Scott Chronert 1.5 5 ideas

Chronert states the "first place we go" for a broadening trade is "down cap into U.S. small mid-cap," which is more economically sensitive and had a great start to the year. The ceasefire allows a shift away from a worst-case "black swan" outcome, potentially reestablishing a framework for a broadening trade that benefits cyclically sensitive areas of the market. WATCH because the setup for small/mid-caps is for "notably improving earnings progression" through 2026, but the trade depends on inflation data post-conflict and requires a lower interest rate environment for sentiment. A prolonged spike in oil prices (higher for longer) poses the most risk to this economically sensitive segment.

Chronert explicitly says, "We would emphasize ongoing overweight in our banks outlook" as part of the cyclical setup for a broadening trade. Banks are a classic cyclical sector that would benefit from a market rotation away from concentrated tech leadership and towards areas leveraged to economic growth, a rotation that was paused by the Iran conflict. WATCH as part of a potential broadening, cyclical rotation, but its success is tied to the same economic and inflation conditions as the small/mid-cap trade. The "Goldilocks" soft-landing scenario is still under question, and a deterioration in the economic outlook would negatively impact banks.

Chronert states the software sector has "found a bottom" and has already discounted the hit to terminal multiples regarding AI disruption. CrowdStrike (CRWD) beat earnings estimates. The market over-penalized software stocks on AI fears. With valuations reset and fundamentals remaining intact (as evidenced by CRWD's beat), the risk/reward has shifted to the upside. LONG. Software is now a defensive contrarian play against the hardware/semiconductor volatility. Persistent high interest rates (10-year yield) compressing growth valuations.