Drones, Distortions, and What Comes Next

Markets are smooth on the surface, but tension is building beneath. If you’re watching the right signals, you can already see the cracks.

Author

Liam Daly
August 01, 2025

Corporate Overview

Daly Asset Management specializes in equity portfolio construction and investment management. We serve as General Partner of affiliated investment vehicles and develop differentiated strategies across deep value, income generation, and macro-tactical portfolios.

Launching soon at dalyassetmanagement.com, our platform offers access to real-time strategy dashboards, public price targets, and transparent, data-driven investment research — without hidden fees or sales agendas.

Our approach is built for high-income individuals who think independently and invest intentionally.

Stock of the Week: Red Cat Holdings (RCAT) – Drone Sector Velocity

Sector: Defense Technology & Drones | Market Cap: ~$130M
Revenue (TTM): ~$16.5M | Theme: Tactical Autonomy & National Security Procurement

Red Cat Holdings isn’t a household name, but that’s precisely why it matters. In a defense market dominated by primes, RCAT is quietly capturing a niche with asymmetric upside.

Its Black Widow drone was just selected as the U.S. Army’s Short Range Reconnaissance (SRR) platform—part of a Pentagon-level initiative to treat small drones as “consumables,” not capital goods. That translates to rapid procurement, ongoing replacement cycles, and less political red tape.

  • Selected as the winner of the $100M+ SRR contract

  • Recently acquired Teal Drones to support production scaling

  • Positioned for additional contracts as the DoD broadens its ISR modernization

  • Trading at a modest valuation (~7.9x trailing revenue) given policy tailwinds

  • Direct beneficiary of U.S. push to reduce reliance on DJI (China)

This is not a value play—it’s a policy-aligned momentum trade in an under-owned, under-analyzed name. Volatility will be high, but so is the torque.

Market Snapshot: July  28 — August 1st, 2025

Asset / Index

Level / Trend

S&P 500

Closed 6,397.69 (7/28), intraday peak 6,401.07—sixth straight record close.

Nasdaq 100

Up ~0.3% on 7/28, record move; led by SMCI (+10.2%) and AMD (+4.3%).

Dow Jones

Ending around 44,837.6, down ~0.1%

Russell 2000

~2,256.7, down ~0.2%.

Bitcoin (BTC/USD)

Ranged between $118K–$119K; closed near $117,977.5 on 7/29

10‑Year Treasury Yield

Ended 7/25 at 4.40%; term structure showing flattening curve pressure with 2‑ and 30‑year yields at ~3.91% and ~4.92%.

Notable data:

  • June PCE Preview expected Fri.

  • Durable goods orders and final Michigan inflation sentiment in focus.

Deep Dive: This Week’s Tension Points

Markets at All-Time Highs—But Risk Is Rising

Tech earnings optimism is propping up indices, but forward P/E ratios on the S&P now exceed 26x—surpassing 1998 levels. That doesn’t hold if growth cools or liquidity tightens.

Margin debt crossed $1.03 trillion for the first time since 2021, while VIX remains artificially compressed (~11). One shock—earnings or macro—could light the fuse.

Bond Stress Signals Resurface

The 10-year yield is stable at ~4.4%, but short-end steepening (5yr/30yr) is flashing stress.

The spread between the 10-year and 3-month yields has collapsed to just 0.02%—a classic recession warning. Traders are quietly positioning for policy uncertainty: some desks pricing in Powell’s potential departure if Trump wins, while others rotate into defense and cash.

Bitcoin Holding Flag Despite Heavy Selling

A recent $9B block sale of Bitcoin barely budged price, closing near $117,977.5—a sign of deepening resilience. Muted altcoin performance and regulatory uncertainty keep BTC capped under the $120K threshold. Attention pivots to both the pending crypto policy report from the White House and upcoming Fed signals.

Drones Staging a Structural Breakout

The drone sector has collectively rallied—led by ReD Cat (RCAT), AeroVironment (AVAV), Kratos (KTOS), Unusual Machines (UMAC), and others following U.S. executive mandates codifying rapid drone procurement.

  • AVAV is seeing record backlog and revenues post-BlueHalo acquisition.

  • KTOS posted ~$300M+ revenue and a backlog over $1.5B in Q1

  • ONDS just landed a $14.3M automated drone contract, doubling its footprint in industrial/defense verticals.

  • UMAC: Up 95% YTD on autonomous delivery contracts

This is not hype. This is government-industrial alignment.

The Biden and Trump camps both view tactical drones as a pillar of modern warfare. Procurement cycles are accelerating. But execution will separate the winners from the noise.

What Smart Capital Is Monitoring Next

  • Big Tech Earnings: Meta, Microsoft, Netflix, and Nvidia reports will set AI-cloud tone and capital rotation cues.

  • Friday Data Dumps: Durable goods, initial jobless claims, and final Michigan inflation readings could trigger volatility.

  • Commodity & Trade Flashpoints: Diesel spreads and shipping headlines (Red Sea tensions) are driving sectoral shifts.

Final Words

Markets may appear stable—but beneath surface calm, structural risks are accumulating: stretched valuations, flattening yield curves, geopolitical volatility, and transition-driven pockets (like drones). Stocks like RCAT illustrate the upside when policy meets execution—but risk and dispersion are high.

Price action may hold—but vulnerability is rising. Stick with data. Watch the flows. And don’t chase noise.

Thanks for reading. More independent strategy insight at dalyam.beehiiv.com.

Disclosures: This newsletter is for informational purposes only and does not constitute investment advice. Past performance is not indicative of future results. Always conduct your own due diligence or consult with a financial advisor before making investment decisions.