Max Kettner 3.9 13 ideas

Speaker argued oil price matters less for US earnings than the AI cycle, as nearly 50% of S&P market cap is AI-related. AI earnings expectations are rising while valuations have crashed to decade lows relative to the market. The primary driver for US corporate earnings (and thus equity performance) is AI-related capex and funding, not energy costs. This provides relative insulation from the oil shock. WATCH because the fundamental driver (AI cycle) appears supportive, but the asset class remains sensitive to the broader risk sentiment influenced by geopolitics and oil. A complete failure of the ceasefire and spiraling oil prices that crash global growth and risk appetite, overwhelming the positive AI narrative.

Speaker stated oil price "matters more" for Europe, as the key outperforming sector (banks) is hurt by higher oil causing a bear-flattening yield curve. Oil coming down would help banks via a bull steepening. European equity performance is more tied to the financial sector and rate dynamics, which are directly impacted by oil-price-driven inflation and central bank expectations. WATCH due to higher sensitivity to the oil price trajectory and its impact on bank profitability through the yield curve. Oil prices sustaining a move well above $100, leading to prolonged curve flattening and pressure on bank earnings.

HSBC has explicitly "cut their US equity overweight in half" and is rotating capital into Europe and Emerging Markets. The market is obsessed with US Tech/AI, ignoring a "textbook style cyclical recovery" visible in PMI data in manufacturing economies (Sweden, Taiwan, Korea). This favors cyclical sectors over growth tech. LONG European Banks (yield curve play), Industrials, Defense, and Miners (commodity supercycle). LONG Emerging Markets (specifically Latin America/Brazil). US growth accelerates significantly faster than the rest of the world; AI bubble expands further.

Systematic positioning (CTAs/Risk Parity) has dropped from the 80th percentile to below the 50th percentile, meaning "short-term hedging demand is much higher" and positioning is clean. The recent sell-off/rotation has cleared out the "froth," meaning the downside risk from here is constrained. Kettner specifically points to cyclical sectors benefiting from tax refunds and stimulus, explicitly naming Regional Banks and Transport. LONG Cyclicals (Regional Banks, Transports, Retail) as positioning is washed out. A resurgence of inflation forces the Fed to actually hike, crushing cyclical recovery hopes.

Mag-7 stocks are trading at ~26.5x forward earnings, comparable to the Russell 2000 at ~24x. Valuation compression has occurred because prices stayed flat while earnings grew. The "fear trade" provides a buying opportunity in high-quality growth at reasonable valuations compared to historical premiums. Buy the dip in Big Tech; valuations are no longer stretched relative to the broader market. Regulatory headwinds or a hotter-than-expected CPI print.

Tax reimbursements are hitting US households in February and April. Data shows the "lower end of the K-shaped economy" is ramping up consumption. This liquidity injection specifically benefits mass-market retail, homebuilders, and transport sectors. Rotate into cyclical consumer sectors that benefit from lower-income spending power. Persistent inflation eroding the real value of tax refunds.