What is most worth watching today is not the rise or fall of a single index. Several new items of news together look more like a day in which geopolitical risk lifts oil prices, which then transmit to interest rates, pharmaceuticals, and regional market divergence. ETF Radar is also seeing this transmission chain spreading.

First link: geopolitical risk has not cooled. The latest battlefield assessment notes that the Kremlin is still repeating high objectives, while Russian advances have not produced a decisive breakthrough. On the other side, special reports related to Iran are still being updated. To put it bluntly, this kind of news does not necessarily immediately rewrite the battlefield, but it will first rewrite market sentiment. As long as the conflict drags on, issues such as energy transportation, sanctions expectations, and waterway security will not disappear completely.

That brings us to the second link: concerns about oil and inflation expectations. Today’s A-share market illustrates this divergence well: the three major indexes closed higher, Shanghai Composite rose 0.25%, Shenzhen Component rose 0.44%, ChiNext rose 0.25%; but semiconductors led the decline, Hua Hong Hongli fell more than 10%, SMIC and Xinyuan Co. fell more than 6%, Cambricon and Demingli fell more than 4%; meanwhile, oil and gas stocks continued to strengthen, Zhun Oil and Zhongman Petroleum hit the daily limit. This picture looks like the market is not broadly rising, but is shifting funds toward those that more directly benefit from energy tightness. Plainly put, if people worry about supply and transport, the first thing they think of is oil, not chips.

That leads to the third link: once oil price concerns rise, it becomes harder for interest rates to fall easily. Energy prices affect inflation; if inflation does not come down, central banks are reluctant to cut rates too quickly. Simply put, interest rates are the cost of borrowing; when rates are high, mortgages, auto loans, and corporate financing all become more expensive. So the market can accept strength in oil and gas while being more selective about long bonds and high-valuation growth sectors. In today’s US Treasury yield curve, the 10-year minus 2-year spread is 0.36. The spread, plainly put, is the gap between long- and short-term rates; it is still positive, which implies the market does not view large rate cuts soon as the main scenario.

The fourth link is that policy and trade uncertainty are also increasing, not just in energy. Trump said he would impose tariffs of up to 200% on imported generic drugs; at the same time, the US government froze more than 1 billion dollars in Medicaid funds to California and Minnesota. Generic drugs are the low-cost medicines that follow patent expiry and many people rely on them for routine prescriptions. If tariffs really go up, the immediate transmission is not first to drugmakers’ stock prices but to supply chains and costs. On top of that, the trend of compulsory licensing in biopharma is being revisited; plainly put, some countries might, in special circumstances, bypass patent constraints to produce drugs. This creates two worries for the pharmaceutical industry: cost on one hand, and intellectual property on the other, meaning whether R&D results can reliably generate returns.

So the mainline today cannot be summarized by a single phrase like rising or falling risk appetite, but is a more detailed divergence: the conflict drags on and oil and gas are sought after; when oil prices rise, rates don’t loosen easily; when rates don’t loosen, long bonds and high-valuation assets face greater pressure; and with drug tariffs and frozen Medicaid funds, the pharmaceutical chain becomes more sensitive. At the same time, there is a real countercurrent: the A-share large cap market is up today, which shows capital has not fully fled but is rotating quickly between sectors. Plainly put, not all ships sink or float together; some are jumping from the tech ship to the energy ship.

Below are several related ETFs, separating already-occurred moves from model views for the next 1 to 3 months.

First, USO, the crude oil fund. USO actually rose 8.05% over the past 5 trading days, that is, the past week. ETF Radar’s model is positive on USO for the next 1 to 3 months, with fairly consistent signals. This is directly related to the mainline, because the first link is about conflict and transport risk. Quant readings show an 8-day window cumulative +18.54%, max drawdown -1.71%. Max drawdown, plainly put, means the deepest pullback during this rise was only 1.71%, indicating it didn’t fall back much after the move up. Second reading: large spec net short in crude futures is -24,220 contracts. Net short, plainly put, means there are still many bets on a price decline; if news continues to tighten, short covering could push oil prices higher. Third reading: at-the-money call implied volatility is 64.18%, historical percentile 67. Implied volatility, plainly put, is the option market’s thermometer for future volatility; a high value means the market expects continued turbulence. To be honest, USO has already risen a lot in the past week and is not at a low level in the short term; moreover, net fund flows in the past 1 day are -13.96% AUM, and AUM is the fund’s total assets under management, so such a large outflow suggests some investors are taking profits at the highs. In other words, direction and volatility coexist.

Second, VDE, the US energy sector. VDE actually rose 3.05% over the past 5 trading days. Looking ahead, the model is modestly positive on VDE for the next 1 to 3 months, but the signal is average. This also has real transmission from today’s mainline, because if oil carries a risk premium, energy companies’ earnings expectations are typically lifted. Risk premium, plainly put, means investors are willing to push prices up a bit because they worry about things going wrong. Quant evidence shows an 18-day window cumulative +8.94%, relative to the mainline benchmark cumulative outperformance +8.53%, meaning it outperformed the reference market by 8.53%. Another reading: US crude inventory 726M barrels; low inventory usually means less buffer. Another is COT crude net position -24,220, same as USO, indicating short positions remain and possible squeeze could add upward pressure. But there is a divergence to clarify: the system’s mainline comes from the Russia-Ukraine war, while the new news today points more directly to Iran and waterway risk, not a new Russian supply shock; so this is related but not a one-to-one match. Also, the futures curve is -7.717% in a positive market. A positive market, plainly put, means the far month is more expensive than the near month, so VDE’s evidence is not as narrowly focused as USO’s.

Third, XLF, the US financial sector. XLF actually fell 0.90% over the past 5 trading days. ETF Radar’s model is positive on XLF for the next 1 to 3 months, with multiple pieces of evidence aligned. This is indirectly related to today’s mainline: if oil and inflation keep rates high, banks’ net interest margins typically benefit. Net interest margin, plainly put, is the spread banks earn by borrowing short and lending long. Quantitatively, XLF in this arc window cumulative rose 8.65%, outperforming SPY by 5.38%. Excess return, plainly put, is the amount it beat the broad market. Second reading: the prediction market’s probability of another Fed hike in 2026 is 0.59. The prediction market, plainly put, is where people put real money on event probabilities; 0.59 indicates the market still sees continued hawkishness as possible. Hawkish, plainly put, means a bias toward keeping rates higher. Third reading: net fund inflow in the past 1 day +2.65% AUM, indicating real money moving into the banking sector. There is a divergence here too: XLF fell over the past 5 days but the model is positive, because the model looks at the next 1 to 3 months, not the past week; short-term pullback has not overturned the medium-term logic.

Fourth, IEF, the 7–10 year Treasury fund. IEF actually fell 0.73% over the past 5 trading days. Looking ahead, ETF Radar’s model is negative on IEF for the next 1 to 3 months, with fairly consistent signals. This also directly relates to today’s mainline: if energy risk keeps inflation elevated, longer-dated bonds are prone to pressure. Quant evidence: large spec net short in 10-year Treasury futures about -1.97M. Net short, plainly put, means a large number of bets on price declines. Second: the US 10-year real rate is roughly between 4.5% and 4.56%. Real rate, plainly put, is the real return after subtracting inflation; a high number indicates significant price pressure on bonds. Third: in May foreign holdings of long-term Treasuries net increased by 1.8 billion dollars, long-term bond stock is 7.92 trillion USD, accounting for 84.5%. This shows foreign investors are not completely avoiding Treasuries, but not enough to reverse the larger rate pressure. IEF here diverges from VGIT. VGIT is also a mid-term Treasury fund, but the system is positive on it. The reason is not model indecision but different term segments and transmission: IEF is more pressured by long-end rate rises, while VGIT is more supported by mid-segment safe-haven demand. Plainly put, they are both bonds, but not the same step on the ladder and are subject to different forces.

If adding one sentence on China, FXI actually rose 0.44% over the past 5 trading days, and the model is positive on FXI for the next 1 to 3 months, with fairly consistent signals. However, this is not directly related to today’s mainline and is the system’s independent medium-term stance. Its quantitative support is first-half GDP year-on-year +4.7%, and FXI outperformed EEM by 11.59%. EEM is the emerging markets large-cap index; FXI’s relative outperformance indicates that large Chinese weighted stocks have been relatively stronger recently. But today’s weakness in A-share semiconductors shows internal structural divergence in China’s market, not an all-clear.

In one sentence: several pieces of news today connected together highlight that a prolonged conflict raises oil and rate pressure, and funds are moving from tech and other rate-sensitive sectors into energy and some financials. Reminder: the above are system quantitative model directional forecasts for general markets and do not constitute personalized investment advice; consult a licensed investment advisor before investing.