Talk about a reaction function: It took less than 10 minutes after the S&P 500 closed in the red for President Donald Trump to declare a cease-fire extension. Granted that cease-fire still has the Strait of Hormuz blocked up, and fuel consumers are beginning to act: Airlines including Lufthansa are reducing flights as petrochemical producers in Asia begin to scale back operations.

The stock market, however, is in a state of bliss. Bank of America’s global equity derivatives team laid out the backdrop in a note to clients.

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“Right-tail momentum risks in U.S. equities continue to materialize,” they declared. The Nasdaq-100 NDX, they noted, notched 13 consecutive gains on realized volatility that was more extreme than the late 1990s dot-com bubble. The S&P 500’s SPX rally similarly rivaled those seen in historically volatile periods like COVID-19, the global financial crisis and the 1987 crash.

“The contrast between the slow grind lower in March and the subsequent breakneck rally highlights the U.S. equity market’s pronounced right-tail asymmetry and its longer-term progression toward a more bubble-like regime,” they said.

And while the market as a whole isn’t yet in a bubble, the BofA team said key pockets like semiconductors SOX are showing increasing froth.

That’s as the South Korean Kospi stock-market index KR:180721 (which is led by memory-chip makers), Brent oil BRN00 and the Bloomberg Commodity Index XX:BCOM already are exhibiting “extreme bubble-like dynamics.”

Among popular themes, Taiwan, Brazil, space and digital infrastructure also are showing relatively high bubble-like dynamics, the strategists said.

Like all of Wall Street, the derivatives team has something to sell. On the upside, to keep up with continued momentum, particularly through megacap tech earnings, they like call spreads on the Nasdaq-100 ETF QQQ. A call spread is when an investor pairs the purchase of a call option of a security with a sale of the call option of the same security at the same expiration date.

Their recommendation on the options expiring May 29, is to buy the call with a $665 strike and sell the call with a $700 strike. So an investor would be paying $7.50 to make as much as 5 times the cost.

To protect against the downside of geopolitical turmoil, they suggest buying a VIX VIX call spread for May expiration. Specifically, buying the $24 strike call and selling the $40 strike call, which could return as much as 17 times the cost.

U.S. stock futures ES00 NQ00 climbed, and unusually given their relationship since the Iran war, so did oil CL00.

Key asset performance

Last

5d

1m

YTD

1y

S&P 500

7064.01

1.39%

7.74%

3.19%

33.59%

Nasdaq Composite

24,259.96

2.63%

11.48%

4.38%

48.83%

10-year Treasury

4.292

0.40

-4.30

12.00

-10.10

Gold

4778.5

-0.74%

6.11%

10.30%

44.74%

Oil

90.46

-1.03%

-0.91%

57.57%

45.25%

Data: MarketWatch. Treasury yields change expressed in basis points

President Donald Trump, just after Tuesday’s close, said he would extend the cease-fire with Iran. Iran attacked three ships in the Strait of Hormuz, seizing two of them, according to Iranian reports.

SpaceX says it has the option to buy the coding tool Cursor for $60 billion.

Adobe ADBE said it would extend its stock-buyback program by $25 billion.

Deutsche Telekom XE:DTE is considering a full combination with its majority owned T-Mobile TMUS U.S. arm, according to a Bloomberg report.

Trump Media and Technology DJT said its CEO Devin Nunes, the former congressman, is leaving, following a slump in the media company’s stock price.

Tesla TSLA and IBM IBM results are due after the close.

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A senior economist at the U.S. Census Bureau, Lee Tucker, looked into the topic of the day, whether artificial intelligence will impact the jobs market. His research paper, titled “You’re Not Hired,” found that employment of early career workers in the most AI-exposed quintile declined by 15% following the introduction of ChatGPT.

Here were the most active stock-market tickers on MarketWatch as of 5 a.m. Eastern.

Ticker

Security Name

NVDA

NVIDIA

TSLA

Tesla

BYND

Beyond Meat

AMZN

Amazon.com

GME

GameStop

AMD

Advanced Micro Devices

MSFT

Microsoft

AAPL

Apple

TSM

Taiwan Semiconductor Manufacturing

PLTR

Palantir Technologies

MSTR

MicroStrategy

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