Perhaps the dreaded “black swan” has finally taken wing, in the form of an unmanned aerial vehicle.

As of this writing Monday morning, global stock markets are swooning and crude oil prices are soaring in the wake of last weekend’s drone missile attacks against Saudi Arabia’s crucial oil production facilities in Abqaiq and Khurais. It’s the largest oil supply shock in history, even worse than the attacks on Saudi oil infrastructure during the first Iraq War in 1990-1991.

Abqaiq is the world’s largest oil processing facility, with a processing capacity of more than 7 million barrels per day (BPD). A total of 5.7 million BPD of production was halted due to the damage, representing half the kingdom’s oil production or more than 5% of the world’s output.

Yemen’s Houthi rebels, who have been at war with the Saudis for nearly five years, claimed responsibility. However, White House officials were quick to blame the drone missile attacks on the rebels’ sponsor Iran.

We’re witnessing the sort of unexpected geopolitical shock that analysts have feared and it could herald a paradigm shift for the energy sector and global economy — and the stock market.

Sharply higher oil prices could hasten the arrival of the expected recession. Also spooking investors is the mounting risk of outright military hostilities between the U.S. and Iran.

Read This Story: Bracing for the Next Black Swan

The Dow Jones Industrial Average today opened lower by about 100 points, while oil prices were up nearly 10%. The Saudi crisis is a developing story and I’ll take a closer look at the fallout in tomorrow’s Mind Over Markets.

Congress fires salvos at Silicon Valley…

Meanwhile, Big Tech is grappling with the fallout from a different kind of attack…launched by Congress.

Lawmakers in Washington are investigating Silicon Valley stalwarts, threatening them with legislation that restricts how they operate. It’s yet another reason for investors to rotate toward value.

In recent months, I’ve warned you to pare back your exposure to overvalued large-cap technology stocks, especially the FAANG gang of five: Facebook (NSDQ: FB), Apple (NSDQ: AAPL), Amazon (NSDQ: AMZN), Netflix (NSDQ: NFLX), and Google parent Alphabet (NSDQ: GOOGL).

To be sure, all five have outperformed the S&P 500 over the past five and 10 years. However, over the past 12 months, only Alphabet and Facebook have done so.

Congress is scrutinizing the market dominance of Big Tech, with members of both political parties expressing concern about the unfettered ability of Silicon Valley giants to misuse private data and spread disinformation.

The House Judiciary Committee last Friday asked for a wide range of documents, including internal executive emails, from Facebook, Apple, Amazon and Google, marking an acceleration of Congress’ bipartisan probe of the companies.

Democrats are concerned about tech companies for anti-trust reasons; Republicans accuse Google of anti-conservative political bias. For his part, President Trump nurses a grudge against Amazon CEO Jeff Bezos, owner of The Washington Post, a newspaper that has been highly critical of the president. The White House also alleges (implausibly, say tech experts) that Google search engine algorithms are rigged unfavorably against the president.

The FAANG quintet has led the bull market and now, in the latter stages of the economic cycle, these market leaders are giving way to bargain-priced players in defensive sectors, such as utilities and real estate.

Pressure on mega-cap tech stocks will only increase as the 2020 election gets closer and presidential candidates hurl “populist” rhetoric at Silicon Valley. Because of its role in the disruption of the 2016 election, Facebook is the most vulnerable.

The digital landscape is littered with the bones of social media sites that have come and gone. Facebook CEO Mark Zuckerberg lives in fear of his company becoming the next MySpace.

Research shows that more than 17 million young Americans (ages between 12 and 34) have quit Facebook over the past two years, citing concerns about misappropriated private data as epitomized by the Cambridge Analytica scandal.

Here’s what seems crazy to me: Facebook sports a whopping market cap of $534 billion, but it doesn’t really make anything.

Zuckerberg’s brainchild, conceived in a Harvard dorm room, currently is worth more in terms of market capitalization than Exxon Mobil (NYSE: XOM) at $307 billion; Coca-Cola (NYSE: KO) at $232 billion; Lockheed Martin (NYSE: LMT) at $108.6 billion; General Electric (NYSE: GE) at $81.5 billion; and General Motors (NYSE: GM) at $54.4 billion, to name just a few blue chips.

Facebook’s valuation is roughly five times that of Lockheed Martin, the world’s largest defense contractor. Lockheed Martin makes combat jets; Facebook disseminates cat videos.

Facebook is grossly overvalued and susceptible to technological disruption. And now, as Congress casts a harsh spotlight on tech companies, FB and its brethren face potential regulation that could clobber earnings.

Don’t get me wrong. Technology remains an attractive place to put your money. The sector is awash in robust cash flow. But you should focus on companies with tangible products and services that make society more productive. As I recently explained in my September 11 column, the roll-out of 5G — the next generation of wireless technology — fits the bill.

Swans, drones and doves…

Looser global central bank monetary policies and optimism over trade talks have been propelling stocks higher. Despite the extreme volatility we’ve witnessed this year, stocks are trading near record highs (see table, with data as of last Friday’s market close).

But if the start of this week is any guide, the rest of September could get rough. We certainly endured a rough August. In a single trading session on August 5, the S&P 500 shed 3.3%. For the entire month, the S&P 500 lost 1.8%.

Both the U.S. and China have made conciliatory moves on trade in recent days, with China saying it would exempt certain U.S. products from tariffs and the White House responding by postponing the increase in some tariffs scheduled to take effect in October.

However, the trade war hasn’t been called off — and the damage already is done. According to a report released last week by Moody’s Analytics, the trade war so far has cost 300,000 American jobs.

Last week, we witnessed a significant increase in Treasury yields and the outperformance of value-oriented stocks. Over the past few months, I’ve consistently recommended that you rotate toward value and that bet is paying off. This trend should continue for the rest of this year and into 2020.

We continue to face a mixed-back economy. Factory activity is slowing in the U.S., China and Europe, but in the U.S. the latest readings on jobs and retail sales are encouraging.

That said, the spread between the yield on the 10-year Treasury note and that of the 2-year note turned negative twice last month, a phenomenon that has preceded each of the seven recessions since the 1950s (see chart).

Robust retail spending has been one of the remaining pillars of the bull market. However, the drone attacks will drive up gasoline prices, prompting consumers to tighten their purse strings.

Scary headlines will further undermine consumer confidence. As you’d expect, cable news is having a field day with the Middle East crisis. My television is on this morning as I write this column and in the background, I can hear CNBC anchors hyperventilating amid a lot of snappy graphics. Some advice from yours truly: Don’t make any investment decisions based on what they say.

Events, dear boy…

Oil shocks are emblematic of the unexpected external events that trigger economic downturns and kill bull markets.

Wall Street expects the Federal Reserve to announce another interest rate cut when it meets on Wednesday. The oil supply disruption in the Middle East makes another cut all the more likely.

However, it’s uncertain how stocks will react if rates are cut. Fed Chair Jerome Powell could make comments that suggest additional cuts aren’t forthcoming, in which case stocks could tank. It depends not on Powell’s actual words, but how they are interpreted.

As the Saudi story plays out and Big Tech executives find themselves in the hot seat, the investment landscape could suddenly get harsher than anyone, even the Fed, expected.

Then there’s the unfolding chaos of Brexit, which brings to my mind an historical anecdote.

A reporter once asked then-British Prime Minister Harold Macmillan about his biggest challenge. A black swan in the Middle East — the 1956 Suez crisis — had just catapulted him into 10 Downing Street.

Macmillian famously responded: “Events, my dear boy, events.” Same goes for investors.

Worried about worsening geopolitical risk? I’m here to help: mailbag@investingdaily.com

John Persinos is the managing editor of Investing Daily.