The market gave back Monday’s optimism in real time. The session opened on a constructive note — chip stocks were rallying, the tape looked stable, and Monday’s Iran de-escalation narrative appeared to be holding. Then, mid-session, reports emerged that Iran had shot down a U.S. military helicopter. Trump’s post threatening that the U.S. “must react” immediately triggered a violent sell-off. The Philadelphia Semiconductor Index swung from +3% to −8.6% intraday — one of the most dramatic single-session reversals in recent memory for the chip sector.

The Strait of Hormuz returned to center stage. Iran’s effective closure of the Strait — a route for approximately 20% of global oil, fertilizers, and other key commodities — has become the single most consequential variable for inflation in 2026. In April, CPI hit 3.8% year-over-year, its largest annual gain in nearly three years, driven partly by a 28%+ surge in gasoline. With the May CPI report due Wednesday, the helicopter incident added fresh concern that inflation data will again print hot, further eliminating any prospect of Fed rate cuts and potentially reigniting rate-hike fears. Markets are currently pricing in a roughly 50% chance of a Fed rate hike by year-end — a remarkable shift from early 2026 expectations of multiple cuts.

The rotation continued regardless. Even as tech sold off violently intraday, the Dow and Russell 2000 finished green. Nine of eleven S&P 500 sectors closed positive. Consumer staples, healthcare, financials, and utilities all outperformed — a pattern now five sessions old. Market strategist Michael O’Rourke of JonesTrading captured the dynamic well: “When the bounce ran its course this morning, the tape came for sale more broadly. There’s also a rotation going on… so part of it is more of a momentum unwind.” The Russell 1000 Value index outperformed the Growth index for the fourth consecutive day.

SpaceX portfolio rotation is also a factor. Several strategists noted that investors may be trimming high-flying semiconductor positions to make room for SpaceX in their portfolios ahead of Thursday’s debut. The IPO is reportedly oversubscribed and is pricing Wednesday evening — and at a $1.75 trillion valuation, even a modest allocation from institutional investors requires selling something else first. With the semiconductor index still up over 70% year-to-date despite the recent selloff, chips are the logical source of funds.

Apple kicked off WWDC but the opening keynote produced mixed initial reactions — with reports that Apple shares dropped after the conference opened. Details on the degree of AI integration and any new subscription-tier announcements are expected throughout the week. The market will be closely watching for any Siri monetization or third-party AI model integration news that could justify Wedbush’s bullish $400 target.