Charts Paint 1000 Words: Two Sectors May Outperform

As geopolitical shocks fade and capital flows return to U.S. equities, two sectors stand out with the potential to deliver meaningful excess returns. Which ones—and why now?

Investors hold very little exposure to energy stocks today, from a relative perspective.This is often the kind of setup that leads to a meaningful shift in positioning.I’m comfortable investing against the consensus here.

While short-term oil price shocks can create significant economic disruptions and drive inflation higher, oil prices over the long run typically track the general rate of inflation.

Another sector with strong potential for excess returns is aviation. Airbus projects global demand for 43,000 new commercial aircraft over the next 20 years. Currently, there are around 24,730 commercial aircraft in service worldwide. By 2044, only 5,800 of them will still be operational—creating a replacement demand for 18,930 aircraft and an additional need for 24,480 new ones. The new demand alone would match today’s global fleet size.

Despite recent events such as Trump’s reciprocal tariff policy and the Middle East conflict, U.S. equities remain resilient, trading near historic highs. Over a century of market history shows that equities continue climbing through adversity. While geopolitical events can cause significant short-term market disruptions, their long-term impact is usually limited, and markets frequently rebound and continue their upward trajectory.

Long-term returns from U.S. stocks track corporate earnings growth.

Of the last six major military conflicts, four saw U.S. equities bottom out shortly after the event began. The only exceptions—2001 (Afghanistan) and 2022 (Russia-Ukraine)—were tied to non-geopolitical market issues: the dot-com crash and Fed-driven valuation corrections, respectively.

History supports buying major dips. From 1928 to 2024, buying at market peaks and holding for 20 years delivered an average return of 634%. Buying after a 20% drawdown? That jumped to 1,036%.

Investors seem to agree. According to Bank of America, $38.1 billion flowed into U.S. equities in the week ending June 17—the highest in three months.

Retail traders have demonstrated robust buying activity in recent months, with Goldman Sachs estimating net purchases of approximately $20 billion in US stocks over the past three months.

Foreign ownership of U.S. equities is now near a record high at 18%.

Since bottoming in October 2022, the current bull market is now in its third year. Historically, the third year of a bull run tends to underperform, averaging just 2% returns—but if markets survive year three, year four is usually much stronger.

JPMorgan research shows Stocks bottom 5 months before GDP inflects.

Let’s take a look at other charts:

Going long gold has remained the most crowded trade for three straight months, although June saw some easing. Long Mag 7, short the dollar, and long European stocks followed as the next most crowded trades.

Enterprise data from fintech firm Ramp shows that OpenAI is dominating the corporate AI race.

Using credit card and billing data, Ramp estimates that as of April, 32.4% of U.S. businesses were using OpenAI products—up from 18.9% in January and 28% in March—clearly outpacing rivals. Google’s AI tools have rapidly lost ground, with market share now negligible.

Is the AI-driven job loss wave already underway? Big Tech is leading the charge. Amazon CEO Andy Jassy recently said that as the company adopts more generative AI tools and agents, headcount will shrink over time. Microsoft is also conducting similar layoffs.

China continues to add to its gold reserves and reduce holdings of U.S. Treasuries.

Government jobs are falling: 22,000 federal government jobs were lost in May, the most in at least 4 years. This marks the 4th consecutive monthly decline. Year-to-date, federal government jobs have declined by 59,000, to 2.96 million, the lowest since November 2024.According to Reuters estimates, over 260,000 federal workers have been fired, taken buyouts, or retired early this year.

Monetary policy should remain tight until the 11% additional inflation we've had since January 2020 above the 2% trendline is erased. There's no point in having an inflation target if you're not going to adhere to it. The Fed should not cut rates at all this year.

Fast food prices are rising fast: McDonald's core products have more than doubled in price over the past decade.

Foreign investors in Chinese A-shares are heavily overweight artificial intelligence, with 52% of allocations focused there—well ahead of healthcare and high-dividend sectors in second and third place.