Risk-On and Risk-Off

These are the early headlines and other items poised to influence the market at the start of trading Friday. As we share this collection of market drivers, U.S. equity futures point to a mixed open.

1. The U.S. raced Thursday to keep Israel’s war in Lebanon from derailing talks with Iran this weekend, with President Trump asking Israeli Prime Minister Benjamin Netanyahu to scale back attacks that were threatening a fragile cease-fire… Until now, the Trump administration hadn’t asked Israel to tone down any of its campaigns against Hezbollah, the U.S.-designated terrorist group that operates from Lebanon with Iranian support. But Trump was concerned that the fighting could undermine the cease-fire and efforts to open the Strait of Hormuz… (WSJ) Iran has cited Israel’s ongoing attacks on Lebanon as a key sticking point in its ceasefire agreement with the U.S., which requires Iran to reopen the strait, through which a fifth of global energy supplies typically pass. Delegations from ​Tehran and Washington are set to hold talks in Pakistan on Saturday. (Reuters)

Tensions are running high as we approach the initial round of ceasefire talks slated to begin Saturday. Reporting points to continued attacks by Israel on Lebanon, Iran collecting tolls from ships traveling through the Strait of Hormuz, and Trump criticizing Iran for “doing a very poor job” of letting oil flow through the strait. The probability is high the market will react to incoming headlines today, and given the fragility of the ceasefire, subject to those incoming headlines, we would not be surprised to see traders be in a risk-off mode as we close out the trading week.

2. The Consumer Price Index for March, set to be released at 8:30 a.m. Friday, is expected to show that US inflation bolted higher as a direct result of the Middle East war’s energy shock. Economists are estimating that prices leapt 0.9% from February, more than triple the pace seen in January. Such an increase would drive the annual rate of inflation to 3.4% from 2.4%. (CNN)

If that headline 3.4% year-over-year print is reported, it will be the highest CPI number since April 2024. While the corresponding figure for Core CPI is expected to be 2.7% in March, up from 2.5% in February, more than likely, some folks will be assessing the implied figure derived from annualizing the last few months of sequential core CPI figures. If the March core CPI figure on that basis comes in as expected at 0.3%, the annualized three-month trailing average would be around 3.2%, up from 2.8% in February.

Here’s the thing, the market is expecting a hot report given March developments, and as we see in the CME FedWatch tool, it doesn’t foresee a Fed rate cut for some time. The question, however, is whether the March CPI data rekindle the rate-hike conversation mentioned in this week’s FOMC meeting minutes.

3. Taiwan Semiconductor Manufacturing Corp, or TSMC, reported a forecast-beating 35% jump in revenue for the first three months of the year, a sign that the Iran war is not curbing AI chip demand. TSMC on Friday reported revenue of NT$1.13 trillion ($355 billion) for the first three months of the year, just ahead of the $1.121 trillion expected by analysts polled at Visible Alpha. (MarketWatch)

While that is the headline, digging into things, we find Taiwan Semi’s  (TSM)  March revenue surged ~31% month over month and more than 45% compared to March 2025. However, the real standout was the Q1 2026 sequential increase of more than 8%, and the reason is that in the past, we have typically seen a sequential revenue decline moving from TSM’s Q4 to its Q1.

Amid reports of lower connected device volumes (see Item 6 below), we can easily deduce that AI and data center-related demand were responsible. Another confirmation point in a string of them over the last few days for the Pro Portfolio’s AI and data center-related plays.

And we have another one to share as well…

4. Lumentum Holdings Inc. said demand from the biggest US tech companies for its optical components is accelerating and on track to fill its order books through 2028. “The capex numbers from the US hyperscalers are enormous and there seems to be no end in sight,” Chief Executive Officer Michael Hurlston said in an interview in Tokyo Friday. “We’re falling further and further behind the demand. We would be sold out though all of 2028 within two quarters.” (Bloomberg)

The Pro Portfolio counts Lumentum  (LITE)  as a holding as part of our EPS Diplomats basket, and Hurlston’s comments bode well for that position. Those same comments also confirm our long-held view that rising AI adoption and expanding usage, along with other factors, would drive a surge in networking-related demand.

5. Treasury Secretary Scott Bessent and Federal Reserve Chair Jerome Powell summoned Wall Street leaders to an urgent meeting on concerns that the latest artificial intelligence model from Anthropic PBC will usher in an era of greater cyber risk. Bessent and Powell assembled the group at Treasury’s headquarters in Washington on Tuesday to make sure banks are aware of possible future risks raised by Anthropic’s Mythos and potential similar models, and are taking precautions to defend their systems, according to people familiar with the matter who asked not to be identified citing the private discussions. (Bloomberg)

One aspect of our position on AI is that, in the hands of bad actors, it would accelerate the velocity and expand the vectors for cyberattacks. Boiling the news on Mythos down, that is essentially what is being said, and that keeps us bullish on cybersecurity stocks in general. We continue to favor the diversified exposure brought to us through the First Trust Nasdaq Cybersecurity ETF  (CIBR) .

6. iPhone-maker Apple led global smartphone shipments in the first quarter of 2026, growing ​5% year-on-year, even as overall shipments fell ‌due to a shortage of memory components, Counterpoint Research said on Friday. Global smartphone shipments fell 6% ​from a year earlier as Middle ​East tensions also weighed on consumer sentiment, the research ⁠firm said. (Reuters)

Once again, Apple  (AAPL)  is flexing its supply chain and strong supplier relationships as well as its premium product offering. Those gains, while others in the smartphone market saw falling shipments, put Apple in the top slot for industry market share with 21%. Samsung fell to the second slot.

With Apple’s AI-enabled Siri refresh looming, we continue to think that if Apple can delight consumers with this enhanced experience, it could unleash a strong iPhone replacement cycle. Remember, Apple Intelligence only works with the iPhone 15 Pro, iPhone 16, and iPhone 17 device families. Apple’s WWDC 2026 event will be held June 8-12, with the company’s keynote set for June 8.

7. Economic data today per TipRanks: CPI (March), Michigan Consumer Sentiment Index (April), Factory Orders (February).

8. Companies reporting today per TipRanks: There are no market-moving earnings reports expected, but as the earnings season heats up, we’ll be watching for preannouncements, both good and bad.

Related: China’s Influence Rises as Beijing Becomes Unusual U.S. Ally on Iran

At the time of publication, TheStreet Pro Portfolio was long AAPL, CIBR, and LITE.