fears and the possibility of higher interest rates? Yet Nasdaq futures were higher early Tuesday despite oil prices rising again to above $86 a barrel.

That leaves another option—the Korean KOSPI is playing the shepherd, and U.S. tech stocks are the sheep, being herded up or down on a daily basis.

It’s a potential problem. The world’s hottest major stock market is notoriously erratic. The KOSPI volatility index rose to 84 on Tuesday, implying average daily moves of more than 5%.

It’s also more exposed than most to Iran war developments—around 70% of South Korea’s oil imports come from the Middle East. The KOSPI plunged 19% in the first two trading days after the conflict began at the end of February.

The Korean market has been setting the tone for the U.S. AI trade for a while now, given that its dominant players Samsung and SK Hynix are leading memory-chip makers and major rivals to American market darling Micron. But the latter’s arrival on the U.S. market may be accentuating that connection. 

The U.S. tech sector could do with decoupling from Korea, for investors’ peace of mind if nothing else. Fortunately, a successful earnings season could allow Corporate America to reclaim the narrative.

—Callum Keown

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The escalating fight for the Strait of Hormuz has returned the price of the international benchmark Brent crude to above $80 a barrel. President Donald Trump will restart the U.S. naval blockade of ships going in and out of Iranian ports later today and has vowed to continue strikes.

• The blockade recommences at 4 p.m. Eastern time, U.S. Central Command announced, which is shortly before midnight in Iran. Trump raised the pressure by announcing a 20% fee charged to cargo ships passing through the strait, without specifying how that would be calculated.

• The escalation puts the June 17 memorandum of understanding over a temporary cease-fire in doubt. That agreement had helped resume the flow of oil, with some 120 million barrels making it through the strait since then. But Iran and the U.S. are fighting over who controls the strait.

• Trump insists the strait remains open, and that the U.S. is the rightful guardian. Iran’s foreign minister, Abbas Araghchi, said his country is the forever guardian and suggested that while compensation to the entity providing safe passage through the strait made sense, a 20% toll is “too much.”

• Kpler’s MarineTraffic data service reported Monday that commercial crossings through the strait had fallen 52% over the weekend compared with the prior weekend, with just 12 observed on Sunday. Before the war began, more than 100 ships crossed the critical waterway each day.

What’s Next: Trump has told Congress that U.S. strikes on Iran have resumed, triggering the 60-day window he has before Congress gets involved. And Trump said on his social media platform that he will address the nation on Thursday evening, though he didn’t say what exactly he would talk about.

—Anita Hamilton and Liz Moyer

Federal Reserve governor Christopher Waller, a swing vote on the policymaking committee, is paying close attention to inflation data to determine whether interest-rate hikes are needed. On Monday, he said he’s concerned with the elevated pace this year of core inflation, which excludes food and energy prices.

• While the Fed doesn’t target core inflation, when energy or food is influencing overall prices, core can illuminate trends. The core personal consumption expenditures rate was rising before the oil shock, from 3% in December to 3.4% in May, driven by tariffs, energy prices, and AI infrastructure demand.

• Waller says core inflation is a good guide to future inflation, and if the upward trend continues, pushing inflation back toward the 2% target gets difficult to do with the Fed’s current policy, he said. It still isn’t clear whether core inflation will continue on its upward trajectory or if it has reached a turning point.

• Another hot reading might force the Fed to consider tightening in the near term, Waller says. Even if the core number is softer in June, after the escalation in recent months, Waller would need to see several months of lower readings to feel that inflation is moving in the right direction.

• There is still a credible case for inflation to begin returning to the Fed’s 2% target without raising rates, Waller said. There are some crucial differences in the current economic conditions compared with 2021, including a labor market that isn’t nearly as tight. Current inflation expectations still seem well-anchored.

What’s Next: Waller acknowledged in his speech Monday that he is aware of the mistake the Fed made in 2021 by not responding sooner to the surge inflation—and he is determined to avoid repeating it.

—Megan Leonhardt

Apple’s lawsuit against OpenAI will likely lead to an even stronger relationship between the iPhone maker and Alphabet’s Google. Apple already has been pushing ahead with that relationship. The next generation of Apple Foundation Models will be based on Google’s Gemini models and cloud technology.  

• The lawsuit alleges that the ChatGPT parent stole trade secrets and confidential information from the device giant. This comes as OpenAI is looking to launch its own hardware following its purchase of io, founded by former Apple design lead Jony Ive and two other ex-Apple employees, last year.

• OpenAI has said it has no interest in other companies’ trade secrets, and remained “focused on building innovative technology that empowers people everywhere.” But the lawsuit is yet another obstacle in what has already been a rocky relationship between Apple and OpenAI. 

• Apple has had enduring success in its consumer hardware businesses. But it hasn’t impressed on its own AI offerings, and has sought partnerships outside the company to fix that. Apple’s AI will be someone else’s, notes Paul Meeks, head of technology research at Freedom Capital Markets.

• Google has paid Apple an estimated $20 billion a year to be the default search engine on Safari. Apple’s AI-powered Siri, which it unveiled at the Worldwide Developers Conference in June, is powered by the next generation of Apple Foundation Models and custom-built with Google and its Gemini models.

What’s Next: Apple is likely to rely even more on Google now that its relationship with OpenAI is so damaged. As Meeks noted, Apple took an aggressive and rare step of which they fully knew this would be the consequence. “The bad blood between Apple and OpenAI plays into Google’s hands.”

—Angela Palumbo

SK Hynix stock is becoming a bellwether for the whole artificial-intelligence trade. Shares of the South Korean memory-chip maker, which enjoyed a bumper U.S. listing last week, swung wildly on Tuesday—but eventually eked out a gain.

• The stock closed 3.7% higher at 1.913 million won ($1,279.90) in South Korean trading Tuesday. However, shares were highly volatile during the day, at one point dropping more than 8%.

• Korean retail investors have been piling into SK Hynix and other technology stocks for much of the year, using tools such as leveraged exchange-traded funds. Those tend to amplify volatility.

SK Hynix made its U.S. trading debut at the end of last week, but its American depositary receipts have been volatile since then. The ADRs soared 13% on Friday, then tumbled 9.3% on Monday.

• As of Tuesday, the ADRs were trading at a sizable premium to the underlying shares. Put that down to the size of the U.S. investor base, as well as some obstacles to converting between the two instruments.

What’s Next: The next question for U.S. investors is whether there will soon be another way to play the memory-chip boom. SK Hynix’s rival Samsung said on Tuesday that it wasn’t considering issuing ADRs of its own, denying an early report from Bloomberg.

—Adam Clark and George Glover

Paramount Skydance faces the biggest hurdle yet in its acquisition of fellow Hollywood studio operator Warner Bros. Discovery, and remember it was up against Netflix at one time. Twelve states are trying to block the $110 billion deal, saying it would extinguish competition.

• The states, filing in Northern California federal court, say the merger violates the Clayton Act that says mergers that substantially reduce competition or create a monopoly are illegal. California Attorney General Rob Bonta said consolidation would raise prices and hurt creative efforts.

• Paramount is arguing that the states are misrepresenting the competitive landscape of Hollywood, which includes the old-line studios but also, increasingly, the streaming giants such as Netflix and Amazon. Instead, it argues the deal will create a company better able to stand up to that competition.

• California, which is leading the states, says the merged companies would control about one-third of theatrical motion pictures, and nearly one-third of basic cable programming. That would harm movie theaters, basic cable distributors, and audiences, the lawsuit says.

• The states are asking the Court to permanently prevent Paramount’s proposed acquisition of Warner Bros., along with any other transaction that would combine the two companies’ assets or businesses, and to agree that it violates antitrust laws.

What’s Next: There are some costly considerations if the states are successful, even at just delaying the deal. Paramount has to pay Warner shareholders a “ticking fee” of about 25 cents a share each quarter, which adds about $650 million in cash to shareholders a quarter if it doesn’t close by Sept. 30.

—Angela Palumbo and Janet H. Cho

—Newsletter edited by Liz Moyer, Patrick O’Donnell, Rupert Steiner