Jurrien Timmer

European banks offer a 7% yield, an 88% payout ratio, trade at a 10x P/E, and are only 11% correlated to the Mag 7. Their performance has kept pace with AI themes, making them a compelling, boring, high-yield diversification play in this boom era.

The "Mag 7" peaked relative to the market in October. Since the April 2025 "tariff tantrum," the Equal Weight index has almost completely caught up to the Cap Weighted index. The bull market is in its 40th month; typically, at this stage, returns flatten and rotation occurs. As long as the Mag 7 doesn't crash, capital rotates into cheaper, broader sectors (Small/Mid/Equal Weight). LONG the broadening trade via Equal Weight and Small Caps. A recession or a sharp downturn in Mag 7 dragging the whole index down.

In a fiscally dominant era, yields face upside risk rather than downside risk. The 10-year Treasury yield could rise to 5% as term premium expands, making bonds positively correlated to equities and putting bond prices at risk. This environment favors a short duration stance.

Semiconductor earnings have tripled over the past year, driving the forward P/E down to 14x. If the AI boom is structural rather than cyclical, this low valuation and strong earnings growth make semiconductors attractive despite the correction. The fundamentals remain strong, and fast money flows confirm momentum, but the secular AI buildout supports a structural bull case.

S&P 500 Financials have an 84% payout ratio, a 5% yield, and are potentially large beneficiaries of the AI buildout because they hold vast customer data and operate on inefficient legacy rails that AI can improve. This gives them a dual role as high-yield value and an AI‑adjacent play.

The "Mag 7" peaked relative to the market in October. Since the April 2025 "tariff tantrum," the Equal Weight index has almost completely caught up to the Cap Weighted index. The bull market is in its 40th month; typically, at this stage, returns flatten and rotation occurs. As long as the Mag 7 doesn't crash, capital rotates into cheaper, broader sectors (Small/Mid/Equal Weight). LONG the broadening trade via Equal Weight and Small Caps. A recession or a sharp downturn in Mag 7 dragging the whole index down.

The "Mag 7" peaked relative to the market in October. Since the April 2025 "tariff tantrum," the Equal Weight index has almost completely caught up to the Cap Weighted index. The bull market is in its 40th month; typically, at this stage, returns flatten and rotation occurs. As long as the Mag 7 doesn't crash, capital rotates into cheaper, broader sectors (Small/Mid/Equal Weight). LONG the broadening trade via Equal Weight and Small Caps. A recession or a sharp downturn in Mag 7 dragging the whole index down.