Hello, record profits 👋

Q1 2026 was a gift for Wall Street trading desks. The U.S.-Iran conflict and AI-driven software jitters sent investors scrambling to rebalance — and the big banks stepped in to provide liquidity. At a premium.

Market volatility is a trading desk's best friend. Double-digit revenue growth across the board, with Citigroup posting its highest quarterly revenue in a decade and JPMorgan notching a record in markets revenue.

The C-suite tone, though? Decidedly sober. Here's what they're actually worried about:

Supply chain & inflation

One-fifth of the world's oil passes through the Strait of Hormuz. Wells Fargo CFO Mike Santomassimo noted consumers are already paying 25–30% more for gas than pre-conflict. That's not a blip — that's a stagflation setup.

The M&A pipeline

The dealmaking pipeline is "active" but fragile. Citi CFO Gonzalo Luchetti warned a protracted conflict could freeze the M&A and IPO recovery that everyone's been penciling in for H2.

Stress testing

Beyond geopolitics, banks are laser-focused on two risks: private credit turbulence, and the disruptive impact of AI on the software sector. Jane Fraser put it plainly — the "second and third-order impacts" of global instability are becoming harder to ignore.

JPMorgan's Jeremy Barnum warned against "projecting forward" this quarter's outperformance. The U.S. consumer remains resilient for now — but the banks are battening down the hatches for a high-inflation, high-risk summer.

Could this all be a value trap? 🪤

Record headlines aside, some analysts are looking past the blowout numbers with a skeptical eye. The "resilient trading" narrative may be masking structural vulnerabilities that bite back as 2026 progresses.

The "quality of earnings" problem

Trading revenue is the junk food of bank earnings — high in calories, low in sustainability. A few things to know:

Non-repeatable alpha

JPMorgan's own CFO admitted conditions were "unique." Much of Q1's revenue came from sudden, frantic hedging as markets mispriced the severity of the Iran conflict. Once investors are "hedged up," the high-volume fee machine grinds to a halt.

The private credit ghost

Banks are reporting strong trading while quietly losing mid-market lending share to private credit funds. The "stress testing" Jane Fraser flagged suggests banks are increasingly worried about a shadow banking bubble they can't control — but are still exposed to.

Consumer resilience, or the last gasp?

The banks are touting consumer strength. The contrarian read: we're seeing the final stretch of the pandemic-era buffer running out.

Paying 30% more for gas isn't resilience — it's a forced reallocation of discretionary income. That kind of stealth tax typically takes 2–3 quarters to show up as higher credit card delinquencies.

Despite record profits, share prices told a different story: Wells Fargo -4%, JPM -0.5%. The smart money appears to be pricing in a cyclical ceiling.

Separating signal from the market's static 📡

Watching

⚪ The declining Treasury "safety premium." The IMF subtly flagged U.S. debt sustainability concerns. If sovereign risk gets priced into yields, the entire equity valuation model has to be rewritten from scratch.

⚪ Private credit risks in banking. A sudden liquidity crunch in unregulated shadow banking markets is the black swan that bank balance sheets aren't actually prepared for — but are quietly exposed to.

⚪ Australia's 3% GDP defense pivot. A massive spending hike signals a global shift toward a "war economy" footprint among Western allies — long-term tailwind for aerospace and defense that's currently being buried under tech earnings noise.

The Singapore "safety trade" is a structural shift, not a vibe 🌏

While U.S. markets remain fixated on domestic rate pivots, a massive, quiet migration of capital is reshaping the East. The "safe haven" trade is no longer just about buying Treasury bonds; it is about the physical and digital relocation of the world's wealthiest assets to Singapore and the strategic redeployment of Gulf capital into high-tech Middle Eastern resilience.

What’s happening?

A historic wave of capital is exiting traditional Western conduits and flooding into Singapore, cementing it as the undisputed "Switzerland of Asia." Driven by geopolitical friction—including U.S.-China tensions and conflicts in Europe—Asia’s ultra-high-net-worth (UHNW) families are physically and financially relocating.

• Banking Inflows: Singapore’s "Big Three" banks (DBS, OCBC, and UOB) captured a combined $77 billion in net new wealth money last year. DBS now manages nearly half a trillion dollars ($488 billion) in wealth assets.

• The Family Office Surge: Senior private bankers are leaving traditional institutions to launch Single Family Offices (SFOs), which offer more agility in a volatile world. Monthly inflows from Indonesia alone are now averaging $10–15 billion.

• The AI Magnet: This capital isn't sitting idle. Roughly $30.9 billion has been poured into AI startups via Singaporean hubs, as investors bet on technological sovereignty over traditional real estate or Western equities.

What it means

This isn't just a temporary flight to quality; it is a structural shift in global liquidity. Singapore is leveraging this influx to insulate itself from global shocks and position itself as a tech superpower.

• Currency Sovereignty: The Singapore dollar hit an 11-year high in early 2026. The Monetary Authority of Singapore (MAS) is intentionally allowing the currency to appreciate to curb imported inflation, signaling a departure from the "weak currency for exports" model.

• Economic Resilience: The Ministry of Trade and Industry (MTI) recently upgraded its 2026 GDP forecast to 2.0%–4.0%, a significant jump from previous estimates.

• Market Fortification: To ensure this capital doesn't just "park" but actually builds, the government expanded the Equity Market Development Programme (EQDP) to S$6.5 billion in the 2026 Budget. This is a direct attempt to boost local stock market liquidity and support mid-cap companies, creating a self-sustaining ecosystem independent of Western market swings.

What to watch

• The S$/Yen Divergence: The Singapore dollar recently reached a record low against the Japanese yen (S$1 to 125 yen). Watch how this affects regional trade balances and whether Japan attempts to intervene as Singapore's purchasing power grows.

• The Talent Migration: Watch the "brain drain" from traditional hubs like London or New York toward the SFO sector in Singapore. If the world’s top fund managers continue to migrate to agile family offices, the "smart money" edge will shift decisively East.

• AI Nationalism: Monitor whether the $30.9 billion in AI investment leads to a proprietary "Asian LLM" stack. If Singapore-based AI companies begin to outpace Western mid-caps, the decoupling of the tech trade will be complete.

OpenAI’s $20B Bet on a Post-Nvidia World

While the market remains obsessed with Nvidia’s quarterly earnings as the sole barometer for the AI trade, a seismic shift occurred this week in the hardware supply chain. On April 17, 2026, OpenAI officially moved to break the "GPU monopoly" by entering a massive $20 billion+ agreement with chip startup Cerebras Systems.

This isn't just a procurement deal; it’s a strategic realignment of the AI power structure.

The Architecture of the Deal

OpenAI is effectively acting as a kingmaker for Cerebras, providing the capital and scale necessary to challenge established silicon giants.

• Massive Infrastructure Play: OpenAI will pay over $20 billion over the next three years for access to Cerebras-powered servers. Crucially, OpenAI is also providing $1 billion in direct funding to help Cerebras build out the physical data centers required to house these machines.

• The Equity "Hook": In exchange for this massive commitment, OpenAI receives warrants for a minority stake in Cerebras. As OpenAI spends more, their ownership grows—aligning the incentives of the world’s leading model builder with its new hardware provider.

• The Inference Pivot: The partnership focuses heavily on inference—the actual running of models for users. As AI moves from the "training phase" to the "utility phase," the demand for cost-effective, high-speed inference is where the next trillion dollars will be won or lost.

Strategic Implications: Why This Matters

This is all about the diversification of the AI stack.

• Cerebras IPO Rocket Fuel: This deal is the cornerstone of Cerebras’ Q2 2026 IPO, where it is targeting a $35 billion valuation. It transforms Cerebras from a "promising alternative" to a "systemically important" AI vendor overnight.

• The "Altman Effect": Sam Altman was an early investor in Cerebras. While his personal history with the company is well-documented, this deal represents a formal corporate marriage that aims to insulate OpenAI from Nvidia’s supply chain bottlenecks and pricing power.

• Wafer-Scale Competition: Cerebras’ unique "wafer-scale" engines (which use a single, giant chip rather than many small ones) are designed to handle the massive memory requirements of modern LLMs more efficiently than traditional GPUs.

The "Nvidia-Only" era of AI infrastructure may eventually face a threat owing to these developments. By backing a rival with $20 billion and an equity stake, OpenAI is ensuring that the future of intelligence isn't beholden to a single hardware architect. For investors, the "AI trade" just got a lot more complex—and a lot more interesting.

Capitalizing on the Infrastructure Shift

As OpenAI’s $20B move signals a new era for hardware and data centers, investors can navigate this shift via the Next-Gen Data Infrastructure strategy on Surmount.

This automated approach utilizes the TradingStrategy library to maintain a diversified portfolio of 20 industry leaders across cloud computing and networking. By rebalancing every 30 days, the strategy ensures your exposure remains aligned with the firms building the very foundations—like those supporting wafer-scale integration—that will define the post-Nvidia landscape.

The Contrarian Sentiment Gauge

The first quarter of 2026 has been a whirlwind of record bank profits, "war economy" shifts, and massive AI infrastructure bets. Where do you think the real story of the year lies?

The Private Credit Crisis

While the S&P 500's ceasefire-triggered relief rally seems like a victory lap, the structural floor of the market actually seems as flimsy as ever.

U.S. stocks have risen significantly since the start of the week, led by a 3.76% gain for the S&P 500. Both the S&P 500 and the Nasdaq Composite are currently on a 7-day consecutive winning streak.

While this may seem like the beginning of a victory lap, we actually feel that this is more likely the final exhale of a market in denial. The headlines are focused on the diplomatic "thaw" in the Middle East, but the plumbing of the financial system is currently screaming a very different message. While retail traders bid up the Nasdaq, the private credit sector is actually undergoing some severe stress.

• Redemption Pressures: Some funds are imposing gates on withdrawals as retail investors retreat.

• Valuation Concerns: Doubts surround how private credit firms mark their loans, with public Business Development Companies (BDCs) trading at discounts.

• Performance Volatility: Publicly listed BDCs have seen share prices fall sharply.

• Sector-Specific Vulnerabilities: Lending to small SaaS (software as a service) companies is under pressure.

• Rising Costs: High interest rates are making it more expensive for borrowers to service debt, increasing the risk of default.

• Regulatory Scrutiny: The Bank of England is conducting stress tests of major private lenders due to concerns about the lack of transparency in the $3.5 trillion market.

While analysts seem to be suggesting that this is not a full-blown crisis yet, some point out that the sector is navigating a much more challenging environment than in previous years.

In the first quarter of 2026, redemption requests for private credit funds hit a staggering $20.8 billion. Giants like Blackstone, BlackRock, and Blue Owl are being forced to gate their funds, honoring only a fraction of these requests to prevent a total liquidity collapse. When the "shadow banking" sector starts hitting its quarterly caps, it should be taken as a systemic red flag that the "soft landing" narrative has officially disintegrated.

The Blind Spot

The prevailing narrative on Wall Street seems to be that the Middle East ceasefire is the "all-clear" signal, inflation is a solved problem, and the Q1 earnings resilience proves the U.S. consumer is invincible. The consensus views this week’s 7-day winning streak as the birth of a new bull leg, fueled by the expectation that the Fed will eventually blink and return to a regime of easy money.

This narrative, however, seems dangerously detached from the underlying data. Here is why the herd may be walking toward a cliff:

1. The "Geopolitical Peace" Fallacy

The consensus believes the ceasefire in the Middle East has removed the primary tail risk for 2026. This ignores the delayed-onset inflation already baked into the supply chain. Urea and fertilizer prices haven't retreated with the headlines; they’ve decoupled. By the time the S&P 500 realizes that "peace" didn't lower the cost of food production, the secondary inflationary spike will already be crushing corporate margins.

2. The Liquidity Illusion

Mainstream analysts are pointing to "loose" financial conditions based on the Chicago Fed’s NFCI. What they are missing is the Private Credit "Gating" Crisis. While the public markets look liquid, the $1.7 trillion shadow banking sector is currently experiencing a silent run. When $10 billion in redemptions hit in a single quarter—and firms like Blackstone and Blue Owl have to restrict exits—it is a clear signal that the "structural floor" is actually a ceiling. You cannot have a healthy equity market when the debt markets beneath it are hitting emergency eject buttons.

3. The "Soft Landing" Mirage

The market is currently pricing in a "Goldilocks" scenario where rates stay high enough to kill inflation but low enough to keep the consumer alive. The data says otherwise. With 2-year Treasury yields at 4% (sitting stubbornly above the Effective Federal Funds Rate) the bond market is shouting that the Fed is "behind the curve" in the opposite direction.

Ultimately, the consumer isn't "resilient"; they are exhausted. With mortgage rates hovering over 6% and gasoline prices up significantly from January, the marginal dollar of discretionary spending has vanished. The consensus is buying the "relief," but they are failing to realize that relief is not growth. Investors are currently being lulled into a false sense of security by a concentrated index. While the S&P 500’s surface looks calm, the internal rotation into equal-weighted positions shows that the "AI-and-megacap" shield is finally cracking.

Signals, Noise, and What to Watch

🟢 Signal: Geopolitical Stagflation 2.0

• The Conflict Premium: While a 45-day ceasefire proposal in the US-Iran crisis briefly sparked a relief rally early in the week, the reality remains grim. Tehran has already rejected the terms, insisting on full compensation before reopening the Strait of Hormuz.

• CPI "Stag-Flationary" Print: The March Consumer Price Index (CPI) released on April 10 showed a sharp jump in headline inflation to 3.3% (up from 2.4%), driven by energy prices surging as high as $110 per barrel.

• Economic Resilience vs. Costs: US nonfarm payrolls surprised with 178,000 jobs, but factory input prices have hit their highest levels since 2022, signaling that the inflation "bar" for a Federal Reserve pivot remains prohibitively high.

🔴 Noise: The "Ceasefire" Relief Rallies

• Transient Optimism: Markets saw a 1.6% bump in the S&P 500 early this week on reports that diplomatic channels were opening.

• Low Substance: This rally is largely driven by "geopolitical de-escalation narratives" and short liquidations (over $145M in Bitcoin shorts alone) rather than fundamental shifts. With the Hormuz deadline passing without a deal, this "bullish tilt" is increasingly disconnected from the physical reality of energy supply chains.

⚪ Watching: The Rise of Agentic AI in Core Settlements

• Beyond Chatbots: While the world watches oil, major banks like Goldman Sachs and Lloyds are quietly moving from AI "assistance" to "transactional authority".

• The Shift: These firms are deploying agentic AI—autonomous digital coworkers capable of settling trades and managing fraud investigations independently.

• Market Impact: This shift toward "T+0" settlement and autonomous trading is expected to be a major differentiator in 2026, though it currently remains in the shadow of broader macro volatility.

China's Nuclear iPhone Moment

While U.S. investors are concerned about the trajectory of Fed rates, a shift in the global energy hierarchy may be taking place in China’s Hainan province. China is all set to commercially launching its nuclear future.

What is Happening?

China’s Linglong One (ACP100)—the world’s first commercial land-based Small Modular Reactor (SMR)—is currently in its final "hot functional trials" and is on track for full commercial operation by June 2026.

This is the first reactor of its kind to pass an IAEA safety review, and it has been built in a staggering 58 months. While the U.S. is still mired in regulatory paperwork and project cancellations (like the NuScale collapse), China has successfully industrialized the production of nuclear power.

Furthermore, the Shanghai Institute of Applied Physics recently confirmed a "world-first" scientific breakthrough: successfully converting thorium into uranium in a molten salt reactor. This effectively unlocks an energy source that requires no water for cooling and produces significantly less waste.

What it Means

1. "Western Lead" in High-Tech Energy Being Challenged: The U.S. is now officially 10–15 years behind China in SMR deployment. This is a capability gap that cannot be closed by subsidies alone.

2. Energy Export Hegemony: By having a "proven" and "operational" SMR, China is now aggressively pursuing export agreements with Indonesia, Thailand, Saudi Arabia, and Malaysia. These deals create 60-year dependencies for fuel, maintenance, and geopolitical alignment.

3. The AI Power Solution: SMRs are the "Holy Grail" for the AI boom. Their 125 MWe output perfectly matches the needs of a hyperscale data center. While U.S. data centers struggle with aging grids and "Not In My Backyard" (NIMBY) protests, China is building modular "plug-and-play" power hubs.

What to Watch

• The July 4th Milestone: Watch for the U.S. Department of Energy’s "Reactor Pilot Program" results. They are racing to hit a criticality milestone by July 2026 to show the U.S. is still in the game.

• Thorium Commercialization: If China moves from "experimental" to "commercial" thorium reactors, the global uranium market will face a long-term structural threat.

• Belt & Road Nuclear Deals: Watch for official CNNC export announcements in Q3 2026. This will be the signal that China has successfully commoditized nuclear power.

A Bitcoin Toll on Hormuz?

The ceasefire a large section of the market is celebrating was supposed to clear the Strait of Hormuz. But while the S&P 500 rallies on headlines of peace, the actual plumbing of global oil trade has just undergone a permanent, crypto-fueled mutation.

While many believe that the flow of oil is returning to normal, the reality is very different. Iran is working to effectively institutionalized a $1 per barrel "Bitcoin Toll" for every VLCC transiting the chokepoint. By demanding roughly $2M per tanker in BTC—processed in seconds to bypass Western tracking—Iran hasn't just evaded sanctions; they’ve created a blueprint for the "de-dollarization" of energy.

This is the ultimate contrarian paradox.

While the White House pitches a "Bitcoin Superpower" future for the U.S., our adversaries are already using that same technology to dismantle the dollar's status as the global energy unit. With Iran’s crypto ecosystem hitting $7.8B, we are moving from a world of "free trade" to a world of "digital tolls."

If the U.S. responds by joining this "toll collection" system (a concept already being floated) it signals the official end of the era where the U.S. Navy guaranteed free, dollar-denominated global trade. This isn't just a temporary shipping delay; it is the birth of a sovereign crypto-tax on the world’s most vital commodity.

The Play: Watch for a structural floor in Bitcoin regardless of Fed policy, and prepare for a "permanent" $1–$2 premium on WTI crude that no ceasefire can remove.

The Contrarian Sentiment Gauge

What "American Exceptionalism" Actually Was (And Why It's Ending Now)

This week marks one year since Liberation Day. The anniversary has generated the predictable wave of retrospectives, most of them focused on tariffs, the brief market panic, and the subsequent rebound. What almost none of them are asking is the more uncomfortable question: did Liberation Day expose something that was already broken?

The narrative of American exceptionalism — the idea that U.S. equities deserved a permanent premium over the rest of the world — was the single most consensus trade in global finance for fifteen years. U.S. equities grew from representing 45% of global market capitalization in 2009 to approximately 65% by 2025. Investors who questioned this were wrong for so long that most eventually stopped questioning it. That is precisely the moment to start.

Here is what the exceptionalism story actually was, stripped of mythology: it was the product of three specific, now-expiring tailwinds that had little to do with America being structurally superior and everything to do with America being in the right place at the right time.

• The first tailwind was free money. The extraordinary monetary policy responses to the financial crisis and the COVID-19 pandemic injected trillions of dollars into the economy and kept interest rates near zero for over a decade. Low rates are a supercharger for long-duration growth assets. They make future earnings worth more in today's dollars.

  The Magnificent Seven did not become the most valuable companies in human history because they suddenly got twelve times better at their businesses. They got re-rated upward by a mathematical function of the discount rate. When the Fed finally broke from zero, that tailwind became a headwind. Most portfolios have not yet adjusted to that reality.

• The second tailwind was the AI narrative arriving at exactly the right moment. Just as rate hikes threatened to deflate the mega-cap multiple, the ChatGPT moment injected a new story: these companies were not just dominant today — they were going to own the future. The superior fundamental performance of the S&P 500 over the past fifteen years is entirely attributable to mega-cap technology stocks. The rest of the S&P 500 has not shown particularly impressive fundamental performance, yet is still accorded a premium multiple.

  In other words, American exceptionalism was really Magnificent Seven exceptionalism, and the other 493 companies were along for the ride. That is a much more fragile foundation than the consensus believed.

• The third tailwind was everyone else's weakness. U.S. dominance was bolstered by weaknesses elsewhere.

  • Europe's stagnating population growth,

  • China's overinvestment in housing constraining economic growth,

  • Brexit diminishing the U.K.'s global relevance.

  Capital did not flood into American equities purely because America was exceptional. It flooded in because the alternatives looked worse. That calculus is now shifting in ways that one Liberation Day anniversary article will not capture.

  The same policy actions that supercharged U.S. financial performance since the global financial crisis are now unwinding. The debt-to-GDP ratio sits near its highest level in over sixty years, with interest payments now exceeding national defense spending. The dollar has weakened sharply. And perhaps most importantly, the political infrastructure that made America the default home for global capital — rule of law, institutional predictability, Federal Reserve independence — is now a variable rather than a constant. As one allocator from CNBC put it this week, "U.S. exceptionalism is still intact, but it's no longer automatic."

That last phrase is the most important one for contrarian investors. "No longer automatic" means the premium that global capital paid for U.S. assets (simply because they were U.S. assets) is being repriced. The data confirms it: U.S. stocks are now capturing just $26 of every $100 flowing into global equity funds, down from a peak of $92 in 2022. TradingView That is not a rotation. That is a regime change.

The standard response at this point is to remind you that America still leads in innovation, still holds the world's reserve currency, still houses the most liquid capital markets on earth. All of that is true.

The contrarian point is not that America is finished — it is that you are no longer being paid to wait for excellence that the market has already fully priced in. When everyone owns the same thing for the same reason, the risk is that the premium no longer stands out.

Put This Thesis to Work — Automatically

If the argument made so far resonates, the natural next question is: how do you actually execute a strategy built around adaptive allocation in a fast-rotating market — without watching every tick?

That is exactly what the RSI-Weighted ETFs strategy on Surmount is designed to do.

While most investors are still anchored to static allocations built for a world of U.S. mega-cap dominance, RSI-Weighted ETFs takes a fundamentally different approach. It uses the Relative Strength Index to continuously measure momentum across ETFs — and allocates more capital to whoever is leading, less to whoever is fading. No opinions. No anchoring bias. Just the data.

In a market defined by exactly the kind of rotation described in this piece — where leadership is shifting from U.S. large caps to international markets, real assets, small caps, and value — a rules-based, momentum-sensitive strategy has a structural edge over a static portfolio. It is built to move with the rotation, not react to it after the fact.

This is the practical answer to the trap outlined in Section 4. You do not need to guess which geography wins next quarter. You need a system that automatically tilts toward what is working and away from what is not — across the entire ETF universe.

RSI-Weighted ETFs on Surmount lets you do exactly that, hands-free.

The Dollar Is the Sleeper Story Nobody Is Trading

Ask most investors what drove their returns over the past decade and they will name stocks, sectors, earnings beats, maybe the Fed. Almost none of them will mention the dollar. That is precisely the problem. The dollar is not a passive backdrop to your portfolio — it is an active return driver, and right now it is moving against most U.S.-centric portfolios in ways that the average investor has not begun to account for.

One year after Liberation Day, the conversation has been dominated by tariffs, sector rotation, and the death of the Magnificent Seven trade. All legitimate. But the dollar's slow-motion breakdown (a 13.5% depreciation against the euro, 13.9% against the Swiss franc, and 6.4% against the yen through mid-2025, driven by a mix of persistent structural pressures and new vulnerabilities) is the macro story that quietly compounds everything else.

This is what turns a decent international equity return into a great one. It is what is slowly eroding the real purchasing power of a U.S.-denominated portfolio. And it is what almost nobody is explicitly positioned for.

The Consensus Got the Tariff-Dollar Relationship Completely Backwards

When Liberation Day tariffs landed in April 2025, the near-universal assumption was that a more protectionist America would mean a stronger dollar. Tariffs reduce imports, reduce the supply of dollars flowing abroad, tighten the current account — textbook dollar bullish.

It was clearly wrong:

Historically, the U.S. dollar strengthens when U.S. Treasury yields rise. The reverse happened in April after the White House announced widespread tariffs — the dollar fell sharply even as yields spiked, as pointed out by Charles Schwab. Interestingly enough, tariffs did not make America a more attractive destination for capital. They made it a riskier one. Investors sold dollars because they were reassessing the outlook for the economy, and because President Trump's comments about potentially replacing Fed Chair Powell caused risk aversion to rise, with the U.S. appearing to be the source of the risk.

This is the key insight most investors still haven't absorbed. In a world where capital is mobile and the dollar's strength depends on global confidence in U.S. institutions and growth prospects, aggressive unilateralism is dollar-negative — not dollar-positive.

As a result, the tariffs didn't bring capital home. They sent it elsewhere.

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Where the Capital Is Actually Going — And What's Still Cheap

Since U.S. stocks have fallen to their lowest share of global equity flows since 2020, the question worth asking now is whether the destinations still have room to run — or whether chasing them here is just a different version of the same mistake investors made piling into Nvidia at 40x.

The answer, as usual, depends on where you look.

Europe: The Fiscal Story Is Real, But Unevenly Priced

The headline that drove European equities higher last year was Germany's historic abandonment of its constitutional debt brake. The numbers behind that headline are genuinely significant.

Berlin has committed to €126.7 billion in investment for 2026 — the highest in German history — backed by €174.3 billion in borrowing and a €500 billion Infrastructure and Climate Neutrality Special Fund spread over twelve years. For a country that spent decades lecturing its southern neighbors about fiscal discipline, this is a structural shift (and not just a cyclical one).

The valuation case for European equities relative to U.S. ones remains intact even after a strong run. The STOXX Europe 600 ex-UK Index trades at 14.8 times 2026 consensus earnings — substantially cheaper than the S&P 500's 22.5 times valuation. The gap is wide enough that European stocks can absorb a fair amount of earnings disappointment and still look reasonable against U.S. alternatives.

Morgan Stanley's European equity strategists are forecasting earnings growth of just 3.6% for 2026, dramatically below the bottom-up consensus of 12.7% — a divergence that reflects a familiar European pattern of optimism that gets ground down by execution reality. The fiscal impulse is genuine, but infrastructure spending has tended to underdeliver relative to targets, and bureaucratic delays and skilled labor shortages could slow the pace of spending in 2026.

The smarter play within Europe is not broad index exposure but targeted positioning in the sectors directly in line with where the government spending is actually going — industrials, defense, and materials — rather than betting on a broad macro re-rating that may take years to materialize.

Japan: The Most Underappreciated Structural Story in Developed Markets

If Europe's investment case is about a fiscal awakening, Japan's is about something rarer and more durable: a corporate culture slowly being forced to care about its shareholders. A new revision to Japan's corporate governance code is targeting the $840 billion in cash held by listed companies, with draft rules that would require firms to verify they are using cash effectively. For context, that cash pile has been sitting largely idle for decades — the legacy of Japan's 1990s banking crisis, when hoarding became survival instinct and then simply became habit.

The Tokyo Stock Exchange's pressure campaign on capital efficiency is now moving from compliance exercise to tangible outcomes. Share buybacks, virtually non-existent in Japan 30 years ago, reached more than ¥10 trillion in the fiscal year ending March 2024, while dividends expanded from ¥2 trillion to ¥16 trillion over the same period.

This is not a story about Japan becoming Silicon Valley. It's a story about deeply undervalued industrial and financial companies slowly being compelled to return capital that was always there — capital that Western markets would have distributed years ago.

Morgan Stanley recently predicted that Japan could generate ROE of 13% by 2030 — a forecast that, if realized, could prompt a significant re-rating of Japanese equities. The opportunity is precisely that most Western investors still think of Japan the way it was in 2005 — a graveyard of value traps. The governance reform story gives those value traps an actual exit.

The Part Nobody Is Talking About: Where "Cheap" Actually Means Cheap

The loudest part of the rotation conversation is about Europe and Japan. But in 2025, the Morningstar Global Markets ex-U.S. Index rose 32% in U.S. dollar terms, with the European and Japanese rallies getting the bulk of the credit. The less-discussed destination for capital is the emerging market complex — and specifically the markets that are structurally positioned to benefit from the very forces that are hurting the U.S.: dollar weakness, trade route diversion, and commodity demand from infrastructure buildouts in both Europe and Asia.

Vietnam, Indonesia, and Mexico are emerging as high-growth hotspots in a world where companies are actively diversifying supply chains away from both the U.S. and China. These are not speculative bets. They are the logical downstream beneficiaries of a trade war that redirected manufacturing investment and a weaker dollar that inflates their earnings in U.S. terms. They are also the markets that institutional capital has been slowest to follow — which is typically where the best risk-reward sits.

Overall, Europe is real but partially priced. Japan is the most structurally interesting story in developed markets and still under-owned by most Western portfolios. And the emerging market beneficiaries of de-globalization remain the quietest part of a rotation that most investors are still only half-positioned for.

Why "Diversifying" Into What's Already Moved Is the Wrong Lesson

The irony of every major rotation is that by the time the consensus recognizes it, the easy money is gone. European equities are up sharply. Japan has been re-rated. Emerging market funds are seeing inflows for the first time in years. The financial press is running "Is This the End of American Exceptionalism?" as a cover story — which, historically, is precisely when you stop making that bet aggressively.

The wrong lesson from this moment is to mechanically reduce U.S. exposure and buy an international index fund. That is not contrarian thinking. That is just being late to a trade that institutional money already made in 2025.

The right lesson is more precise: what you are actually selling when you sell "American exceptionalism" is concentration in overvalued, dollar-sensitive, rate-dependent mega-cap growth stocks. That is a specific thing. And the hedge against it does not have to be geographic — it can be structural.

Small caps trading at a nearly 31% discount to their larger peers on a forward P/E basis represent a domestic alternative that benefits from the same forces driving international markets — lower rates, fiscal stimulus, dollar weakness — without requiring a currency bet or exposure to European political risk.

The contrarian position here is not "buy international, sell America." It is "sell the part of America that was never as exceptional as it was priced — and own the part that was always ignored." That is a harder trade to make. It is also the more durable one.

The Fog of Peace

The geopolitical tape is currently a study in contradiction. On the surface, the headline-driven retail crowd is salivating over the prospect of a de-escalation rally. Underneath, the mechanical realities of the conflict suggest we are entering a "thin pause" rather than a terminal settlement.

Major U.S. indexes fell roughly 2% this week, marking a fourth consecutive weekly decline as positive early momentum faded. Investors faced rising bond yields (10-year Treasury at 4.39%), a 5% surge in oil prices on geopolitical fears, and evaporating expectations for Federal Reserve rate cuts, say Manulife John Hancock Investments.

The Failed 15-Point Gambit

The immediate driver of today's selloff is Tehran’s cold rejection of the U.S.-proposed 15-point ceasefire plan. Iran isn't just seeking a pause; they are insisting on dictating the terms and timing of the war’s conclusion. Specifically, they are demanding recognition of Iranian sovereignty over the Strait of Hormuz—a non-starter for global trade stability.

Escalation Under the Guise of Diplomacy

While the White House press corps discusses "pressure tactics," the Pentagon is moving the heavy steel. The U.S. is currently deploying several thousand troops from the 82nd Airborne Division to the Middle East. White House Press Secretary Karoline Leavitt has been explicit: if Tehran does not accept its military defeat, the U.S. will "hit harder."

The "Thin Pause" Theory

History rhymes, and right now it’s singing a song of tactical delays. We are likely looking at a "hollow" ceasefire agreement in the coming days. Why? Because a broad settlement is too "expensive" for both sides. It requires irreversible concessions on:

• Nuclear enrichment and ballistic programs.

• Proxy group funding (Hezbollah/Lebanon).

• The Strait of Hormuz, where Iran currently holds the upper hand.

A ceasefire here isn't a resolution; it’s a way for both parties to keep their chips on the table while they reposition for the next move. For the unsuspecting investor, this "peace" is a mirage—a temporary relief valve that sets the stage for a massive bull trap.

The Missing Piece: Engineering Your Defense

The data is clear: we are entering a regime where "buying the dip" is no longer a strategy—it’s a liability. When the options market is stacked with April 17 puts and the 82nd Airborne is on the move, manual trading becomes a game of emotional chicken.

To survive the "Ceasefire Mirage," you need a system that doesn't blink.

Introducing: AlphaFactory Protective

Surmount’s AlphaFactory Protective strategy is designed specifically for this brand of macro instability. It doesn't just pick stocks; it engineers a defensive perimeter around your capital using three distinct layers of automation:

• The Volatility Kill-Switch: The strategy monitors SPY realized volatility in real-time. When the market crosses into "High Volatility" territory (like the current pre-market tape), it automatically scales out of equities.

• The "Gold" Standard: In moderate-to-high stress environments, the algorithm dynamically reallocates into GLD (Gold ETF), providing a hard-asset hedge while the S&P 500 tests the 615 support level.

• High-IQ Momentum & Value: Even when it's in the market, it isn't guessing. It filters for the top 10 NASDAQ/NYSE titans based on a standardized Z-Score of 12-month momentum and negative PEG ratios. It only buys the strongest, most undervalued leaders.

Why Deploy Now?

If our thesis is correct and we see a brief ceasefire rally followed by a double-digit selloff, the human brain will struggle to sell the top. AlphaFactory Protective won't. It is programmed to identify the volatility spike and rotate you into safety before the "trap" snaps shut.

Stop trading the headlines. Start trading the math.

April 17: An Approaching Liquidation Event

While the mainstream financial media focuses on the diplomatic theater in D.C., the tape tells a much grimmer story. If you believe the market is optimistic about a long-term resolution, you aren't looking at the options chain.

We are seeing a massive divergence between retail "dip-buying" sentiment and institutional positioning. Here is the breakdown of the data suggesting that the floor is much lower than the "bulls" realize.

The April 17 "Put Wall"

The April 17, 2026 put options are drawing significant attention due to heavy institutional hedging and specific high-volume clusters in major ETFs and tech stocks. Large-scale traders are using April 17 puts to build "protection zones" for recent gains, particularly in AI-related stocks.

• ARM Holdings (ARM): Despite bullish retail sentiment, the Put/Call Open Interest Ratio has spiked to 1.52, higher than 99% of readings from the past year.

• Floor Identification: Heaviest put concentration is at the $125 and $130 strikes, signaling where "Big Money" expects major structural support.

• NVIDIA (NVDA): Significant put open interest (over 529,000 contracts) is anchored around the 175.00 Max Pain level, suggesting market makers may attempt to pin the price near this strike to minimize payout

The concentration of open interest for the April 17 expiration is staggering. When we look at the SPY contracts currently held, we aren't seeing a balanced market.

• Zero Call Interest: In the top-tier open interest tables, call options are virtually non-existent.

• Deep OTM Positioning: The heaviest volume is concentrated in Puts with strikes between 525 and 540.

• The Signal: Investors seem to be betting on a massive spike in implied volatility following a sudden, sharp drop in the SPY. They aren't preparing for a soft landing; they are bracing for a liquidation event.

The "Canary" in the Small Caps

The selloff is no longer contained to overvalued tech. The Russell 2000 (RTY) has plummeted 6.2% over the last month, significantly underperforming the S&P 500, and breaking away from a critical support level.

This indicates that the "Great Rotation" is shifting from growth not into value, but into risk-off cash equivalents.

The Yield Trap

The bond market is already screaming that the "inflationary war" is winning:

• US2Y Spike: The 2-Year Bond yield has surged to 3.98%, up from 3.39% at the start of March.

• CPI Nowcast: The Cleveland Fed’s latest data suggests a sharp rise in March CPI of 3.16% YOY, a massive jump from February's 2.4%.

Ultimately, the market is pricing in a "higher-for-longer" reality driven by energy spikes. With the SPY trading volume still well below historical "capitulation" levels (160M vs. the 250M seen in previous corrections), we haven't seen the bottom.

Any rally triggered by a ceasefire headline will be fighting against a tide of rising yields and a massive wall of protective puts. This is a technical setup for a gamma squeeze to the downside once the initial "peace" euphoria fades.

The Kharg Island Gambit

The mainstream media is hyper-fixated on the 15-point ceasefire plan as a binary "war or peace" event. This is a fundamental misunderstanding of the leverage at play. The "thin pause" we are likely to see is not a resolution of conflict, but a tactical recalibration centered on a single, high-stakes geographic coordinate: Kharg Island.

The Sovereignty Wall

While negotiators argue over uranium enrichment levels and ballistic missile ranges—items where compromise is mathematically possible—the real friction point is sovereignty over the Strait of Hormuz. Tehran currently views the Strait as its primary geopolitical lung; they want formal recognition of their control. Washington cannot grant this without surrendering global maritime hegemony. This is an ideological and strategic stalemate that no 15-point document can resolve.

Currently, Iran holds the upper hand in the Strait of Hormuz, capable of choking global energy flows at will. To level the playing field, the U.S. requires a physical bargaining chip.

• Kharg Island handles approximately 90% of Iran’s crude oil exports.

• One shouldn’t rule out a "boots on the ground" scenario specifically targeting this terminal. Occupying or neutralizing Kharg Island would strip Tehran of its economic leverage and force a lopsided settlement.

Why the Rally may be a Mirage

If a ceasefire is announced today or tomorrow, the market will celebrate the absence of immediate explosions. However, the underlying "Cost of Opportunity" remains too high for a broad settlement.

Any agreement reached this week will likely ignore the Kharg Island and Hormuz tensions to achieve a "headline win." Because the core problem—control of the world’s most vital oil artery—remains unsolved, the ceasefire is merely a countdown to the next escalation.

Investors buying the "peace" are effectively betting that both sides will walk away from their most valuable strategic assets. History (and the current troop movements of the 82nd Airborne) suggests otherwise.

The Contrarian Play: Fading the Bounce

The retail crowd is currently scanning the horizon for a "bottom," but they are looking at the wrong map. The historical precedent for "thin pauses" in high-stakes geopolitical conflicts suggests that the initial relief rally is almost always the most expensive entry point for long-term investors.

Here is how we suggest playing the Ceasefire Mirage:

The 650 Support Strategy

The SPY 650 level is the critical psychological floor. While we expect a technical bounce here once the ceasefire headline hits the wires, we view this move as a liquidity event for sellers, not a foundation for bulls.

• Use the inevitable "Green Day" following the announcement to trim exposure to high-beta software and laggard small caps (RTY).

• You are essentially selling the rumor of peace to those who haven't noticed the 3.94% yield on the 2-year note.

The Asymmetric "Headline Scalp"

For those with a high risk tolerance, there is a tactical window to play the bounce without marrying the position.

• Look for small, speculative Out-of-the-Money (OTM) Calls on the SPY if we close in the red today.

• This is a 48-hour trade. The goal is to capture the "Ceasefire!" notification pop and exit before the market realizes the Strait of Hormuz remains a contested dead zone.

The "Volatility Reload"

As the rally peaks and the news cycle shifts from "Peace" to "Unresolved Sovereignty," implied volatility (IV) will likely crush. This is the "trap" within the trap.

• The Contrarian Play: Instead of chasing the rally, buy Long-Dated Volatility (VIX) or April 17 Puts at the height of the ceasefire euphoria.

• When the "boots on the ground" reality at Kharg Island or the failure of the 15-point plan resurfaces, the market won't just drift—it will gap down.

Ultimately, in a macro environment defined by "higher-for-longer" inflation and paratroopers in the Middle East, the first bounce is a gift from the market. We aren't buying the dip; we are fading the euphoria. Don’t let a 48-hour headline distract you from the 300-billion-dollar "SaaSpocalypse" reality.

March 20, 2025

Why $120 Oil is the AI Killer

The AI proliferation boom has had an incredible run in recent years. Since the "AI big bang" triggered by the launch of ChatGPT in November 2022, the sector has transitioned from a niche computational discipline into a multi-trillion-dollar general-purpose technology. This is apparent in the sustained boom seen in the number of data centers across the globe:

These dynamics have led to unrestrained optimism by many towards the financial potential of AI, fueling a "valuation-at-all-costs" mentality. While many have called out the clear indications of a massive bubble, the focus has largely remained on software saturation or the "diminishing returns" of larger models. But bubbles don't always pop from internal pressure; often, they are punctured by a sharp, external reality.

Enter 2026, and the military conflict with Iran.

With the Strait of Hormuz essentially choked and no clear timeline for a de-escalation, the "infinite growth" narrative of Silicon Valley has collided head-first with the cold, hard physics geopolitics and war.

For three years, the market treated AI as a pure software play—a realm of ethereal bits and soaring valuations existing somewhere "in the cloud." But the cloud has a physical address, and it runs on a massive, unrelenting diet of electricity.

The current blockade has sent Brent Crude screaming toward $120 a barrel, dragging global LNG prices along with it. This isn't just a headache for commuters; it is a systemic shock to the AI "tax"—the foundational cost required to train, power, and cool the world’s most advanced neural networks.

The Energy Dynamics Have Violently Been Shaken

The AI proliferation boom was built on the back of underpriced energy. When power was cheap, "efficiency" was a secondary concern to "scale." Investors rewarded companies for building larger models with higher parameter counts, rarely questioning the $0.05 per kWh power assumptions baked into their margins.

Today, that math is broken. With the Strait closed, the energy required to run a single high-end inference cluster has effectively doubled in cost. We are witnessing the "Digital-Physical Paradox":

• The Digital: AI capabilities continue to move at exponential speeds.

• The Physical: The infrastructure supporting that movement is tethered to a 21-mile-wide maritime chokepoint.

The AI bubble risks facing a pop, when the cost of operation exceeds the value of the output.

As the "AI tax" rises alongside oil prices, the ROI on enterprise AI projects is evaporating. If the fuel for the Fourth Industrial Revolution becomes a luxury good, the multi-trillion-dollar valuations of the "Magnificent Seven" aren't just overstretched—they are fundamentally unsustainable in a high-energy-cost environment. The Strait of Hormuz isn't just a shipping lane; it is the oxygen supply for the global data center economy. And right now, the world is holding its breath.

The Tactical Pivot: Introducing the "GLD-Tech Rotation" Strategy

If you’ve followed our research, you know that the traditional 60/40 portfolio is ill-equipped for a world where a single shipping lane can vaporize a trillion dollars in tech market cap.

As we stare down the barrel of a $120 oil reality, the question isn't whether to "buy the dip" in tech—it’s how to rotate before the floor falls out. That is why I am currently highlighting a specific automated framework for this high-volatility regime: The GLD-Tech Rotation.

Why This Strategy? Why Now?

In a "Hormuz Shock" environment, the market splits into two camps: the Digital Growth (TQQQ), which is currently being strangled by energy costs, and the Physical Safety (GLD), which serves as the ultimate hedge against geopolitical chaos and fiat instability.

The GLD-Tech Rotation doesn’t ask you to guess which one will win today. It uses a sophisticated algorithmic approach to do the heavy lifting for you:

• Momentum Capture: The strategy runs a daily rebalance, programmatically shifting weight into the relative outperformer. When tech is rallying on AI hype, it rides the TQQQ wave; the moment the "Hormuz Pin" pricks that bubble, the algorithm rotates your capital into GLD.

• The Volatility Kill-Switch: Unlike "dumb" buy-and-hold strategies, this uses Bollinger Band logic. If prices drift more than 1.5 standard deviations from the 20-day average—signaling an "extreme" move or a potential crash—the strategy automatically de-risks, moving 50% of your capital to the sidelines to preserve your principal.

• Built for the "Barbell" Economy: It perfectly mirrors my "Strategic Barbell" thesis—balancing high-octane tech upside with the unshakeable floor of physical gold.

Don't wait for the supply chain to snap. You can deploy this automated logic directly to your brokerage via Surmount and let the math handle the madness.

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Data Centers vs. The Grid

According to the International Energy Agency, AI’s electricity needs are expected to reach as high as 1050 TeraWatts by the end of this year, which is roughly equivalent to the annual electricity needs of a country like Japan.

Prior to the conflict erupting in the Middle East, the market hardly ever considered energy as a critical constraint; it was treated as an infinite, low-cost utility. But in 2026, the "compute-at-any-cost" era has hit a physical wall.

The "Margin Shredder": $120 Oil and the AI Cloud

While the front end of a chatbot looks clean, the back end is a sprawling complex of cooling fans, backup generators, and high-voltage transformers.

With the Strait of Hormuz currently offline, global energy markets are in a state of "forced rationing." For hyperscalers like Microsoft, Google, and AWS, the impact is two-fold:

• Operating Expenditure (OpEx) Explosion: Data centers that relied on natural gas or oil-backed grids are seeing their power bills double. When electricity costs represent up to 40% of a data center’s total overhead, a spike in global energy prices acts as a direct tax on AI margins.

• The Cooling Crisis: It’s not just about powering the chips; it’s about cooling them. As ambient temperatures rise and energy for HVAC systems becomes a luxury, the "Price per Inference" for models like GPT-5 or Gemini 2 is skyrocketing, forcing providers to choose between eating the losses or pricing out their enterprise customers.

Ultimately, the conflict in the Gulf has exposed the fragility of the "Global Grid." Most AI hubs were built on the assumption of a stable, fossil-fuel-subsidized energy transition. Now, as governments prioritize residential heating and essential services over "digital vanity projects," AI companies are facing a grim reality: Grid Curtailment.

In the current 2026 macro environment, we are seeing the first instances of "Compute Blackouts"—where data centers are forced to throttle capacity during peak hours to stabilize national grids. For an industry valued on the premise of 24/7, exponential growth, these physical limitations are the ultimate "valuation killers."

The "Energy-Efficiency" Trap

Investors who bought into AI at 50x earnings assumed that hardware efficiency (the move from H100s to Blackwell and beyond) would outpace energy costs. They were wrong. The Jevons Paradox suggests that as AI becomes more efficient, we simply use more of it—leading to even higher total energy demand. With the Strait closed, we no longer have the luxury of "using more."

The market is beginning to realize that if you can't fuel the GPUs, the trillions of dollars spent on the chips themselves become "stranded assets." The AI bubble has revealed itself as an energy-dependent ecosystem that could hit a wall.

Shifting From "Expansion" to "Efficiency"

If a company’s path to profitability depends on sub-5-cent kilowatt-hours and a seamless Asian supply chain, their business model is no longer viable in a de-globalized, energy-starved world.

In the post-mortem of this bubble, the "winners" won't be the companies with the most parameters, but those with the highest Energy-to-Inference efficiency.

• The Hyperscaler Pivot: Watch for a brutal sell-off in firms that cannot pass energy surcharges onto their customers.

• The Rise of Edge AI: As centralized data centers become "cost-prohibitive" due to grid strain, the value shifts toward decentralized, low-power hardware that doesn't rely on a massive, oil-dependent cooling infrastructure.

  

Is Your Portfolio "Energy-Blind"?

The Strait of Hormuz conflict has exposed a massive blind spot in tech investing: the "Cloud" is actually a series of massive, power-hungry buildings tethered to the most volatile shipping lane on Earth. The crash we are witnessing isn't a failure of AI's potential; it’s a market correction for an industry that ignored its own physical foundations.

The question for your portfolio isn't whether AI is the future—it is. The question is whether the companies you own can survive a future where the "fuel" for that intelligence is no longer guaranteed. In 2026, efficiency is the only alpha.

This Week’s Takeaways

• The End of "Infinite" Scale: The effective closure of the Strait of Hormuz has proved that AI’s growth isn't limited by code, but by the physical reality of $110+ Brent crude hitting data center margins.

• The "Yuan-for-Oil" Pivot: Iran’s new "selective blockade"—allowing transit only for yuan-settled trades—is a direct attack on the petrodollar that could permanently rewire how global tech giants finance their energy needs.

• The Hardware Freeze: With Qatar’s helium and Gulf energy restricted, South Korea’s DRAM and NAND production is now on a "ticking clock," turning a software boom into a hardware drought.

• Sentiment Rotation: Investor focus has violently shifted from "AI Potential" to "AI ROI," as surging power costs make high-expenditure models look like liabilities rather than assets.

• The New Alpha: In a world of expensive energy, the market’s new winners won't be the companies with the largest LLMs, but those with the most radical power efficiency and sovereign energy supply chains.

March 13, 2025

Inflation Update: What the Latest CPI Data Tells Us

Earlier this week, the Bureau of Labor Statistics (BLS) released the Consumer Price Index (CPI) report for February 2026, revealing that inflationary pressures remain persistent. On a seasonally adjusted basis, headline CPI increased by 0.3% in February, following a 0.2% rise in January. Over the 12 months ending in February, the "all items" index rose 2.4%, matching the year-over-year figure reported for January.

"Core" inflation—the measure excluding volatile food and energy components—also tells a story of stickiness. Core CPI rose 0.2% on a monthly basis in February and sits at 2.5% over the last 12 months, mirroring the previous month’s reading. Shelter costs, which remain a primary driver of the index, rose 0.2% for the month, while energy costs edged up 0.6% as gasoline and natural gas prices experienced upward pressure.

Why the 2% Goal Feels Distant

While the current rates represent a significant cooling from the highs of recent years, progress toward the Federal Reserve’s 2% inflation target has clearly plateaued. The persistence in core services, combined with renewed volatility in energy markets, suggests that the "last mile" of disinflation is proving to be the most difficult.

CPI vs. PCE: Why the Fed Looks Elsewhere

It is important for investors to distinguish between the CPI and the Personal Consumption Expenditures (PCE) price index. While the CPI often grabs the headlines and is used for cost-of-living adjustments (like Social Security), the Federal Reserve prioritizes the PCE.

The two indices differ in several key ways that can impact how policymakers view the economy:

• Scope: CPI tracks only out-of-pocket expenditures by urban households. The PCE is more comprehensive, capturing all spending on behalf of households, including third-party payments like employer-provided health insurance or government-funded programs like Medicare.

• Weighting: The PCE index is more dynamic; it updates its basket of goods more frequently to account for "substitution effects"—the tendency of consumers to switch to cheaper alternatives when prices rise.

• Formula: Because the PCE better accounts for these changes in consumer behavior, it generally tends to provide a slightly lower, and often more stable, reading of inflation than the CPI.

Understanding these differences is crucial: even if CPI data remains "sticky" at 2.4%–2.5%, the Fed will be watching the PCE data closely to determine if the underlying trend is actually closer to their 2% mandate.

The Geopolitical and Energy Angle

While we do see a cooling trend in the February CPI data, it is important to keep in mind that this serves as a "rearview mirror." The most significant challenge to the inflation outlook is currently unfolding in real-time, far from the consumer goods aisles: the escalating conflict in the Middle East.

The Energy Chokepoint

The current US-Israel military standoff against Iran has effectively paralyzed the Strait of Hormuz. This narrow waterway is perhaps the most critical energy chokepoint in the world, carrying roughly 20% of global oil and liquefied natural gas (LNG) consumption. As shippers suspend operations and regional infrastructure faces threats of damage, the global supply chain is experiencing a sudden, major supply shock. This physical disruption has created the largest oil supply shock in modern history, with major producers in the Gulf region forced to curtail output significantly.

To make matters worse, maritime insurers have responded with extraordinary swiftness, effectively pricing the Strait of Hormuz out of the global shipping market. As conflict persists, underwriters in the London market and beyond have moved from simple premium hikes to outright cancellation notices for "war risk" coverage.

For a standard Very Large Crude Carrier (VLCC) valued at $100 million, war-risk premiums—which typically hovered between 0.1% and 0.25% of the vessel’s value—have spiked to as high as 1.0% for a single transit. This converts a manageable operational cost into a prohibitive capital expenditure, adding over $1 million to the cost of a single voyage. When insurers cannot provide price certainty or refuse to quote altogether, shipping firms are left with no choice but to ground their fleets or reroute around the Cape of Good Hope, adding weeks to transit times and further tightening an already constricted global supply chain.

Impacts on Consumer Prices

The market’s response to these severe supply chain stresses have been severe, with Brent Crude prices surging close to the $100 per barrel mark in recent sessions—a level not seen since 2022.

Because energy costs are a foundational input for almost every sector of the economy, this shock transmits through three primary channels:

1. Direct Consumer Costs: The most immediate effect is at the pump and on household utility bills. Gasoline, heating oil, and electricity costs are highly sensitive to crude price fluctuations.

2. Transportation and Logistics: As maritime routes are blocked or forced to detour around the Cape of Good Hope, freight and shipping costs have spiked. This creates a "second-round" effect, where the cost of moving goods—from perishables to industrial components—rises, inevitably being passed on to the consumer.

3. Production and Feedstock: Energy is a core raw material for chemical, plastic, and manufacturing industries. Higher energy input costs increase the cost of production, forcing companies to either absorb lower margins or hike final product prices to maintain profitability.

The "Sticky" Inflation Trap

Economists are particularly concerned because this is a supply-side shock. Unlike demand-driven inflation, which the Federal Reserve can dampen by raising interest rates to cool consumer spending, the Fed has very limited tools to address a shortage of oil.

If this disruption remains sustained, it threatens to reverse the progress made toward the 2% target. Current forecasts suggest that if oil prices settle consistently in the $100 per barrel range, headline inflation could be pushed back above 3.5% through the remainder of 2026.

For investors and households, energy markets have shifted from a background consideration to the single most critical variable that could determine the trajectory of inflation, interest rates, and overall market volatility in the coming months.

What This Means for Markets and Monetary Policy

The convergence of sticky core inflation and a sudden, supply-side energy shock has placed the Federal Reserve in a precarious position. For investors, the "pivot" narrative that dominated market optimism at the start of the year is rapidly being replaced by a more sober reality: the higher-for-longer regime may be back on the table.

The Federal Reserve’s Dilemma

The Federal Open Market Committee (FOMC) operates under a dual mandate: maximum employment and price stability. Usually, these goals can be balanced, but energy shocks create a "stagflationary" trap.

• The Price Stability Problem: Because this is a supply-side shock, raising interest rates cannot create more oil or lower the price of shipping. However, the Fed remains terrified of letting inflation expectations "de-anchor." If businesses and consumers begin to expect that 3% inflation is the new normal, it becomes self-fulfilling.

• The Policy Response: Markets have drastically repriced their expectations, now anticipating fewer (or even zero) rate cuts for the remainder of 2026. The Fed is likely to maintain the current federal funds rate in the 3.50%–3.75% range to ensure inflation does not spiral. Should oil prices sustain levels above $110/barrel, the risk of a "hawkish surprise"—where the Fed signals that future rate hikes are not entirely off the table—grows.

Market Volatility and Investor Positioning

Equity markets, which had rallied on the assumption of a smooth "soft landing" and consistent rate cuts, are now entering a period of increased sensitivity.

• Valuation Compression: Higher interest rates raise the "discount rate" used to value future earnings. In an environment where the Fed is sidelined, high-growth stocks, particularly in the tech sector, may face pressure as investors demand higher risk premiums.

• The "K-Shaped" Economy: We are seeing a divergence in how companies handle this environment. Larger, capital-rich corporations may be able to absorb higher energy costs through operational efficiency or pricing power. Smaller businesses, however, are facing a squeeze on margins that could lead to volatility in the broader market.

  

It seems evident that the current landscape rewards a "barbell" strategy: maintaining exposure to high-quality companies with strong balance sheets that can navigate high input costs, while holding cash or short-term fixed income instruments that benefit from the current high-yield environment.

Strategy Spotlight: The SP10

In today’s market, we are witnessing a profound K-shaped recovery. While certain sectors—driven by AI, digital transformation, and high-end consumer spending—soar, other parts of the economy continue to grapple with persistent inflation and the weight of restrictive interest rates.

This bifurcation isn't just a headline—it's a fundamental shift in how capital is being rewarded. In an environment where the "haves" are pulling away from the "have-nots," betting on the broader market indices—which are dragged down by struggling, debt-heavy firms—may be a recipe for stagnation.

Why Concentration is Your Best Defense

When the economic path is uncertain, you don't want broad exposure to mediocrity; you want surgical exposure to dominance.

Surmount’s SP10 Strategy is designed for this exact environment:

• Stellar Balance Sheets: By focusing exclusively on the ten largest companies in the S&P 500, we prioritize firms with immense cash reserves and low reliance on volatile, high-cost debt. These are the companies that don't just survive during credit crunches—they thrive, using their liquidity to acquire competitors and invest in future growth while others scramble for survival.

• Economic Moats: These are not just stocks; they are the infrastructure of the global economy. From the tech platforms powering modern communication to the consumer giants that define discretionary spending, these leaders possess the pricing power to protect their margins even when inflationary pressures mount.

• Institutional Liquidity: In times of market panic, liquidity is king. Our strategy ensures you are positioned in the most widely traded, liquid assets on the planet, allowing you to react with precision as market conditions evolve.

We aren't looking to "beat the market" by picking speculative long shots. We are betting on the market's most powerful drivers.

We maintain a disciplined, quarterly rebalancing protocol that strips out emotion. If a company drops out of the top ten, it is removed. If a new titan emerges, it is added. This ensures your capital is perpetually concentrated in the ten most influential, profit-generating forces in the U.S. economy.

Stop settling for average returns in an economy that is anything but average.

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This Week’s Takeaways

• February CPI rose 0.3% monthly and 2.4% annually, with core inflation steady at 2.5%, showing persistent price pressures.

• Shelter and energy costs drove stickiness, making the Fed’s 2% inflation target seem increasingly distant.

• CPI differs from the Fed-preferred PCE, which captures broader spending and often shows slightly lower inflation trends.

• Middle East tensions disrupted the Strait of Hormuz, triggering the largest modern oil supply shock and surging energy costs.

• Supply-driven inflation limits the Fed’s tools, pressuring markets, sustaining high rates, and favoring resilient, capital-rich companies.

March 3, 2025

The "Volatility vs. Value" Trap

The markets have become a white-knuckle ride lately. We are seeing intraday swings that would have been considered "extreme" just a few years ago, with algorithmic high-frequency trading amplifying every headline out of the Middle East.

The CBOE Volatility Index (VIX) surged by nearly 10% this week to 23.75, its highest level in several months.

Moreover, according to the CNN Greed & Fear index, has dragged down to 37.66, placing us right on the verge of the "Extreme Fear" territory.

For the average retail investor, this is the siren song of disaster. The combination of a high VIX and falling sentiment is the classic recipe for a "sell everything" panic. But for the contrarian, this represents the Volatility vs. Value Trap.

The Trap: Conflating "Noise" with "Risk"

The trap is simple: the market is currently pricing in a "worst-case" geopolitical collapse, but it is doing so by indiscriminately dumping assets. Investors are acting as if high short-term volatility—the rapid, jagged movement of price lines on a screen—is synonymous with permanent risk—the actual destruction of a company's ability to generate cash flow. This much seems evident with the selloff seen in US bonds and US equities:

When the market enters this state of "Extreme Fear," it abandons fundamental analysis in favor of psychological survival. Algorithmic traders, programmed to reduce exposure the moment volatility crosses a certain threshold, act as the primary engine for this downward spiral. They aren't looking at balance sheets; they are looking at standard deviations.

For the contrarian, the opportunity lies in the gap between Price and Value.

• Price is what the market is shouting at you through your terminal right now: a reflection of fear, liquidity requirements, and margin calls.

• Value is the discounted cash flow of a business—the reality of its assets, its competitive moat, and its ability to service debt and return capital to shareholders.

The "trap" is assuming that because the price has dropped 10% in a week, the value of the underlying businesses has somehow evaporated by an equal margin. In reality, while the world feels more dangerous today than it did last month, the fundamental earnings power of the S&P 500’s top-tier companies remains largely unchanged.

The Myth of the "Systemic Domino"

The prevailing bear case in the current market environment is one of catastrophic contagion: a regional conflict in the Middle East that acts as a "black swan" event, triggering a total collapse of global supply chains—specifically regarding energy transit and shipping bottlenecks. The oil price surge to $80 and above is being interpreted by many as the opening salvo of a structural economic breakdown.

However, this "systemic domino" narrative relies on a static view of global markets that ignores the fundamental mechanics of resilience.

The Resilience of Self-Interest

The primary flaw in the "domino" theory is the assumption that the global economy is a brittle, monolithic structure. In reality, it is a complex, decentralized network driven by intense self-interest. When supply routes like the Strait of Hormuz face pressure, market actors do not simply watch the collapse; they aggressively re-route, substitute, and innovate.

History shows us that price spikes are rarely the start of an endless, terminal decline. Instead, they function as powerful signals. High energy prices provide the immediate economic incentive for:

• Logistical Adaptation: Shipping firms and insurers rapidly adjust, creating "shadow" routes, utilizing alternative pipelines, and increasing the deployment of strategic buffers.

• Demand Destruction: As costs rise, industrial demand for energy fluctuates, naturally tempering the extreme price peaks that models predict will last "forever."

• Strategic Hedging: Governments and private entities holding strategic reserves (which are far more robust now than in the 1970s) act as shock absorbers, preventing the localized physical scarcity that dominates the bear case.

The "Geopolitical Discount" in Indiscriminate Selling

Two markets in particular have become the poster children for the current "panic-first, ask-questions-later" mentality gripping global investors: South Korea and Dubai.

In both regions, the selling has been violent, indiscriminate, and—for the contrarian—deeply revealing. When you see double-digit percentage drops in days, you aren't looking at a fundamental reassessment of corporate value; you are watching a liquidity-driven exodus. This is the definition of "throwing the baby out with the bathwater."

South Korea: The "Energy Proxy" Fallacy

South Korea’s KOSPI index recently suffered its largest single-day decline in history, triggered by fears that a regional conflict in the Middle East would choke off the energy imports necessary for its massive manufacturing base.

The market apparently sold off because Korea is an energy-importing nation. If oil prices spike, the math for Korean tech giants like Samsung and SK Hynix—which are energy-intensive—gets harder.

However, this looks eerily familiar to the classic mispricing of long-term earnings power versus short-term macro headwinds. The sell-off was exacerbated by massive margin calls and retail liquidation, not by a sudden decline in the demand for AI chips or memory modules.

The reality is that the structural tailwinds for Korean tech—the AI infrastructure cycle—have not changed. By selling Samsung and SK Hynix down by 10–20% in a few days, the market is pricing these companies as if the demand for their core products has evaporated. It hasn't. The "Korea discount" didn't just widen; it became a chasm of irrational fear.

Dubai: Pricing for Apocalypse

Dubai, often viewed as the "safe" financial hub of the Middle East, saw its markets plummet as geopolitical tensions escalated, following a range of bullish years. The logic was simple: if there is a conflict in the Gulf, proximity equals risk.

Judging by news chatter, investors may be assuming that any instability near the Strait of Hormuz effectively disqualifies Dubai as a stable place to hold capital or real estate.

However, this ignores the resilience that Dubai has built over the last decade. It has transformed into a global, diversified hub that is no longer merely a local actor. The sell-off treats the Dubai financial market as if it were a direct combatant, ignoring its role as a global transit, tourism, and business center.

When a market drops indiscriminately because of "headline risk," you are being handed an entry point into assets that have matured far beyond their regional geography. The "bathwater" here is the temporary fear; the "baby" is a resilient, globalized economy that has proven, time and again, to be the most adaptive survivor in the region.

Strategy Spotlight: Investing in UAE

When markets lose their composure, the smart money stops guessing and starts building. If you agree that the current sell-off in the UAE is a classic case of indiscriminate panic, the next logical question isn't "Should I buy?" but "How do I capture this efficiently?"

In times of extreme volatility, human emotion—the very thing that caused the panic—is your biggest enemy. You need a strategy that bypasses the noise.

That is why Surmount’s Investing in UAE strategy is so ideal to lock onto, as an automated approach designed to remove the friction and emotional baggage of regional investing.

It provides all of the following:

• Targeted Resilience: Rather than betting on broad, headline-sensitive indices, Surmount focuses on the structural growth of the UAE’s core sectors. It provides exposure to established local equities that are building the region’s non-oil future—sectors like logistics, finance, and digital infrastructure that are currently being unfairly discounted by global sentiment.

• The Power of Automation: By utilizing a disciplined, algorithmically driven entry approach, Surmount eliminates the impulse to "wait for the perfect moment." It allows you to build a position in high-potential, long-term winners at lower cost bases while the rest of the market is still catching its breath.

• Diversification Without the Headache: Investing in foreign markets can feel like an administrative and analytical burden. Surmount automates the heavy lifting, ensuring your portfolio maintains optimal exposure to regional growth while maintaining a focus on risk management.

The "worst-case" narrative has already done its damage to these valuations. If you believe, as we do, that the UAE’s path toward a diversified, globalized economy is the true story, you don't need a crystal ball—you just need a better system for executing on that conviction.

This Week’s Takeaways

• High short-term market volatility is not the same as a permanent impairment of a company's ability to generate cash flow.

• Market panics often create a "Volatility vs. Value" trap where assets are sold indiscriminately, ignoring the fundamental earnings power of the underlying business.

• The global economy is a complex, adaptive network driven by self-interest, not a brittle structure destined to collapse at the first sign of geopolitical friction.

• Violent, headline-driven sell-offs in specific regions—like South Korea or Dubai—often result in "throwing the baby out with the bathwater" by ignoring long-term structural tailwinds.

• When emotions drive market panic, using disciplined, automated approaches helps you bypass psychological traps and capitalize on temporary mispricings.

February 27, 2025

Broader Tech Remains Vulnerable

The technology sector experienced a significant correction this week, driven by intensifying fears of AI-led disruption and new macroeconomic pressures coming from tariff uncertainty. Similarly, the Nasdaq Composite had climbed approximately 1.5% this week, following a volatile month.

IBM in particular turned out to be the "canary in the coal mine" for legacy tech this week, with its stock price experiencing its worst single-day crash in 25 years, after new AI tools from Anthropic demonstrated the ability to modernize legacy code faster and cheaper than traditional consultants, threatening a core revenue stream for major IT services firms.

Similarly, the Software as a Service (SaaS) sector has been hit particularly hard, with the iShares Expanded Tech-Software Sector ETF (IGV) down 27% since the start of the year—the steepest quarterly loss since the 2008 financial crisis.

According to Bloomberg, analysts point out that this isn’t just a short-term hiccup. The confluence of stretched valuations, macro uncertainty, and concentrated hype suggests that the tech sector may remain under pressure for weeks, if not months.

Where Smart Capital Is Rotating

Considering the fact that the wider software sector is facing what looks like a historic collapse, the S&P 500’s resilience is quite noticeably remarkable. The broader index remains essentially flat, despite nearly $1 trillion being wiped off from SaaS companies.

The index’s ability to hold steady despite these losses is primarily due to a sharp sector rotation into "Real Economy" industries and semiconductor winners like Nvidia, which have offset the steep declines in legacy SaaS giants.

This rotation represents a structural shift from "Code to Concrete"—a movement of capital away from high-margin software-as-a-service (SaaS) and into physical infrastructure, industrial manufacturing, and commodity-linked sectors.

This is understandable, considering that investors are favoring sectors that provide the physical backbone for the AI economy and those resilient to new 15% global tariffs:

• Energy & Materials: These sectors have risen over 20% and 18% respectively since technology peaked in late 2025, driven by a global manufacturing revival.

• AI Infrastructure: Capital is flowing into "concrete" assets like data center cooling, optical connectivity, and power systems. Key performers include Vertiv Holdings (VRT) and EMCOR Group (EME).

• Industrials: The Industrial Sector (XLI) is a clear leader, up 6.7% YTD, as traditional firms benefit from increased growth prospects despite sluggish manufacturing PMI data.

Inflation Outlook for the Year

So far, the outlook for interest rates seems to be one of cautious stabilization. After cutting rates three times in late 2025, the Federal Reserve held the federal funds rate steady at its January meeting at a range of 3.50% to 3.75%.

The current year is defined by a "wait-and-see" approach as the Fed balances sticky inflation against a cooling labor market, all while preparing for a major leadership transition.

Most major financial institutions expect a "gentle glide" lower, but there is significant disagreement on the timing and depth of cuts:

• Consensus View: Most analysts expect one to two additional 25-basis-point cuts in 2026, potentially bringing the terminal rate to a "neutral" range of 3.00% to 3.25% by year-end.

• Goldman Sachs & Barclays: Have pushed their expected cuts to the second half of the year, specifically forecasting moves in September and December.

• Bank of America: Forecasts two cuts earlier in the summer (June and July).

• J.P. Morgan: Remains the primary outlier, recently withdrawing its forecast for cuts and predicting the Fed will remain on hold for the entire year due to a resilient labor market.

Strategy Spotlight: Next Gen Data Infrastructure

In today’s market, where sectors shift quickly and capital rotates at the speed of new technologies, having a clear investment strategy is pretty much essential. A reactive approach risks chasing hype or overexposing your portfolio to sectors vulnerable to correction, like legacy SaaS.

The key is identifying where structural growth is occurring and aligning your investments with long-term trends, not short-term noise.

Surmount’s Next-Gen Data Infrastructure Thematic Investing Strategy does exactly that. It focuses on companies building the backbone of the AI-driven economy—cloud computing, data storage, networking, and large-scale data centers. By targeting 20 established leaders and rebalancing monthly, this strategy keeps your portfolio aligned with the structural shift from “Code to Concrete,” capturing growth where capital is flowing while avoiding overhyped segments.

Why It Works Now:

• SaaS and legacy tech have faced historic declines, creating an opportunity for sectors underpinning AI and digital infrastructure.

• Investors are rotating into “concrete” assets, from industrial systems to data center operations—sectors with strong structural tailwinds.

• This strategy provides diversified exposure within next-generation infrastructure, reducing risk while positioning for long-term appreciation.

  Learn More

Take Action:
Don’t let market noise dictate your portfolio. Position yourself in the companies powering the AI economy with the Next-Gen Data Infrastructure Thematic Investing Strategy and stay ahead of the structural shifts shaping the next decade.

This Week’s Takeaways

• The tech sector, especially SaaS and legacy IT, faced sharp declines due to AI disruption and macro uncertainty, with some stocks seeing historic losses.

• Investors are rotating capital from high-margin software into physical infrastructure, industrials, energy, and AI infrastructure.

• Semiconductors and companies supporting the AI economy, like data center and networking firms, are outperforming amid sector rotation.

• Interest rates are expected to stabilize, with varying forecasts on potential Fed cuts throughout 2026.

• Focusing on next-gen data infrastructure offers exposure to structural growth while avoiding overhyped, vulnerable tech segments.

February 20, 2025

Investors Tilt Toward Value and Stability

The current week saw U.S. equity funds attract its largest volume of capital inflows in five weeks, as easing inflation concerns lifted hopes of Fed rate cuts.

Investors favored value over growth and applied selectivity within technology, while industrials and certain tech sectors also drew capital. Bond funds continued a multi-week streak of net purchases, particularly in short- to intermediate-term government and investment-grade funds, reflecting a search for stability and yield.

Money market funds saw strong inflows as well, suggesting a cautious approach and readiness to deploy cash opportunistically. Overall, flows signal a strategic tilt toward diversified, balanced exposure amid evolving market conditions.

Interestingly enough, there seems to be minimal movement in bond yields, indicating that while investors are actively rotating capital, the broader interest rate environment remains steady. This stability suggests the market is digesting the prospects of Fed action without overreacting, favoring measured positioning over aggressive speculation.

At the stock level, selective buying continues to reward companies with clear earnings visibility and resilient cash flows, while sectors sensitive to economic swings experience more restrained interest. The combined picture points to a cautious but constructive market stance, where capital is being deployed thoughtfully, balancing growth potential with defensive buffers in both equities and fixed income.

SCOTUS Tariff Ruling Could Spark Increased Macro Volatility

The Supreme Court is scheduled to issue a ruling on the IEEPA tariffs—specifically in the case of Learning Resources, Inc. v. Trump—with a decision expected as early as today, February 20, 2026. The Supreme Court is expected to challenge the use of the International Emergency Economic Powers Act (IEEPA) to impose sweeping tariffs.

Activity on prediction markets, such as Polymarket, seem to suggest that the Supreme Court may rule against the current tariff structure set up by President Trump.

Similarly, legal analysts suggest the Court may lean toward limiting executive tariff authority. If ruled unlawful, the U.S. government could be liable for roughly $140 billion in refunds to importers. However, the administration has already floated "credits" rather than cash refunds, which could lead to years of additional litigation

However, the market's true fear isn't the ruling—it's the Administration's "Plan B.". The administration has signaled it will immediately pivot to other statutes (like Section 232 for national security or Section 122 for balance-of-payments).

Rapid tariff reinstatements via other laws could keep inflation sticky, forcing the Fed to remain hawkish despite cooling growth. Similarly, a ruling against the administration might initially weaken the USD, but aggressive "Plan B" tariffs could spark a flight back to the dollar as global trade tensions reignite.

Shockwaves From Iran Could Disrupt Market Optimism

In recent days, the "Iran Factor" has transitioned from a background concern to a primary market driver, causing a noticeable "tug-of-war" between bullish economic data and geopolitical fear.

While capital inflows into US equities are trending upwards, this optimism could could be swiftly derailed by a "kinetic event" in the Persian Gulf. As of late February 2026, the market is no longer just watching from the sidelines; it is actively pricing in a "war premium" that threatens the very foundation of the current rally.

In fact, despite strong inflow trends, major US market indices all closed in negative territory on Thursday, February 19, snapping a three-session winning streak.

Brent crude is already testing $72 per barrel. Analysts at Capital Economics warn that a direct strike could push oil to $80 immediately, while a disruption of the Strait of Hormuz (which handles 20% of global oil) could send prices north of $100. This would likely freeze the Fed's planned rate cuts, as higher energy costs filter back into consumer prices.

Uncertainty is driving investors into the safety of the US Dollar and Gold (now hovering near $5,000/oz). If tensions persist, a spike in Treasury yields—driven by inflation fears—could make the high valuations of US tech stocks look unsustainable.

Strategy Spotlight: Deep Tech

In a volatile landscape shaped by geopolitical conflict and shifting trade laws, active management offers a strategic "buffer" that passive indexing cannot.

As we look toward the potential Iran conflict and the imminent Supreme Court (SCOTUS) tariff ruling, active analyst-led funds are particularly relevant right now.

Here’s why:

1. "Cockroach Avoidance" in Trade Chaos

The pending SCOTUS decision on the International Emergency Economic Powers Act (IEEPA) could either uphold current tariffs or trigger a massive, chaotic refund process.

• Passive Risk: An index fund (like an S&P 500 ETF) must hold every company in the index, regardless of how exposed they are to tariff-related margin compression.

• Active Advantage: Analysts can pinpoint "bifurcated" winners and losers. For example, they can pivot away from retailers with thin margins vulnerable to tariff spikes and move toward companies with domestic "fortress balance sheets" that benefit from the $200B–$300B fiscal stimulus coming from the "One Big Beautiful Bill" enacted in late 2025.

2. Real-Time Geopolitical Agility

A passive fund only rebalances periodically (often quarterly). In a "kinetic" scenario in the Persian Gulf, a three-month wait is an eternity. Alternatively, active managers can immediately hedge portfolios by increasing exposure to North American Energy and Defense stocks.

One smart way to navigate these uncertain tides is through Surmount AI’s T Rowe US Equity Research Tracker.

This strategy mirrors the fund’s carefully curated holdings, giving you diversified exposure to U.S. equities handpicked by seasoned analysts.

When geopolitical tensions and inflation spikes hit, lower-quality companies often buckle under debt pressure. Active managers spot these “cockroaches” and avoid them, while seeking resilient, high-yield opportunities that passive funds might indiscriminately hold.

It’s a way to stay in the game, capture upside, and let expert insight guide your portfolio—without the guesswork.

What's Actually Happening

• Investor Behavior: U.S. equity and bond funds saw strong inflows, with investors favoring value, stability, and selective tech, while money markets absorbed cash for opportunistic deployment. Overall, positioning is cautious but constructive.

• Interest Rates & Yields: Bond yields remain stable, suggesting the market is digesting potential Fed moves without overreacting.

• Stock Selection: Companies with clear earnings visibility and resilient cash flows are attracting capital; economically sensitive sectors lag.

• Supreme Court Tariff Ruling: A decision on IEEPA tariffs could force $140B in refunds. Markets fear the Administration’s “Plan B” could reimpose tariffs, keeping inflation sticky and complicating Fed policy.

• Geopolitical Risk – Iran: Rising tensions are pricing in a “war premium,” with oil prices testing $72/barrel and potential spikes threatening Fed rate cuts and tech valuations.

Overall: Markets are showing cautious optimism, but optimism is fragile—vulnerable to tariffs, geopolitical shocks, and inflation surprises.

February 13, 2025

When Markets Break Twice in the Same Week

The "SaaSpocalypse" has hit global markets with devastating force this week. A $300 billion valuation wipeout in the U.S. has spiraled into a global contagion, dragging India’s IT index to its worst session since 2022 as giants like TCS and Infosys plummeted over 7%.

The catalyst was Anthropic’s new automation plugins, launched earlier this month, which investors fear will disintermediate traditional software and professional services. High-profile casualties include Thomson Reuters and London Stock Exchange Group, which saw double-digit crashes as AI begins automating legal and data workflows. From Salesforce to Sage, the shift from "per-seat" subscriptions to autonomous AI agents has triggered "get me out" style selling, leaving the once-resilient SaaS sector grappling with a fundamental existential crisis.

Despite the panicked selling seen since the end of January, major institutional players like JPMorgan have been arguing that the market is pricing in a "doomsday scenario" that ignores the fundamental structural advantages of established software giants.

This implication to ‘buy the dip’ sits well with bulls, considering that while AI agents can automate workflows, they still need a "brain" to read from and write to. Analysts argue that incumbents like Salesforce, ServiceNow, and SAP own the "System of Record"—the proprietary, governed data layer that AI requires to be accurate.

As AWS CEO Matt Garman recently noted, these incumbents have an "inside track" because enterprises won't trust autonomous agents that aren't grounded in their existing, secure data silos.

Translation: While the retail herd is trampling each other to exit the SaaS building, the "smart money" is quietly shopping for bargains in the rubble..

Still No Recovery for Microsoft

It has been a rough few weeks for Microsoft (MSFT). The stock hasn't just failed to recover; it has entered a period of "choppy" decline as investors shift from excitement about AI to a cold, hard look at the balance sheet.

Two weeks ago, Microsoft reported what looked like a remarkable quarter on paper, but the market reacted with a great deal of fear. The sell-off wasn't just a random dip; it was a fundamental shift in how investors view the AI revolution. Its revenue had climbed by 17% year-over-year, and beat expectations of $80.2 billion. Similarly, earnings per share jumped 24% at $4.14 and also beat expectations of $3.93.

The panic seems to go back to the bombshell CapEx anouncement. Microsoft reported a massive $37.5 billion in capital expenditures for a single quarter—mostly for AI infrastructure. Investors are starting to panic that the "payoff" for this spending is too far in the future, especially as margins have slightly compressed.

Similarly, while Azure grew 37%, it didn't "blow the doors off" as many had hoped, leading to fears that supply constraints for AI chips (GPUs) are capping Microsoft's ability to grow, even as they spend billions.

The silver lining however, is that while the stock price is hurting, the fundamentals remain surprisingly strong. Microsoft actually beat earnings and revenue expectations ($81.3B vs. $80.2B expected).

Many analysts argue the stock is now "oversold" and is trading at a much more attractive valuation than the 35x P/E we saw last year.

Micron Still Defiantly Looks Upward

Micron (MU) is currently the "golden child" of the tech world because it is doing the exact opposite of Microsoft: while Microsoft is spending billions on a dream, Micron is collecting billions on a shortage.

The stock has climbed by 24% this month, and is pushing up the all-time high ceiling once—something that Micron is not new to.

The biggest reason for the decoupling happened on February 11. Micron’s CFO, Mark Murphy, shocked the market by announcing that Micron has already started mass production and shipping of HBM4 (High Bandwidth Memory).

Everyone thought they were a year away. By shipping now, they have potentially leapfrogged their main competitors (Samsung and SK Hynix). In fact, it seems quite apparent to many that Micron has essentially secured their spot in Nvidia’s next-gen "Vera Rubin" chip architecture.

When a company has zero unsold inventory and high demand, they have "pricing power." They can keep raising prices, which protects their profit margins even if the rest of the market gets shaky.

Earlier this month, a rumor circulated (started by research firm SemiAnalysis) that Micron had been kicked out of Nvidia’s supply chain because their chips were too slow. The CFO personally went on stage at the Wolfe Research conference two days ago to call those reports "simply inaccurate" and confirmed their chips are actually exceeding performance benchmarks (11 Gbps+). Clearly, that "rebuttal" acted like rocket fuel for the stock.

Strategy Spotlight: Deep Tech

When markets fracture like this, stock picking becomes a minefield.

Software gets crushed on automation fears. Infrastructure rips on supply shortages. Capital rotates violently between “AI is overhyped” and “AI changes everything.” In this kind of regime, reacting emotionally is expensive.

This is exactly where Surmount’s Deep Tech Innovators Thematic Strategy earns its place.

Because the goal is not to guess the next headline.

The goal is to systematically find the Microns of the market.

Surmount’s Deep Tech strategy is built to identify those structural beneficiaries across the AI stack:

• Semiconductors powering model training
• Memory leaders riding capacity shortages
• Cloud platforms anchoring enterprise workloads
• Cybersecurity firms protecting autonomous systems
• Enterprise software owners of the system of record

Instead of concentrating risk in one layer, the strategy spreads exposure across the full deep tech ecosystem. That matters because AI value does not accrue evenly. It rotates.

The monthly rebalance forces discipline. It trims positions that have outrun fundamentals and reallocates toward companies where financial strength and forward upside are mispriced. In volatile conditions, that systematic recalibration is an advantage.

When the crowd is panic-selling software on existential fears, there are companies quietly shipping breakthrough hardware. When investors obsess over near-term CapEx compression, there are suppliers collecting pricing power. When narratives collapse, real innovation does not.

Of course, no thematic strategy is immune to volatility. But when markets swing wildly between fear and euphoria, and most decisions are driven by headlines rather than fundamentals, a systematic framework for identifying financially strong, structurally advantaged innovators can create an edge.

In a space where noise dominates, disciplined exposure to real deep tech winners is what separates conviction from chaos.

What's Actually Happening

So to summarize the SaaS selloff developments of this week

First: AI is reorganizing the value chain in real time. Software sold off on existential fear, while infrastructure names surged on tangible demand. Capital is not leaving tech. It is rotating within it.

Second: Markets are repricing duration risk. Microsoft wasn’t punished for weak numbers. It was punished for massive upfront AI spending with payoffs pushed further out. Investors want cash flows now, not promises later.

Third: Scarcity wins in chaos. Micron rallied not on hype, but on supply discipline, early HBM4 shipment, and pricing power. In uncertain regimes, the companies closest to bottlenecks gain leverage.

Watch whether software reclaims narrative control through earnings, or whether infrastructure continues absorbing the capital. Because this isn’t a normal correction.

It’s a redistribution of power across the AI stack..

February 6, 2025

When Markets Break Twice in the Same Week

Another Friday, another historic crash. Another Tuesday, another "positioning reset." By Thursday? Silver was down another 18%, erasing its two-day "recovery."

Welcome to the new normal, where silver collapses 31% in a single session, bounces 10% the next day while analysts proclaim "the investment case remains intact," then plunges 18% again three days later because apparently nobody found the floor the first time.

The official narrative? Kevin Warsh's Fed chair nomination was a non-event. "Markets won't care," they said. "He's credible," they said. The reality? Gold fell 11.37% on January 30th—its worst day since 1980. Silver cratered 31.35%—its worst closing decline since March 1980.

But here's what Wall Street isn't telling you: this wasn't just about Warsh. This was about a market so grotesquely overleveraged, so crowded with bullish options, so juiced on gamma squeeze mechanics that it took exactly one headline to trigger a liquidation cascade that wiped out months of gains in hours.

Deutsche Bank tried to spin it: "Investor intentions haven't changed for the worse." Tell that to the iShares Silver Trust, which posted over $40 billion in trading volume on Friday—more than Apple and Amazon combined. That's not "positioning reset." That's panic.

And then it happened again. By Thursday, spot silver plunged another 18% to below $73. Turns out the "floor" everyone found on Tuesday was just another trapdoor.

Gold's down 21% from its all-time high. Silver's off 41%. And the same analysts who said "this is the buying opportunity" on Monday are now saying "brace for continued roller-coaster action."

Translation: Nobody knows where this ends.

Software's Slow-Motion Extinction Event

While precious metals were busy imploding twice, software stocks entered their own death spiral—only this one's playing out in slow motion, and somehow that makes it worse.

ServiceNow crashed to $109, down from $239 at its peak. Adobe? Back to April 2020 levels, erasing every penny of pandemic gains. Microsoft shed $360 billion in market cap in a single day. The iShares Software ETF (IGV) is down 22% from its highs, officially in bear market territory.

The narrative? "AI agents will kill SaaS." Anthropic just rolled out legal tools. The market's pricing in total obsolescence.

But here's the actual story nobody's saying out loud: AI isn't killing software. Budget reallocation is. Meta's spending $135 billion on AI capex this year. Microsoft's dropping $75 billion. Hyperscalers will burn through $470+ billion on AI infrastructure in 2026.

That money's coming from somewhere. And "somewhere" is every Salesforce seat expansion, every ServiceNow module add-on, every software renewal that's getting delayed while CIOs figure out if they can replace it with Claude or cut headcount to fund their AI transformation.

Hedge funds made $24 billion shorting software stocks in January alone. And they're increasing their bets, targeting companies offering "basic automation services" that could be replicated by AI.

The thing is… Earnings haven't collapsed yet. Wall Street's just paying less for them. That's not disruption. That's a valuation reset pricing in future disruption that may or may not happen.

The Rotation Everyone's Celebrating (While Missing the Point)

Here's what's quietly happening while everyone panics about precious metals and software: Energy just hit all-time highs for the first time since the Great Financial Crisis.

Let that sink in. XLE has gone nowhere for 16 years. Now it's at record levels while tech hemorrhages.

The narrative: "Healthy rotation! Market's broadening!"

The reality: Money's not leaving equities—it's fleeing growth narratives that depended on endless rate cuts and AI hype cycles. Energy led January with healthcare right behind it, while tech, software, and financials all closed lower.

This isn't rotation. It's re-pricing.

The steepening yield curve everyone said would favor value stocks? It's happening. But it's also exposing how fragile the growth trade became. When ServiceNow beats earnings for the ninth straight quarter and drops 10% anyway, that's not about fundamentals. That's about investors realizing the multiple they paid assumed infinite growth in a zero-rate world.

Strategy Spotlight: Quiver Analyst Buys

In a market where consensus is wrong twice before breakfast and Wall Street's paying for yesterday's narratives with tomorrow's valuations, filtering signal from noise matters more than ever. Surmount's Quiver Analyst Buys strategy approaches this problem differently: instead of treating all analyst opinions equally, it weights forecasts based on each analyst's actual track record.

Here's how it works: Quiver's proprietary scoring method rates Wall Street analysts based on the historical accuracy of their price targets. Analysts with proven forecasting success get higher weights. Analysts with poor track records? Lower weights—or in some cases, negative weights that actively fade their recommendations.

The strategy then aggregates all analyst forecasts made over the past year, calculates weighted average price targets for every ticker, identifies the top 100 scores, and narrows to the 10 largest by market cap to avoid stocks with sparse coverage. These 10 positions are held equal-weighted and rebalanced monthly.

This isn't about blindly following Wall Street. It's about systematically identifying which analysts have actually been right when it mattered, then following those voices while tuning out the perennially wrong. In an environment where software analysts were still bullish while valuations collapsed 50% and precious metals bulls failed to spot two historic crashes in five days, separating skill from noise has real value.

Of course, even the best analysts get things wrong, and past accuracy doesn't guarantee future performance. But when everyone's got an opinion and most of them are garbage, a systematic approach to identifying who's been consistently less wrong can provide an edge that matters.

What's Actually Happening

Strip away the headlines, and this week's telling you three things:

First: Leverage kills. When silver can drop 31%, bounce 10%, then drop 18% again—all in five days—that's not fundamentals. That's forced liquidation in a market with no natural buyers left.

Second: Narratives are repricing faster than earnings. Software's getting destroyed not because profits collapsed, but because Wall Street decided the future profits aren't worth today's multiples. That's a sentiment shift, not a business collapse. And sentiment shifts can reverse. Or accelerate.

Third: The Fed chair pick everyone said wouldn't matter? It mattered. Not because Warsh is hawkish or dovish, but because it forced everyone to reevaluate what "haven" even means when the central bank's independence is explicitly in question.

Watch credit markets. Watch whether commodities breadth is actually broadening beyond energy, or if this is just another narrow leadership trade. And watch whether earnings season confirms or contradicts the AI-kills-software thesis. Because right now, the market's pricing in a future that hasn't shown up in the numbers yet.

When "historic" becomes routine, you're not in a healthy correction. You're in a regime change.

January 16, 2026

Wall Street spent three years applauding every AI infrastructure announcement. This week, it finally stopped clapping.

Microsoft posted $81.3 billion in quarterly revenue—strong growth by any measure—and the stock plunged 10%. Meta reported record sales and shares surged 8%, but only after announcing spending plans so massive they made Microsoft's look restrained. Tesla canceled its Model S and Model X entirely, pivoting harder toward robotics while committing $2 billion to Elon Musk's xAI. Even IBM jumped 8% on AI implementation momentum.

The message? The market's no longer rewarding revenue growth. It's punishing anyone whose spending trajectory looks unsustainable—and rewarding those brazen enough to double down without flinching.

This is what an inflection point looks like. Not a crash. A repricing based on a simple realization: $475 billion in annual AI infrastructure spending only works if you can convince investors the payoff is imminent. Microsoft couldn't. Meta did. And that 18-point spread in their stock reactions tells you everything about where we are now.

When "Strong Results" Trigger a 10% Selloff

Microsoft's quarterly performance was objectively solid: $81.3 billion in revenue, continued Azure growth, expanding AI adoption across enterprise customers. In 2023, that would've sparked a rally.

Instead? A 10% drop—roughly $250 billion in market value erased—because data center spending came in higher than expected. Not disastrously higher. Just enough to remind investors that the company is on track to spend nearly $100 billion in CapEx this fiscal year while operating margins narrow to 67%—the tightest in three years.

The math that worked at 40% earnings growth stops working at 18%. Investors finally did the calculation.

Compare that to Meta's 8% surge on record quarterly sales. The company announced spending plans so aggressive they would've triggered panic a year ago—projected 2026 capital expenditures exceeding $100 billion. But Meta sold the narrative: AI-driven advertising is already monetizing, and Zuckerberg's betting the company can maintain revenue acceleration while building infrastructure. The market bought it.

Meanwhile, Tesla's cancellation of Model S and Model X—its premium, higher-margin vehicles—crystallizes the pivot everyone's been watching. The company's committing $2 billion to xAI while shares slipped 1.5%, signaling investors are...wait-and-see on whether robotics and AI can replace a declining EV business. Shares barely moved because Tesla's valuation already priced in a pivot to "AI company."

The week's scorecard reveals the new rules:

• Microsoft (-10%): Strong revenue, elevated spending → market doesn't care about growth anymore

• Meta (+8%): Record sales, massive spending plans → market rewards conviction when revenue backs it up

• Tesla (-1.5%): Canceled flagship models, $2B xAI bet → already priced as robotics play

• IBM (+8%): AI implementation momentum → actual enterprise adoption finally showing

• SAP (-15% in Germany): Cloud guidance disappointed → no patience for misses

Even semiconductor suppliers felt the squeeze. STMicroelectronics posted higher-than-projected sales but dropped 5% on weak auto demand. Samsung's core semiconductor business earnings rose sharply, but the question remains: how sustainable is chip demand if hyperscaler spending comes under scrutiny?

The New Valuation Framework

This week clarified what the market actually cares about now. It's not revenue growth. It's not even AI leadership. It's spending credibility.

Can you justify the CapEx with near-term monetization? Meta can point to AI-driven ad pricing. Microsoft's Azure growth doesn't quite close the gap. Tesla's robotics pivot requires faith. IBM's showing actual enterprise implementation.

The Magnificent Seven's projected 18% earnings growth for 2026—slowest pace since 2022—suddenly looks expensive when you're spending at 2024's rate plus 50-100%. The hyperscalers collectively face $475 billion in annual CapEx, up from $230 billion in 2024. That's more than doubling infrastructure investment for earnings growth that barely exceeds the S&P 493's 13%.

Valuations at 29x forward earnings aren't getting multiples compression from weak results—they're getting it from investor skepticism about whether current spending levels are sustainable at these growth rates.

Key dynamics playing out:

• The "conviction premium": Meta got rewarded for going all-in without hedging. Microsoft got punished for looking uncertain about spending returns.

• Margin compression matters now: When operating margins narrow while CapEx surges, investors assume something's breaking.

• Enterprise adoption is the new metric: IBM's 8% pop on AI implementation shows the market wants proof that AI spending by customers is accelerating, not just by hyperscalers.

Microsoft's 10% drop on strong results isn't irrational. It's the market repricing the entire AI infrastructure thesis based on a simple question: if you can't show proportional returns now, when will you?

What This Means Going Forward

The AI boom didn't die this week. But the phase where Wall Street applauded blank checks just did.

Apple reports Thursday. The company's avoided the massive CapEx arms race, instead partnering with Google for Gemini integration. Will the market reward capital discipline or punish lack of infrastructure ownership? After this week, probably the former.

Amazon and Alphabet report next week. Both have shown stronger monetization narratives than Microsoft—AWS growth acceleration for Amazon, Gemini's reception and TPU revenue potential for Alphabet. But they're also on track for combined CapEx exceeding $250 billion in 2026.

What to watch:

• Capital allocation guidance: Any spending increases without corresponding revenue acceleration will get punished

• Margin trajectory commentary: Market's done accepting "investment phase" explanations

• Customer spending validation: Enterprise AI budgets need to match hyperscaler infrastructure spending

• Conviction vs. hedging: Meta showed the market rewards bold bets with revenue backing; Microsoft showed hedging gets sold

The math is simple now: if your CapEx growth rate significantly exceeds your revenue growth rate, and your earnings growth is decelerating, you need an exceptionally compelling story. Microsoft didn't have one strong enough. Meta did. That 18-point spread in their stock reactions just reset expectations for every tech earnings call going forward.

Strategy Spotlight: RSI-Weighted ETFs

For investors navigating a market that just repriced the entire AI infrastructure thesis in a single week, Surmount's RSI-Weighted ETFs strategy offers a systematic alternative to betting on narrative conviction. Rather than trying to predict which tech giant's spending story Wall Street will believe, this approach allocates proportionally to actual relative strength momentum across diversified ETFs.

The strategy rebalances daily based on RSI values, capturing leadership shifts as they happen rather than hoping announced CapEx will eventually generate proportional returns. When Microsoft can post strong results and drop 10% while Meta can announce massive spending and surge 8%, momentum-based allocation beats trying to handicap Wall Street's mood.

Of course, momentum strategies carry their own risks—whipsaws during volatile rotations, potential underperformance when trends are stable, and the reality that past strength doesn't guarantee future performance. But in an environment where "strong earnings" no longer guarantees stock appreciation, following actual price momentum has merit.

This is a rules-based approach to tracking market leadership, not a prediction about which AI narrative will win.

The Bottom Line

Microsoft's 10% drop on solid results is your answer. The market's no longer asking "will AI eventually pay off?" It's demanding "show me the returns now or explain precisely when."

Meta's 8% surge shows that aggressive spending isn't the problem—lack of monetization clarity is. Tesla's pivot out of premium EVs into robotics and xAI shows even established products get sacrificed when the AI narrative demands it. IBM's rally proves enterprise adoption matters more than infrastructure promises.

The 18% earnings growth projected for Magnificent Seven in 2026 just became the ceiling, not the floor. The $475 billion annual CapEx just became a liability, not an asset. And the 29x forward valuations just became expensive, not reasonable.

The reckoning everyone said was coming eventually? It arrived Wednesday afternoon when Microsoft's CFO couldn't articulate a clear CapEx-to-revenue timeline. The market's message was unambiguous: figure it out, or get repriced.

Welcome to Phase Two.

January 16, 2026

Wall Street spent this week celebrating a rotation into small caps and real estate—the kind of breadth expansion everyone's been praying for since 2023. The S&P 500 inched higher, Netflix topped 325 million subscribers, and regional banks rallied on hopes of steepening yield curves.

Meanwhile, the Department of Justice served the Federal Reserve with criminal grand jury subpoenas threatening to indict Chair Jerome Powell. The Dow dropped 400 points on Monday before recovering. By Tuesday, markets were back to pricing in soft landings and rate cuts.

Here's what nobody's saying out loud: when the executive branch starts criminalizing monetary policy decisions, you don't get to pretend it's business as usual.

When "Independent" Central Banking Meets Political Weaponization

Jerome Powell released an extraordinary video statement Sunday night confirming the DOJ investigation stems from his Senate testimony about Fed building renovations—a $2.5 billion project Trump has repeatedly attacked. Powell was unequivocal: this isn't about construction overruns. It's about the Fed refusing to cut rates on Trump's timeline.

Powell's exact words:

The market's response?

• Monday morning: Dow drops 400 points

• Tuesday: Recovery complete, soft landing narrative resumes

• Powell's exit odds: Initially 85% chance of leaving before August, now reversed to just 55%

DJI - 1M

The DOJ investigation may have backfired. Powell now looks more likely to stay through January 2028 as a Fed Governor, ensuring a powerful voice for independence remains even after Trump names a new Chair.

Political fallout:

• Senator Thom Tillis immediately pledged to oppose any Fed nominee until this is resolved

• Treasury Secretary Scott Bessent reportedly told people he's unhappy with the decision

• Trump denied knowledge of the probe while simultaneously calling Powell "not very good at the Fed"

The question markets are studiously ignoring: If the Fed can be criminally investigated for policy decisions the White House doesn't like, what exactly are you pricing?

Netflix Hits 325 Million Subs, Guides to Slower Growth—Stock Craters Anyway

Netflix reported earnings Tuesday that beat on every line—until management opened their mouths about 2026.

The numbers that looked good:

• Crossed 325 million paid subscribers in Q4 2025

• Revenue grew 18% year-over-year to $12.05 billion

• Operating margins hit nearly 30%

• Ad revenue grew 2.5x in 2025 to over $1.5 billion

• Warner Bros. Discovery acquisition closed for $27.75 per share all-cash

Markets weren't impressed. Netflix shares dropped 6-7% in the sessions following the report.

The problem? 2026 guidance projects:

• Revenue growth of 12-14% (down from 17% in 2025)

• Share buybacks paused to fund Warner acquisition

• Content spending up 11.5% to $20 billion

• Operating income growth "higher in the second half than the first half" (translation: lumpy margins)

Netflix (USD) - 6M

The tell everyone's missing:

Netflix is moving aggressively into live sports—NFL Christmas games, MLB Opening Night, World Baseball Classic—mimicking the linear TV model it spent a decade disrupting.

When the disruptor starts looking like the incumbent, maturity isn't a bug, it's the feature.

The bull case:

• Ad revenue projected to double again to $3 billion in 2026

• Operating margins targeting 31.5% (up from 29.5%)

• Warner integration drives new subscription wave

• "Premium Plus" pricing tiers with HBO unlock ARPU growth

The bear case:

• $72 billion in combined debt

• Rising sports licensing costs

• Amazon/YouTube competing for ad dollars

• Just spent $27.75/share to acquire declining linear TV assets

Netflix now trades at valuations that assume subscriber growth peters out and margins stop expanding. With refinancing pressures and sports costs spiraling, that might not be wrong.

The Great Rotation Finally Arrives (Or Does It?)

Small caps and real estate surged this week while mega-cap tech sputtered—the market breadth expansion everyone's been forecasting since 2023.

The headline numbers:

• Russell 2000: Up ~7% year-to-date

• Magnificent Seven: Down 1.4%

• Real Estate sector (worst performer in 2025): Rallied 4.09% last week, with 30 of 31 constituents posting gains

• Basic materials sector: Up 9.05% year-to-date

The clean narrative:

• Lower rates benefit rate-sensitive sectors

• One Big Beautiful Bill Act's tax cuts favor small businesses

• Earnings growth finally broadening beyond AI infrastructure

• Mid-caps trade at 16.5x forward earnings vs. 22x+ for large-cap tech—a 25-year valuation gap

What's missing from the celebration:

Credit spreads are still historically tight. Corporate debt refinancing costs remain elevated despite Fed cuts. 85% of maturing debt in 2026-2027 will need to be refinanced at 200+ basis point increases versus when originally issued.

Small caps and regionals are more exposed to those refinancing pressures, not less.

Trump proposed capping credit card rates at 10% for one year—a populist move that would:

• Save consumers $100 billion annually

• Decimate bank profitability

• Cut off credit access for millions

JPMorgan CFO Jeremy Barnum warned it would be "devastating" for the economy. Bank stocks rallied on the news, pricing in that Congress won't pass it.

Maybe they're right. Or maybe they're just betting Trump can't accomplish what he says he'll do—which is a hell of a way to run a portfolio.

Strategy Spotlight: SP500? No. SP10.

Wall Street's celebrating small-cap outperformance and declaring mega-cap dominance dead. But here's the thing: the fundamentals driving the largest companies haven't changed in two weeks.

Surmount's SP 10 Strategy cuts through the noise by investing exclusively in the ten largest S&P 500 companies—the actual market leaders with fortress balance sheets, dominant market share, and pricing power that smaller competitors can't match.

Think about what's still happening beneath the rotation headlines: AI infrastructure spending accelerating, cloud revenue growing, data center buildouts expanding. The Magnificent Seven keep beating earnings expectations while maintaining margin expansion. Meanwhile, Russell 2000 aggregate earnings are barely positive.

When credit conditions tighten and refinancing costs spike 200+ basis points, who's better positioned—a regional bank or Microsoft sitting on $100B in cash?

This strategy rebalances quarterly to stay concentrated in the top 10, accepting higher risk in exchange for direct exposure to the companies actually driving market returns. If this rotation fades like the previous ones, you're not scrambling to get back in.

The risk? If small-cap value genuinely outperforms for years, concentrated mega-cap exposure underperforms by design. But that's a bet on regime change, not just sector rotation.

What Actually Matters Going Forward

Wall Street is pricing in broadening earnings growth, dovish Fed policy, and smooth rotations from growth to value.

What it's not pricing:

• Institutional breakdowns that make monetary policy unpredictable

• Credit stress that emerges when overleveraged companies refinance at 200+ bps increases

• Regulatory chaos when the executive branch declares war on financial regulators

Three things to watch that consensus is ignoring:

1. Fed nominations: Trump needs Senate approval for Powell's replacement. If Tillis holds his line and other Republicans join, Trump's pick might not get confirmed—leaving Powell on the board through 2028 as the lone voice against political interference.

2. Credit availability compression: If banks actually comply with a 10% rate cap—or even get pressured into voluntary reductions—consumer credit dries up just as refinancing pressures hit corporates. That's not bullish for small caps.

3. Netflix's Warner integration: Wall Street is treating this like Netflix bought growth. They actually bought declining linear TV assets and $72B in combined debt. If subscriber growth stalls or sports costs spiral, this could be the deal that broke streaming's economics.

Markets are behaving like everything's fine because the alternative is confronting uncomfortable questions about rule of law, institutional independence, and whether the monetary policy framework that's anchored asset prices for 40 years still functions.

Maybe they're right. Or maybe denial just sounds better than the alternative.

January 16, 2026

Wall Street started 2026 by doing what it does best: celebrating disaster with champagne.

December's jobs report delivered a paltry 50,000 new positions—less than expected, capping off the worst year for hiring since 2020. The Fed quietly admitted it thinks the monthly data has been systematically overstated by 60,000 jobs, meaning payrolls have actually been shrinking by 20,000 per month since April.

The damage in detail:

• Manufacturing shed 68,000 positions for the year

• Retail cut 25,000 in December alone as companies froze hiring

• Just 584,000 jobs created in all of 2025—far below 2+ million in both 2024 and 2023

• October and November revised down by 76,000 combined

The S&P 500's response? Record highs. The Nasdaq? Up 1%.

Apparently, a labor market in virtual stall mode is exactly what investors wanted to hear. Three years into this rally, we've officially reached peak absurdity: bad news is definitively good news, and everyone's pretending this makes perfect sense.

The "Goldilocks" logic:

• Weak jobs mean more Fed cuts

• More cuts mean cheaper money

• Cheaper money means stocks go up

• Not too hot (no hiring surge to spark inflation)

• Not too cold (unemployment only ticked to 4.4%)

• Just right for risk assets

But here's what nobody wants to discuss: The market's betting the Fed will rescue growth with rate cuts while simultaneously assuming corporate earnings will accelerate 15% this year. Both can't be true—and yet here we are at all-time highs, pricing in perfection.

AI's Achilles Heel: The Memory Crisis Nobody's Pricing

While Wall Street obsesses over whether the Fed cuts once or twice in 2026, a structural supply crisis is quietly threatening the entire AI infrastructure buildout—and it's got nothing to do with GPUs.

High-bandwidth memory (HBM) is completely sold out through 2026. Not "tight"—gone. Micron, SK Hynix, and Samsung have zero capacity left. Every wafer, every package, every chip has been claimed by hyperscalers desperate to feed AI data centers.

DDR4 memory prices surge globally

The supply crunch in numbers:

• Producing 1GB of HBM requires 4x the wafer capacity of standard DDR5 memory

• GDDR7 for gaming GPUs needs 1.7x

• By 2026, AI will consume nearly 20% of global DRAM production (equivalent wafer usage basis)

• Memory manufacturers aren't expanding capacity fast enough—they're just reallocating everything toward AI

Price explosion:

• Contract prices for DRAM jumped 170% year-over-year in Q3 2025

• TrendForce projects another 50-55% price surge this quarter

• Lead analyst called pace "unprecedented"

Real-world consequences:

• NVIDIA is cutting gaming GPU production by 30-40% in H1 2026

• Micron discontinued its entire Crucial consumer brand to free up capacity for "strategic accounts" (read: AI)

• Dell plans price hikes of hundreds of dollars

• IDC expects PC shipments to decline 4.9% in 2026 as memory costs balloon

• Xiaomi warned prices for smartphones could rise 25% just from DRAM expense per device

The timeline problem:

• Samsung and SK Hynix's new fabs won't come online until 2027-2028

• OpenAI and Microsoft's Project Stargate committed to 900,000 DRAM wafer starts per month—roughly 35-40% of global capacity

• These are multi-year contracts with fixed volumes

• No "surge production" coming to save consumer markets

Wall Street keeps cheering every AI infrastructure announcement—more data centers! More CapEx! More growth!—without asking the obvious question: what happens when the physical constraints actually bite?

The memory shortage isn't a speed bump. It's a structural reallocation that could last into 2027 or 2028, and it's already forcing cuts to consumer tech production while AI companies hoard supply at any cost.

JPMorgan's "Expense Shock" Reveals the Real Cost of the AI Arms Race

Speaking of costs, JPMorgan just gave Wall Street a preview of what happens when the AI spending spree collides with reality.

Despite beating Q4 earnings estimates, the stock dropped 4% intraday after management issued:

• Conservative 2026 guidance

• "Surprisingly high expense budget"

• Projected $95 billion in expenses for 2026

J.P. Morgan Chase (USD) - 1W

The culprit: Massive spending on AI infrastructure and technology, even if it hammers near-term margins.

What this means:

• The era of easy earnings growth driven by high interest rates is over

• As the Fed cuts deeper, banks face shrinking net interest income and exploding technology costs

• Jamie Dimon is sacrificing profitability today to win the AI infrastructure war tomorrow

• Every major bank will face the same choice: spend aggressively or fall behind permanently

Collateral damage:

• Wells Fargo tumbled 4% on its earnings miss, looking increasingly vulnerable

• The banking sector is now in a profitability squeeze

• Rates are falling, but the technology arms race demands billions in CapEx

• That's not the backdrop for multiple expansion

Wells Fargo (USD) - 1W

What Happens When the "Soft Landing" Is Actually Stagflation Lite?

Let's recap where we actually are:

The labor market reality:

• Worst hiring year since 2020

• Manufacturing shed 68,000 jobs in 2025

• The Fed admitted job creation overstated by 60,000 per month

• Wage growth for job changers accelerated to 6.6%, keeping inflation sticky

The cost pressure reality:

• Memory prices surging 50%+ per quarter

• Corporate expenses exploding (JPMorgan signals this)

• AI infrastructure spending accelerating despite physical constraints

The valuation reality:

• Markets hit record highs because... the Fed might cut rates twice?

• S&P 500 trading at 22x forward earnings

• Bank of America's sentiment gauge flashing "excessive bullishness"

• Leveraged fund positioning in small caps at 94th percentile

The logical impossibility:

The "soft landing" narrative requires you to believe:

• Weakening economic activity will coincide with 15% earnings growth

• Sustained AI infrastructure spending can continue despite memory crisis

• No credit stress despite rates staying higher for longer

• Collapsing labor market is bullish and corporate profits will accelerate

• Rising input costs + slowing demand = margin expansion

More likely? We're entering a phase where growth disappoints while costs stay elevated—a kind of stagflation lite that breaks the "bad news is good news" logic the market's been riding since 2023.

Strategy Spotlight: Recession Resistant

For investors who aren't buying the "Goldilocks" narrative—who see a labor market in serious deterioration, sticky inflation, and elevated valuations colliding with slowing growth—Recession Resistant offers a disciplined alternative.

Rather than chasing momentum into increasingly crowded cyclical trades, this strategy systematically allocates to defensive stocks that have historically demonstrated resilience during economic downturns:

• Consumer staples

• Healthcare

• Utilities

• Essential retail

The approach:

• Recognizes that when consumers pull back and businesses freeze hiring, spending shifts toward necessities

• Rebalances approximately every 30 days

• Maintains diversification across sectors less sensitive to economic fluctuations

• Designed for environments where growth disappoints while the Fed's ability to rescue markets remains constrained by persistent inflation

Closing Notes

Markets are priced for perfection at exactly the moment when cracks are appearing everywhere:

The contradictions:

• Worst labor market in five years gets cheered because it might produce Fed cuts

• AI infrastructure spending accelerates into a memory supply crisis that won't resolve for two years

• Banks warn about exploding expenses just as rate cuts threaten their margins

• Everyone's positioned for a "reacceleration" in growth that the actual economic data refuses to confirm

The problem with "bad news is good news":

It only works until bad news actually becomes bad news. Watch what happens when:

• Q1 earnings guidance comes in cautious

• Memory shortage starts forcing AI infrastructure delays

• Credit stress emerges from a labor market that's been deteriorating for nine straight months

The market's celebrating job losses because it assumes the Fed will save everything. That's not a bull case—it's a prayer.

This Week in Markets

Markets hit record highs this week on weak jobs data, which apparently now counts as good news. The S&P 500 and Dow notched all-time highs Wednesday after the ADP report showed just 41,000 private jobs added in December—below the already-anemic 47,000 forecast. Wall Street's logic? Weak hiring means the Fed will cut rates, so growth stocks can keep levitating.

But dig one layer deeper and the "Goldilocks" narrative starts cracking. Job openings hit a five-year low at 7.1 million, unemployment sits at 4.6%—its highest post-pandemic level—and inflation remains stubbornly above the Fed's 2% target. The official story says this is a soft landing. The bond market, quietly, is pricing something else entirely.

BYD Just Pantsed Tesla, and Wall Street's Not Even Watching

While Tesla bulls fixated on robotaxis and Elon's latest political spectacle, something seismic happened: BYD crushed Tesla in global EV sales for the first time ever. The Chinese automaker sold 2.26 million battery-electric vehicles in 2025, up 28% year-over-year, while Tesla's deliveries fell 9% to just 1.64 million—marking its second straight year of declining sales.

Let that sink in: the company Elon Musk openly laughed at in 2011, dismissing their products during a Bloomberg interview, just became the world's largest EV manufacturer. Tesla's fourth-quarter deliveries plunged 15.6% year-over-year to 418,000 units, with European sales collapsing 28% amid political backlash against Musk and the expiration of the $7,500 federal tax credit that previously propped up demand.

Number of Tesla vehicles delivered worldwide from 1st quarter 2016 to 3rd quarter 2025 (in 1,000 units)

Wall Street's response? Tesla shares barely flinched. The narrative remains: "Tesla is an AI/robotics company now, not a car company." How convenient that the pivot happens right as they lose the EV crown.

The reality Wall Street's ignoring: BYD achieved this while fighting fierce domestic competition and relentless price wars in China. They did it with vertical integration, tight cost control, and a broad product portfolio spanning tiny city cars to luxury sedans—while Tesla still relies on the same two models for 95% of its volume. BYD's overseas sales surged 150%, and they're just getting started in markets where Tesla has dominated for years.

The broader shift is undeniable: China went from domestic EV champion to global pace-setter, and Western automakers—not just Tesla—are scrambling to respond. The narrative that American innovation would dominate the EV transition? It's looking increasingly obsolete.

The AI Boom's Dirty Secret: It's Running Out of Memory

Speaking of things Wall Street isn't pricing: the AI infrastructure build-out everyone's celebrating is quietly hitting a wall. There's a global memory chip shortage that's about to make gadgets significantly more expensive—and it's getting worse, not better.

Here's what happened: As AI data centers gobbled up compute capacity, memory manufacturers like Samsung, SK Hynix, and Micron redirected production capacity toward high-margin High Bandwidth Memory used in AI accelerators. The result? A structural shortage of conventional DRAM and NAND for consumer devices.

DRAM prices surged roughly 50% in 2025 and are expected to climb another 30% in Q4 2025, followed by 20% more in early 2026. SK Hynix reported that its memory capacity is "essentially sold out" for 2026. Even Samsung—which manufactures its own memory—warned that supply shortages will affect everyone, forcing the company to consider price increases across its product lineup.

The timing couldn't be worse. Microsoft's Windows 10 end-of-life is supposed to drive a massive PC refresh cycle, except IDC warns the PC market could contract up to 9% in 2026 instead because manufacturers can't afford—or even obtain—enough RAM. Major PC vendors are signaling 15-20% price increases for H2 2026.

The smartphone market faces similar pressure. Chinese manufacturers like Xiaomi are warning of price hikes as memory costs squeeze margins, while Apple and Samsung—with their long-term supply contracts—capture market share from smaller brands that can't secure chips at any price.

And the kicker? Chipmakers aren't scaling up capacity. Micron's next new factory won't come online until 2027. By late 2026, manufacturers will have maxed out expansion in current facilities. The AI boom everyone's celebrating is cannibalizing the supply chain for everything else—and nobody's building enough capacity to fix it.

So while Wall Street celebrates trillion-dollar AI infrastructure spend, the actual bottleneck—the memory that makes it all work—is tightening by the month. Good luck building that AI future when you can't get the chips.

Oil's Quiet Collapse: $57 Crude in a "Booming" Economy

While tech stocks hit records, energy markets are telling a very different story. WTI crude closed 2025 around $57 per barrel—down nearly 20% for the year, marking oil's biggest annual loss since 2020. Brent fell about 19% over the same period.

The culprit? OPEC+ aggressively unwound production cuts throughout 2025, adding over 2.9 million barrels per day to global supply in response to Trump's persistent pressure to lower prices. The group has now paused further increases through March 2026, but the damage is done: the IEA projects supply will outstrip demand by 3.85 million barrels per day in 2026—roughly 4% of global consumption.

The EIA forecasts Brent will average around $55 per barrel through 2026, with some analysts projecting a dip to $50 by mid-year. U.S. drillers are already responding to low prices by scaling back: domestic production is expected to decline by 100,000 barrels per day to 13.5 million in 2026.

For consumers, this means average U.S. gas prices could fall below $3 per gallon for the first time since 2020—translating to $11 billion less spent at the pump compared to 2025. But for energy investors, it's carnage. The narrative was supposed to be "AI drives energy demand." Instead, oversupply is crushing prices while everyone focuses on data center buildouts.

Strategy Spotlight: Protection When Divergences Signal Danger

For investors watching bonds and stocks tell contradictory stories while supply constraints threaten the AI buildout, Surmount's AlphaFactory Protective strategy offers a systematic approach to defensive positioning. Rather than staying fully exposed to equities hitting all-time highs on weakening fundamentals, this strategy dynamically adjusts between high-conviction stocks and gold based on market volatility.

The core logic: The strategy maintains a basket of 10 large-cap stocks selected using momentum and value scores, but incorporates a protective mechanism tied to SPY's realized volatility. In low volatility environments, it allocates fully to stocks. As volatility rises into moderate ranges, it blends stocks with gold. In high volatility regimes—the kind that often accompanies the market realizing consensus was wrong—it shifts entirely to defensive positioning.

Under current conditions, with the 10-year Treasury yield around 4.15%, job openings at five-year lows, and memory supply constraints threatening to derail the AI narrative everyone's banking on, the systematic risk management becomes particularly relevant.

This is a disciplined, rules-based approach—not a guarantee against losses. But when equity markets are celebrating record highs while bond markets price persistent inflation and supply chains show structural cracks, having systematic exposure that adapts to volatility can provide crucial protection if one of these narratives breaks badly.

What Wall Street's Missing

This week's record highs came on deteriorating labor data that bulls spun as good news for rate cuts. Meanwhile, the actual infrastructure supporting the AI boom—memory chips—is running into hard supply constraints that will ripple through consumer electronics pricing for years. The EV transition everyone assumed would be American-led just crowned a Chinese champion that's accelerating away. And energy markets are pricing in economic weakness that equity investors are blissfully ignoring.

The market's betting on a soft landing and endless AI growth. The bond market is pricing persistent inflation and a Fed that's out of ammunition. Memory manufacturers are sold out through 2026 with no new capacity coming online soon. Oil's at $57 despite geopolitical chaos that would've sent it to $100 five years ago.

One of these narratives is catastrophically wrong. The smart money isn't celebrating new highs—it's watching which story breaks first.