The Market's Schizophrenic Week: AI Pumps While Iran Talks Crater and Banks Get Weird

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Let me set the scene: We’ve got AI stocks popping on rumors of an Iran ceasefire. We’ve also got no actual ceasefire. Big banks are getting hammered. One Wall Street megabank says that’s insane. A photography company that nearly died is trying to resurrect itself. And somewhere in all this, there’s a mortgage REIT offering a 12.8% yield that’s waving a giant red flag.

This is what happens when markets price in hope before facts are even on the table.

The Iran Talks That Weren’t Talks

Let’s start with what actually happened: Vice President J.D. Vance went to negotiate with Iran. He came back empty-handed. No deal. Tehran “chosen not to accept our terms,” according to Vance. Two American warships transited the Strait of Hormuz for the first time since the conflict started, which is either a show of force or a safety protocol, depending on your read.

But here’s the thing that matters for your portfolio: AI stocks rose on news of a ceasefire that didn’t happen.

This is peak 2024 market behavior. The headlines screamed “ceasefire,” traders saw “oil prices might fall,” and suddenly Nvidia and friends were worth more. By the time the actual no deal landed, momentum had already lifted them. That’s not investing. That’s momentum chasing on a typo.

Photo by Matheus Bertelli / Pexels

I think this tells you something brutal about the current AI rally: it’s running on fumes and headlines, not fundamentals. When Anthropic’s Claude is generating “Claude mania” at industry conferences—and yes, that’s an actual phrase people are using without irony—we’re already in the speculative zone. The company’s doing interesting work, clearly. But “mania” is the word that matters here, not “momentum.”

The oil angle is real though. If we actually get a ceasefire, energy prices could compress, and that helps tech valuations. But we didn’t get one. So if you bought AI stocks Thursday morning thinking Vance had closed a deal, you bought on a lie the market told itself. That tends to end badly.

Banks Are Being Misread (Or Are They?)

Wells Fargo’s research team, led by Mike Mayo, is making a contrarian call: big bank stocks have underperformed year-to-date, but that’s wrong. They’re cheap and should recover.

I respect Mayo. He’s been calling bank trades for two decades and doesn’t suffer fools. But I’m skeptical here, and here’s why: underperformance this year exists for reasons. Rising rate expectations crush bank margins. Credit stress is creeping in. Regional bank deposits are still wobbly. Mayo’s saying the market’s misreading the opportunity, but I wonder if the market’s actually reading it correctly and he’s fighting the tape.

That said, if you’re looking at major banks trading at reasonable multiples with deposit bases that aren’t on life support, there’s an argument to be made. The issue is timing. Are they cheap because they’re good buys, or cheap because more pain is coming? Mayo thinks the former. My gut says we need another quarter of earnings to figure it out.

The Dividend Yield Nobody Should Chase

Annaly Capital is offering a 12.8% yield. That’s not a feature. That’s a warning label.

When a stock yields more than 12%, ask yourself: why is the market pricing in such a high discount rate? Either the dividend’s getting cut, the company’s going broke, or the market thinks interest rates are about to crater and destroy the business model. Probably all three for a mortgage REIT.

Annaly’s a classic rate-sensitive play. When the Fed raised rates in 2022-2023, these companies got crushed because their mortgage portfolios became underwater faster than you could say “duration risk.” Now the narrative is shifting—maybe rates are peaking—and Annaly’s thrown out a dividend increase to catch income investors chasing yield.

Don’t. That yield is there because the stock’s down 60-70% from previous levels. You’re not getting free money. You’re catching a falling knife and the handle’s already slippery.

Compare that to the Johnson & Johnson vs. Pfizer question floating around. J&J is the boring play—stable dividend, defensive business, not going anywhere. Pfizer’s cheaper but more volatile. Neither is offering 12.8%, and that’s precisely why neither is a trap. You pay for safety or you get cheap and accept volatility. Annaly’s asking you to pay for yield and accept volatility. That’s backwards.

Photo by Markus Spiske / Pexels

The Weird Spots Getting Weirder

PacifiCorp—Berkshire Hathaway’s electric utility—just won a court battle that could save it $1 billion or more in wildfire damages. That’s a real, tangible win. Utilities are unglamorous but they’re also predictable, and when they catch a legal break like this, shareholders actually feel it. That’s the kind of stock move that makes sense.

Then there’s Kodak. The company that should have died in 2012 is somehow still lurching forward. New CEO Jim Continenza is trying to rebuild the business. I have no idea if this works, but I respect the ambition. Kodak’s a genuine turnaround story or a slow-motion bankruptcy. There’s no middle ground, which means it’s a speculation, not an investment.

And lurking beneath all this is a private credit crisis brewing in fixed-income ETFs. The bond market’s less transparent than stocks. More institutions are dumping private credit into ETFs to meet redemption demand. When reality catches up to valuation in private markets—and it always does—those ETF holders are going to get a nasty surprise. This isn’t tomorrow’s problem. It’s this year’s problem.

Here’s My Read

Markets are pricing in hope for geopolitical resolution that hasn’t happened. They’re bidding up AI on momentum. They’re ignoring duration risk in REITs offering free money. They’re cautiously optimistic on banks when the trend’s still downward. And they’re not paying attention to the private credit bomb ticking underneath everything.

If I had to bet, I’d say we get volatility in Q2 when companies report earnings and guidance gets dinged by reality. The Iran situation could escalate. The ceasefire rumors were never grounded in fact. And income investors are about to learn, again, that yields above 10% exist because the principal risk is real.

What I’m Watching

• Wells Fargo Bank Index vs. S&P 500 ratio hits 0.68: That’s where Wells Fargo thinks reversal begins. If it holds below 0.70 through May earnings season, Mayo’s thesis is broken and we’re heading lower.

• Iran military action or new diplomatic talks by May 15: If nothing changes in two weeks and Vance doesn’t go back to the table, oil stabilizes and the AI ceasefire rally gets repriced downward. Watch Strait of Hormuz shipping activity as a proxy.

• Annaly’s next dividend announcement: If they cut it before Q3, you got the call right. If they hold steady while the stock drops another 20%, that yield trap just claimed another victim. Track it monthly.

• Private credit default rates in HY 2024 vs. HY 2023: This is the hidden crisis. When ETF redemptions start forcing liquidations, spreads will blow. Watch credit spreads on non-investment-grade corporates as a leading indicator—if they widen 200+ bps from here, the unwind’s starting.