Cameron Dawson

The US-Iran deal relieves upward pressure on oil prices, gasoline, and diesel, easing inflation and hawkish Fed expectations. This breathes life into equity market areas that have lagged since the war began—those without AI exposure, which are only up about 1% versus 47% for AI. The catch-up trade will benefit areas like financials and the equal-weight S&P 500, which are already breaking above key moving averages and making new highs.

The US-Iran deal relieves upward pressure on oil prices, gasoline, and diesel, easing inflation and hawkish Fed expectations. This breathes life into equity market areas that have lagged since the war began—those without AI exposure, which are only up about 1% versus 47% for AI. The catch-up trade will benefit areas like financials and the equal-weight S&P 500, which are already breaking above key moving averages and making new highs.

"Record dispersion between winners and losers... Energy, up over 23% year to date, is much better than what we're seeing out of things like Consumer Discretionary... Cyclical areas doing well like Industrials." The market is bifurcated. Momentum is clearly concentrated in Energy and Industrials. In a "chop and churn" market, capital flows to sectors showing relative strength and earnings resilience. LONG the leaders of the current dispersion trade. A recessionary hard landing would hurt cyclical sectors like Energy and Industrials.

The hyperscalers (Mag 7) are morphing from capital-light monopolies into capital-intensive, competitive businesses with lower returns on capital. The market is punishing them with multiple compression, and the sustainability of their capex spending is in question as they tap equity and debt markets while their stocks fall.

Dawson states the one area driving earnings estimates higher is semiconductors, yet the market is not giving it credit as valuations have compressed ~30%. The market is penalizing the one sector with reliable earnings growth potential, creating a disconnect. This suggests a buying opportunity in semiconductors, as strong fundamentals are being overlooked due to broad market volatility. A severe economic slowdown that crushes all earnings, including in tech.

Dawson states analysts are hesitant to cut earnings forecasts despite the Iran war's immediate growth impact from higher energy prices, calling it a sign of complacency and hope, not reality. If high energy prices persist and pinch consumer spending (as in 2022 but from a weaker starting point), earnings will disappoint. The market (S&P 500) has not priced in this downgrade risk, leaving it vulnerable. SHORT on the expectation that earnings estimates must fall, leading to downward pressure on equity valuations. The war ends quickly and energy prices collapse, allowing the economy and earnings to absorb the shock without significant downgrades.

"Record dispersion between winners and losers... Energy, up over 23% year to date, is much better than what we're seeing out of things like Consumer Discretionary... Cyclical areas doing well like Industrials." The market is bifurcated. Momentum is clearly concentrated in Energy and Industrials. In a "chop and churn" market, capital flows to sectors showing relative strength and earnings resilience. LONG the leaders of the current dispersion trade. A recessionary hard landing would hurt cyclical sectors like Energy and Industrials.