What’s Inside:

1. At a Glance - A “weight of the evidence” look at the current market environment, as well as my Regime map.

2. The Call - A deeper dive into what I am seeing

3. Under the Hood - Current market internals, sector breadth, and intermarket analysis.

4. Sector Watch - Which sectors pass/fail the screening process.

5. Current Screen - Which stocks pass the screening process.

6. What I Am Watching - Stocks I am watching that are approaching a passing grade in the screening process. Plus, what changed from last week.

(Current ARTAIS clients, please reach out to me for a free paid subscription)

At a Glance

Market regime: Risk On

The Call

In last week’s report, I discussed the improving momentum in the Tech sector and how it was on the verge of turning positive.

This week, the momentum in the Tech sector has turned positive.

(Current ARTAIS clients, please reach out to me for a free paid subscription)

Below is a Relative Rotation Graph (RRG) of the 11 sectors that make up the S&P 500 Index.

Currently, the rotation is showing improving momentum in tech stocks and is indicating we are entering back into a “risk on” rotation for US equities.

RRGs typically rotate in a clockwise direction. This allows us to see the rotation from “risk on” to “risk off” and back, in real time.

While I don’t have a magic crystal ball that tells me how long these conditions will last, I find it useful to look at the rotation of not just the sectors themselves, but the rotation of high vs low beta, value vs growth, and how overbought and oversold the areas of the market that investors typically label “offense vs defensive”.

To start, let’s take a look at the relationship between these “risk on” and “risk off” categories.

The below Relative Rotation Graph shows the rotation between high-beta vs low-volatility, growth vs value, and consumer discretionary vs consumer staples.

Why consumer discretionary vs consumer staples? Investors look at consumer’s behaviors and how their purchases affect earnings growth.

When a person feels good about the economy and their future job outlook, they tend to spend more on big-ticket items. Perhaps they upgrade their phone or buy a larger TV before football season starts.

When a person is worried about the economy, they tend to avoid these purchases. However, they still buy everyday necessities (staples), like groceries, toilet paper, and (hopefully) deodorant.

As a result, when markets are in a downtrend, many flock towards consumer staples, since the earning of these companies tend to be more stable during times of economic instability.

I’ve circled the “risk-on” asset classes in green and “risk-off” in red to highlight the improving momentum that favors the “risk-on” theme:

Read more

What’s Inside:

1. At a Glance - A “weight of the evidence” look at the current market environment, as well as my Regime map.

2. The Call - A deeper dive into what I am seeing

3. Under the Hood - Current market internals, sector breadth, and intermarket analysis.

4. Sector Watch - Which sectors pass/fail the screening process.

5. Current Screen - Which stocks pass the screening process.

6. What I Am Watching - Stocks I am watching that are approaching a passing grade in the screening process. Plus, what changed from last week.

At a Glance

Market regime: Cautious

The Call

For the past few weeks, I have been talking about the opportunity in Tech and the Semiconductor space.

However, the rotation from value back to growth has been slow, in part due to another wave of “disagreement” over opening the Strait of Hormuz, and waiting to hear what the Fed and its new Chair, Kevin Warsh, will say about inflation and interest rates.

(Current ARTAIS clients, please reach out to me for a free paid subscription)

If we take a look at the Relative Rotation Graph (RRG) of the sectors within the S&P 500 (I’ve added SOXX and SMH to help track semiconductor stocks), the momentum of the Tech sector is on the verge of switching over to positive.

But investors are still hesitant. Similar to a person who is standing on the very edge of a diving board, hesitant to jump into the pool.

While we wait, there are already signs that some of the market is positioning itself for this (potential) next leg up.

Below is a Point and Figure (PnF) chart of the Bullish % Index of the Tech sector:

For those not familiar with PnF charts, they simply show price movement with time removed. Tom Dorsey, who built a research firm around Point and Figure, refers to the Xs and Os on the chart as offense and defense.

In other words, when the chart shows a column of Xs, the offense is on the field.

Bullish % Index charts show the percentage of stocks on a Point and Figure buy signal. These charts range from 0% to 100%. Anything below 30% is considered oversold, and anything above 70% is considered overbought.

So, in regard to the Tech sector, the offense just got back onto the field while the sector was in oversold territory.

As the Tech sector is the largest component of the S&P 500 index, a rise in the sector may help push the S&P 500 index to higher levels:

(Current ARTAIS clients, please reach out to me for a free paid subscription)

Under The Hood

Sector Watch

Current Sector weighting of ARTAIS names passing the screen

Read more

Next week is the July 28–29 FOMC meeting, and the market is doing something it hasn’t done in a while, pricing in a real chance the Fed raises rates instead of cutting or holding.

Currently, the CME’s FedWatch tool puts the odds of a 25-basis-point hike at roughly 35%. While the odds are still low, the back and forth is what I am focusing on.

(Current ARTAIS clients, please reach out to me for a free paid subscription)

In mid June, the U.S. and Iran reached a preliminary agreement to reopen the Strait of Hormuz for shipping and extend the ceasefire. Oil prices dropped on this news.

Because of this, the inflation data showed that inflation was starting to cool.

For example, if we strip out food and energy costs, the CPI (consumer price index) has dropped to 2.6% and is heading towards the Fed’s stated target rate of 2%:

The general consensus became that higher oil prices during the conflict were temporarily pushing the data higher:

So why are we even talking about raising rates right now?

Simply, energy and food.

Rising gas prices and food costs are impacting the consumer, which means they have less money to spend.

Since the US is a consumer-based economy, this means less profit for non-energy and non-food companies. Which can translate into layoffs and less jobs.

In addition, the closure of the Strait of Hormuz impacts the transportation of non-oil necessities like fertilizer.

And historically, when gas prices rise, so does the price of fertilizer, and therefore food costs rise:

But if the Fed tightens, this can also slow down the economy by raising borrowing costs and making expansion more difficult.

So the Fed, in my opinion, is stuck.

In fact, if we look at the expectation for future interest rate levels, we can see the Fed “flip-flopping” back and forth. (Yes, flip-flopping is my technical term for this):

The plots in the above chart show the Fed raising rates in 2026, then immediately dropping rates to a level lower than what they currently are.

As any long-time investor will tell you, the Fed has historically waited too long, and sometimes overreacts, on its moves. Most recently, calling inflation transitory in 2021 and 2022 and failing to take action.

My base case remains that the Fed should not raise rates, because they have proven in the past to not be nimble enough for the “flip-flop” scenario.

Especially if they think they can time geopolitical events, like the war in Iran.

(Current ARTAIS clients, please reach out to me for a free paid subscription)

DISCLAIMER

This article is published by John Rothe, CMT, principal of ARTAIS Capital Management, LLC (“ARTAIS Capital”), a registered investment advisor offering advisory services in registered states and in other jurisdictions where exempt. Registration does not imply a certain level of skill or training.

The opinions expressed in this newsletter are for informational and educational purposes only and do not constitute investment advice, a recommendation to buy or sell any security, or an offer to provide investment advisory services. All investments involve risk, including the possible loss of principal.

Any references to past performance, market data, or historical patterns are not indicative of future results. Forward-looking statements reflect the author’s current analysis and are subject to change without notice.

ARTAIS Capital Management, its principal, and/or its clients may hold positions in securities or asset classes discussed in this publication.

For personalized investment advice, please consult a qualified financial professional who can assess your individual circumstances.

NATURE OF THIS PUBLICATION: This screen represents the complete output of a systematic, rules-based quantitative methodology. It is published for informational and educational purposes only. It is NOT a model portfolio, NOT a recommended holdings list, and NOT personalized investment advice.

CONFLICTS OF INTEREST: ARTAIS Capital Management, its principal, and/or its clients may hold, buy, or sell any security listed in this publication at any time, without notice, and without regard to the publication schedule. Some securities appearing on this screen may also appear in ARTAIS client portfolios. Client portfolio decisions are made independently based on each client’s investment objectives, risk tolerance, time horizon, tax situation, and overall portfolio context. The appearance of a security on this screen does not mean it is held in any specific client account, nor does it mean it is suitable for any particular investor.

SUBSCRIBERS VS. CLIENTS: Paid subscribers receive this research for informational and educational purposes. ARTAIS clients receive personalized portfolio management under a written investment advisory agreement. This publication is not a substitute for individualized investment advice. If you are not an ARTAIS client and wish to receive personalized advice, please consult a qualified financial professional who can assess your individual circumstances.

PERFORMANCE: No performance data for this screen is published, calculated, or implied. Past inclusion of a security on this screen is not indicative of future results. All investments involve risk, including the possible loss of principal.

NO OBLIGATION TO UPDATE: Securities may be added to or removed from this screen at any time based on the methodology’s criteria. ARTAIS has no obligation to notify subscribers of changes between scheduled publications.

LARGE-CAP FOCUS: This screen evaluates securities with market capitalizations generally above $8 billion. This does not imply that large-cap securities are less risky or more suitable than other investments.

Do not buy or sell any security solely based on its appearance on or removal from this screen.

© 2026 ARTAIS Capital Management, LLC. All rights reserved.

What’s Inside:

1. At a Glance - A “weight of the evidence” look at the current market environment, as well as my Regime map.

2. The Call - A deeper dive into what I am seeing

3. Under the Hood - Current market internals, sector breadth, and intermarket analysis.

4. Sector Watch - Which sectors pass/fail the screening process.

5. Current Screen - Which stocks pass the screening process.

6. What I Am Watching - Stocks I am watching that are approaching a passing grade in the screening process. Plus, what changed from last week.

At a Glance

Market regime: Cautious

The Call

Typically, as summer progresses, much of Wall Street heads to the beach.

This can sometimes change the market dynamic from one of building positions in a portfolio to one of short-term trading.

For trend-based models, like the one I deploy at ARTAIS Capital, this narrow rotation can lead to a boring and stagnant environment. This can be seen in the list of names passing my screening requirements, which continues to get smaller and smaller.

(Current ARTAIS clients, please reach out to me for a free paid subscription)

However, sometimes, this can spook a high-performing sector that has gotten a lot of attention, especially from retail traders.

For example, semiconductor stocks:

While I like to wait for the trend to reestablish itself, the current pullback in semiconductor names is worth paying attention to.

I have been discussing this pullback in depth on Substack Notes, and it seems like we are getting to the point of the pullback where investors are looking for opportunities.

We just need a catalyst to get going, and China just gave us one.

China just released its most powerful open-source AI model, Kimi-K3, and it’s impressive:

AI company CEOs, like OpenAI’s Sam Altman and Anthropic’s Dario Amodei, are already taking advantage of this news by stoking the fears of China winning the AI race.

Kimi-K3 gives AI leaders talking points to help them raise more capital from investors, lobby the government for more funding with fewer restrictions, and provide a topic for CFOs to focus on during upcoming earnings season (which is about to start) that distracts investors from any short-term negatives.

For example, look at today’s headlines in the WSJ:

…and some of the quotes from AI leadership:

OpenAI and Anthropic executives are sounding the alarm about the rise of cheap AI, particularly powerful new models produced in China, suggesting they will lead to a “dystopian” AI future and present unacceptable security risks without regulation.

“One probable outcome of an open-weight-model-dominant world is full AI communism, which is precisely what China proposes: rather than a market product, AI is a ‘public good’ which will ultimately be provided by the state as a kind of ‘digital public infrastructure,’” Dean Ball, OpenAI’s head of strategic futures, said in an X post Friday.

source: WSJ

For now, I will be watching semiconductor stocks to see:

1. whether they can reestablish their longer-term upward trend,

2. if AI leadership continues to focus on the US vs China narrative,

3. how investors react to upcoming earnings releases (are investors focused on the short term, like quarterly cash flows, or have AI leaders been able to make investors refocus on the US vs China narrative?)

(Current ARTAIS clients, please reach out to me for a free paid subscription)

Under The Hood

Sector Watch

Read more

If you are not familiar with it, the Presidential election cycle is one of the oldest observations in market seasonality, popularized by Yale Hirsch in the Stock Trader’s Almanac.

The idea is simple: U.S. equity returns have historically clustered by where the calendar sits in the four-year presidential term:

The conventional explanation is political-fiscal. In the first two years of a term, an administration tends to deal with the harder policy changes in its agenda.

(Current ARTAIS clients, please reach out to me for a free paid subscription)

By the second half of the term, the incentive flips toward economic stimulus and clarity ahead of the next election, in the hope of getting the incumbent party reelected.

In this week’s note, I want to dive a bit deeper and discuss some of the opportunities that are beginning to unfold and how it relates to this cycle.

The Current Pullback in Technology

As of the July 15, 2026 close, the S&P 500 sits at only 0.5% below the record it set on June 2.

However, if we look one layer down, the picture is very different. The technology sector is down over 10% since its June 2nd peak:

Source: OPTUMA

And the iShares Semiconductor ETF (SOXX) has fallen over 18% since its high in June.

What makes this interesting is the fact that the Technology sector is the largest component of the S&P 500 Index.

So how is the S&P 500 index nearing its previous all-time high when the Tech sector is down over 10% since June?

Financials and Health Care have taken over and have been supporting the index, while Tech falters. Since the June 2nd peak in Technology, Financials and Healthcare are each up over 10%:

What does this pullback in Tech have to do with the midterm elections?

Let’s dive deeper into the historical trends of this cycle…

The Midterm Summer Low, and What Typically Follows.

If we study the midterm election years as a group, a pattern begins to emerge. A choppy, range-bound first half, a soft patch across late spring and summer, a low, and a recovery that builds into the November election and accelerates into the pre-election year.

The charts below plot every midterm year since 1950 indexed to the prior year-end (=100), from January 1 into the election, with the bold navy line showing the average path.

I have also highlighted both the mean and median values of when the low has occurred:

Technology shows similar timing, but with a wider range (this is due to the sector’s higher beta).

For this, I am using Kenneth French’s business-equipment (technology) industry portfolio on a total-return basis. His data can be accessed here: https://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html

The average and median lows again cluster in the May–June window.

From the median June low into the end of October, the sector has averaged a 3.4% gain, positive in 58% of years — slightly outperforming the index, again consistent with Technology’s higher beta.

LPL Financial has noted that the S&P 500 was higher twelve months after every midterm low since World War II. The point for a tactical investor is directional: the midterm summer is historically closer to an entry than an exit.

While the move from the summer low into November has been positive, this is not where the real opportunity lies.

Over the twelve months following the midterm low and into the pre-election year, the S&P 500 index has averaged +17.2% and finished higher 89% of the time since 1950.

Using the end of June as a start date and Kenneth French’s data, the 12 months after the typical low have been pretty impressive for the Tech sector:

Source: Kenneth R. French Data Library, 12 Industry Portfolios, “BusEq” (business equipment: computers, software, electronic equipment), average value-weighted monthly TOTAL returns, 1950–2023 (mba.tuck.dartmouth.edu/pages/faculty/ken.french). Start = June month-end of each midterm year (the composite mean/median low month); return compounded over the following 12 months.

What about Health Care and Financials?

The below Relative Rotation Graph is already showing the momentum starting to weaken for Health Care and Financials:

If you are not familiar with Relative Rotation Graphs (RRG), they allow us to visualize market rotation in real time.

RRGs typically rotate in a clockwise fashion, and research has shown that opportunities occur when a sector is in the lower left quadrant. This is due in part because investors start looking for value after a pullback in price (Think buy low, sell high).

(Current ARTAIS clients, please reach out to me for a free paid subscription)

As I mentioned in this week’s Signal & Noise Report, in his paper, “Buying Out Performers is Too Late,” Mathew Verdouw, CMT, CFTe, highlights that when stocks are in the Lagging Quadrant (the red, bottom-left quadrant), 90% of the time they continue to rotate to the Improving Quadrant:

This means 90% of the time these stocks see a rise in positive momentum and relative strength.

But John, what about the down years during a midterm election year?

Up Years vs. Down Years — What Actually Separates Them

Averages hide the most important fact about midterm years, which is that they are bimodal.

The useful question is not “is this a midterm year” but “which kind of midterm year is this.”

The dividing line is not the calendar. It is the economy. Sort the down years, and every one of them coincided with a recession or an aggressive monetary-tightening bear market: 1962 (a growth scare), 1966 and 2022 (Fed-tightening bears), and 1970, 1974, 1990, and 2002 (recessions).

Sort the up years, and they are, almost without exception, ordinary economic expansions.

Grouped that way, expansion midterm years finished higher in 11 of 12 cases and averaged +11.4% into the election, while recession-and-tightening midterm years were down in all 7 and averaged −17.6%.

Where Does 2026 Sit?

On the evidence available today, 2026 fits the expansion profile rather than the recession profile, on three independent measures:

· No recession. The U.S. economy is not in an NBER-dated recession, and the S&P 500 sits within 1% of an all-time high. In most prior midterm years that finished lower into the election, the market was already in the red by summer. 2026 is not.

· A strong first half. The S&P 500 was up 10.6% year-to-date at mid-July. Historically, a positive mid-July has skewed the outcome sharply: midterm years that were higher at mid-July finished higher into the election 78% of the time (average +10.6%), while those that were lower at mid-July finished up only 40% of the time (average −8.3%).

· Positioning. Down midterm years averaged −11.3% at mid-July; up years averaged +5.7%. At +10.6%, 2026 is running ahead of the typical up-year trajectory, not behind it.

Of course, none of this guarantees the outcome. Instead, the data implies that the version of the midterm pattern that applies in a healthy expansion is the relevant base rate for 2026.

In Summary

Put the three threads together. First, the calendar: a midterm-year summer, historically the interior low of the weakest year in the cycle, handing off to the strongest.

Second, the regime: an ongoing expansion with the index near highs, which is the profile that has produced up years 11 times in 12.

Third, the pullback itself: the highest-beta group in the market has already corrected 14% to 18% from its June peak while the index has barely moved.

This is what a sector-level pullback inside an intact stock market uptrend looks like.

Semiconductors led on the way up, and high-beta leadership giving back part of a large advance during the summer soft patch is exactly the behavior I would expect to see in this cycle.

My research on beta and the Presidential cycle has found that the technology and high-beta complex tends to bottom slightly later than the index and then leads the recovery once the Year 2-to-Year 3 handoff begins, with the deepest relative weakness clustered in the June-to-September window that the market is now traversing.

The analytical observation, then, is that a semiconductor group down 14% to 18% from its June high, inside an expansion, in a midterm summer, is sitting at the intersection of three separate historical tailwinds rather than at the start of a structural breakdown.

That does not make it a certainty, and it is not a recommendation to buy any specific security. It is a statement about base rates: history has more often rewarded accumulation into this kind of weakness than punished it.

Skeptic’s Corner

So what can go wrong? I like to always examine the opposite side of the argument, then use the weight of the evidence to help formulate my decisions.

· The sample size is small. Nineteen midterm years is a small sample, and U.S. Bank’s analysis that election-cycle effects are not statistically significant is not a throwaway caveat.

· Regime risk is the whole game. The entire positive year case rests on the expansion continuing. If the labor market rolls over, if inflation forces the Fed back to tightening, or if an earnings reset hits the AI capital-spending cycle, 2026 gets reclassified into the recession scenario, and that scenario was down every single time, by an average of nearly 18%. Semiconductors, as the highest-beta group, would lead that decline just as they have led the advance.

· The correction may not be over. A 14%–18% drawdown is not necessarily the low. High-beta groups have historically bottomed later than the index, sometimes not until the autumn; SOXX down 18% could become SOXX down 25% before it turns. “Cheaper than June” is not the same as “cheap,” and semiconductors are still up sharply on the year. Plus, Tech earnings release tends to cluster near the end of July.

· Seasonality is not a thesis. Semiconductor valuations and the durability of AI-driven demand remain the open questions under the price action. Seasonality can only ever be a supporting argument; it cannot substitute for the fundamentals, and it should never be the primary reason to own a cyclical, richly-valued group.

The measured conclusion: the weight of the historical evidence leans constructive for technology into November, but the argument lives or dies on the economic regime. Watch the data that can break it, like labor, inflation, and the trajectory of AI-related capital spending.

(Current ARTAIS clients, please reach out to me for a free paid subscription)

DISCLAIMER

This article is published by John Rothe, CMT, principal of ARTAIS Capital Management, LLC (“ARTAIS Capital”), a registered investment advisor offering advisory services in registered states and in other jurisdictions where exempt. Registration does not imply a certain level of skill or training.

The opinions expressed in this newsletter are for informational and educational purposes only and do not constitute investment advice, a recommendation to buy or sell any security, or an offer to provide investment advisory services. All investments involve risk, including the possible loss of principal.

Any references to past performance, market data, or historical patterns are not indicative of future results. Forward-looking statements reflect the author’s current analysis and are subject to change without notice.

ARTAIS Capital Management, its principal, and/or its clients may hold positions in securities or asset classes discussed in this publication.

For personalized investment advice, please consult a qualified financial professional who can assess your individual circumstances.

NATURE OF THIS PUBLICATION: This screen represents the complete output of a systematic, rules-based quantitative methodology. It is published for informational and educational purposes only. It is NOT a model portfolio, NOT a recommended holdings list, and NOT personalized investment advice.

CONFLICTS OF INTEREST: ARTAIS Capital Management, its principal, and/or its clients may hold, buy, or sell any security listed in this publication at any time, without notice, and without regard to the publication schedule. Some securities appearing on this screen may also appear in ARTAIS client portfolios. Client portfolio decisions are made independently based on each client’s investment objectives, risk tolerance, time horizon, tax situation, and overall portfolio context. The appearance of a security on this screen does not mean it is held in any specific client account, nor does it mean it is suitable for any particular investor.

SUBSCRIBERS VS. CLIENTS: Paid subscribers receive this research for informational and educational purposes. ARTAIS clients receive personalized portfolio management under a written investment advisory agreement. This publication is not a substitute for individualized investment advice. If you are not an ARTAIS client and wish to receive personalized advice, please consult a qualified financial professional who can assess your individual circumstances.

PERFORMANCE: No performance data for this screen is published, calculated, or implied. Past inclusion of a security on this screen is not indicative of future results. All investments involve risk, including the possible loss of principal.

NO OBLIGATION TO UPDATE: Securities may be added to or removed from this screen at any time based on the methodology’s criteria. ARTAIS has no obligation to notify subscribers of changes between scheduled publications.

LARGE-CAP FOCUS: This screen evaluates securities with market capitalizations generally above $8 billion. This does not imply that large-cap securities are less risky or more suitable than other investments.

Do not buy or sell any security solely based on its appearance on or removal from this screen.

© 2026 ARTAIS Capital Management, LLC. All rights reserved.

What’s Inside:

1. At a Glance - A “weight of the evidence” look at the current market environment, as well as my Regime map.

2. The Call - A deeper dive into what I am seeing

3. Under the Hood - Current market internals, sector breadth, and intermarket analysis.

4. Sector Watch - Which sectors pass/fail the screening process.

5. Current Screen - Which stocks pass the screening process.

6. What I Am Watching - Stocks I am watching that are approaching a passing grade in the screening process. Plus, what changed from last week.

At a Glance

Market regime: Cautious

The Call

The US market is still “risk-on”, but rotating based on geopolitical events and inflation data.

To start, intermediate and long-term trends are still positive:

In the chart above, I have highlighted the S&P 500 in red and green. The red-shaded area is where the intermediate trend turns negative/bearish.

The strategy I manage at ARTAIS Capital is based on intermediate trends, so this is the time frame I tend to focus on most. (Think weeks to months instead of hours to days.)

(Current ARTAIS clients, please reach out to me for a free paid subscription)

While the trends are positive, the market is still rotating and has begun to favor large-caps over small-caps:

The above chart is called a Relative Rotation Graph (RRG). It measures both momentum and relative strength. RRGs typically rotate in a clockwise fashion and allow us to visualize market rotation in real time.

Currently, the RRG is showing improved strength in large-cap areas of the market relative to small and mid-cap areas.

This is in part due to the rotation of the large-cap-heavy tech sector:

The tech sector is currently in the weakest quadrant as shown in the above Relative Rotation Graph; however, this is where many traders start to look for opportunities to enter names that have strong long-term growth, but at a cheaper price.

In his paper, “Buying Out Performers is Too Late,” Mathew Verdouw, CMT, CFTe, highlights that when stocks are in the Lagging Quadrant (the red, bottom-left quadrant), 90% of the time they continue to rotate to the Improving Quadrant:

This means 90% of the time these stocks see a rise in positive momentum and relative strength.

Large-cap tech leaders, like NVDA and AAPL, are showing signs of this improvement in momentum:

The rotation into Tech may also get a boost from today’s inflation data, which showed that inflation is starting to decline:

A big reason for the drop in inflation was lower oil prices:

I wrote about the impact higher oil prices were having on inflation back in June:

https://www.johnrothe.com/p/inflation-just-hit-42-take-out-oil

…and how the market was too aggressive on its outlook for higher interest rates.

And after this morning’s inflation data, betting markets are now predicting low odds of a rate hike from the Fed during its July 29th meeting:

This is bullish for the market and bullish for AI, as lower short-term interest rates favor continued borrowing to fund AI growth.

Under The Hood

Sector Watch

Read more

What’s Inside:

1. At a Glance - A “weight of the evidence” look at the current market environment, as well as my Regime map.

2. The Call - A deeper dive into what I am seeing

3. Under the Hood - Current market internals, sector breadth, and intermarket analysis.

4. Sector Watch - Which sectors pass/fail the screening process.

5. Current Screen - Which stocks pass the screening process.

6. What I Am Watching - Stocks I am watching that are approaching a passing grade in the screening process. Plus, what changed from last week.

At a Glance

Market regime: Cautious

The Call

Is the market starting to regress back to its mean?

The concentration into tech names, especially AI leadership names, is at (in my opinion) ridiculously high levels.

Does this mean it’s time to pack up and go home?

Not necessarily. These overconcentrations can take years to resolve.

The 90’s Tech Boom

I remember in the late 1990s, I was at Morgan Stanley, and there were so many pundits and analysts arguing back and forth about the tech bubble we were in.

The arguments were the same as today: “The valuations are too high and don’t support future growth” vs “The internet is new technology and will change the world. This time is different”.

Sound familiar?

I heard a lot of these arguments in 1998, two years before NASDAQ peaked (which then took 15 years to recover). I think we are somewhere in this timeline now with AI tech.

(Current ARTAIS clients, please reach out to me for a free paid subscription)

However, timing the top is next to impossible since major market tops (and the crash that follows) are usually based on emotions and not logic.

Post Tech Boom: 2000-2013

After the tech boom, the period between 2000 and 2013 was a brutal sideways market that included 2 major declines of -49% and -56%.

EDIT: (apologies - for some reason Substack didn’t save my final version and instead published a draft. Below are the correct paragraphs):

Part of the reason for this period was simple math: the index spent over a decade working off the valuation extreme in its biggest names. In March 2000, large-cap tech traded at valuations that assumed a decade of perfect growth.

For the most part, the growth did show up. The stock returns didn’t, however, because the price had already been paid.

But here’s what a lot of people forget about those years. Underneath that sideways S&P 500, leadership rotated into the unloved parts of the market: Financials. Energy. Materials. Industrials.

The cheap, boring, cyclical stuff that had been priced for irrelevance in 1999. Technology’s weighting in the S&P 500 Index fell from roughly 38% at the 1999 peak to about 14% by the end of 2002, while Energy and Materials grew to a combined weight of roughly 20% by 2008.

One thing I want to be careful about, because I’ve seen this history told wrong: the internet infrastructure buildout was not where capital rotated to after the crash. It was the epicenter of the crash itself.

The fiber was laid during the mania — telecom capital spending peaked in 1999-2000 — and when the bubble broke, the infrastructure builders were the worst casualties.

WorldCom and Global Crossing went bankrupt. Cisco, the “picks-and-shovels” darling of that cycle, needed a quarter century to reclaim its March 2000 high — it finally did so in December 2025, and only because it found a second act selling AI infrastructure.

Yet, the internet kept growing; the companies that spent years building the infrastructure had already spent tomorrow’s demand on yesterday’s stock price. (Keep that thought — I’ll come back to why this cycle’s infrastructure may be different.)

Is the Rotation Away from Tech Starting?

I bring this up now, as there are some signs that the sector weightings in the S&P 500 are starting to move away from Tech.

Value areas of the market have been outperforming their growth counterparts this year.

While one of the reasons (similar to 2000-2013) is simply because there are better and more realistic valuations in areas like Energy, Industrials, and Materials. But I believe the real driver is still AI growth.

So, while I believe we are in a bubble, I don’t believe we are about to pop the bubble. There is still the need for infrastructure to be built out to accommodate AI growth, as an industry.

Instead, it looks like the market is starting to broaden by rotating away from the names that have helped drive up the S&P 500 Index to its current levels:

The largest 10 names (by weighting) in the S&P 500 are changing and are starting to lessen their impact on the index. Source: S&P Global, ARTAIS Capital

This rotation can be observed by looking at the Relative Rotation Graph of the individual sectors within the S&P 500 Index:

Relative Rotation Graphs tend to rotate in a clockwise manner. Technology is starting to lose positive momentum, while Health Care and Financials are improving.

The Next Opportunity for Investors

What this means to investors is that the easy money has been made.

Fans of “just buy the index and hold on” may be disappointed in the returns of the S&P 500 Index over the next decade, as sectors like Energy, Materials, and Utilities - key components of AI infrastructure and comprising only a small part of the index itself - outperform.

A move away from the crowded Tech sector into sectors that benefit from infrastructure growth may negatively impact the performance of the S&P 500 Index.

A second disappointment for the pure S&P 500 Index holders is that a lot of the companies that are becoming involved in the growth of AI infrastructure are not large-cap names, so they are not even represented in the index itself.

Plus, small and mid-caps as a factor have mostly been ignored. As a result, they don’t share the same extreme valuations as some of their large-cap counterparts.

During the period after the tech boom of the 90s, small and mid-caps outperformed large caps:

Many of the companies positioned for the physical buildout, like electrical equipment, grid components, specialty industrials, power producers, are small and mid-sized companies that aren't even in the S&P 500. During the last great rotation, that's exactly where the outperformance lived.

The takeaway from this is that investors who use actively managed strategies may have an opportunity for outperformance if the markets follow a similar pattern to what we saw post 2000.

The Next Space Race?

While the cost of AI is declining, the price of capacity is rising:

I see a big opportunity, especially if AI becomes the new “Space Race”.

Once the US government decides we need to win the AI race and begins to fast-track and aggressively fund infrastructure build-out, we may see conservative value companies in sectors like Utilities, Materials, and Industrials become fast-growing growth companies - and possibly tomorrow’s leadership names.

Under The Hood

Sector Watch

Read more

As of the July 1 close, the S&P 500 was up 9.3% on the year. That’s a respectable first half. But it also badly undersells what’s happening beneath the surface:

• Small caps are up 21.4%.

• Value is beating growth by twelve percentage points.

• The equal-weight S&P 500 is outrunning the cap-weighted version of the index.

• International and emerging markets are keeping pace or better.

This isn’t the narrow, MAG7-stocks-carry-everything market of 2023 and 2024. Leadership is broadening, and that changes the outlook for what the next four months can deliver.

With the index near record highs, a Fed that’s leaning hawkish, and a midterm election looming, is this the moment to reach for the exits?

My answer, as always, is that we don’t guess. We analyze the data and let the rules decide. So let’s look at the data.

The Election Cycle: How Midterm Years Have Historically Performed

So let’s start with the election calendar, because it has a well-documented pattern. Since 1950, the midterm year has been the weakest of the four-year presidential cycle.

The Dow has averaged under 5% in these years, versus roughly 10% in pre-election years.

More important for anyone deploying capital right now: the midterm year also carries the deepest average intra-year drawdown of the entire cycle, about 17.5%, versus 11 to 13% in the other three years.

“Intra-year drawdown” means the peak-to-trough drop inside a single year, and 17.5% is an average across cycles, not a forecast.

The under-performance also tends to cluster in exactly the window we’re entering. The second- and third-quarter stretch is historically the soft spot, with the S&P averaging roughly −1.5%.

Midterm-year lows have arrived late: the average bottom lands around August 18 and the median around September 29.

Here’s the part that I think matters the most: The midterm low has, historically, set up the strongest run in the election cycle.

The stretch from the fourth quarter of the midterm year through the following spring, what the Stock Trader’s Almanac calls the “sweet spot,” has averaged about +20% for the S&P 500.

One year removed from the midterm-year low, stocks have never been lower, and have gained roughly 32% on average.

And in the twelve months following the midterm election itself, the S&P has averaged +15.4% AND was positive in all 18 cycles since 1950.

The Positive Catalysts: What Could Carry the Markets Higher

Seasonality is a tendency, not a mechanism. What actually moves markets is earnings, liquidity, and positioning, and with that in mind, I find the fundamental backdrop does the real work.

1. Earnings are still growing, and fast. Analysts expect S&P 500 earnings to grow about 23% year over year in the second quarter. Estimates were revised up during the quarter, not down. Q2 reporting season kicks off July 14 with the big banks, and that will be the first hard read on whether the fundamentals are keeping pace with the price.

2. The AI capital-spending cycle is enormous, and still accelerating. The major hyperscalers are on track to spend roughly $725 billion on capital expenditures in 2026, up about 77% from 2025. That spending is the revenue line for a long chain of semiconductor, equipment, and power companies, which is why chip and semi-equipment names dominate this year’s small-cap leaderboard. It’s a genuine tailwind. As I’ll argue in the Skeptic’s Corner, it’s also the market’s single largest concentration risk.

3. The economy isn’t rolling over. First-quarter 2026 real GDP came in at +2.1%, revised higher, with business investment up more than 10%. Unemployment was 4.3% in May. However, this isn’t a boom. Today’s weaker jobs report is starting to change the market’s narrative.

The Fed wants lower inflation. For the past few weeks, the markets have been pricing in higher interest rates. After this morning’s jobs report, the probabilities of 1, or even 2, rate hikes this year are starting to fall. This is bullish for stocks.

4. The seasonal and political calendar turns friendly this fall. As noted above, the historically strongest window of the four-year cycle opens in the fourth quarter of the midterm year. Layer on the familiar “gridlock” theme, where divided government has historically coincided with solid equity returns, and the post-election period has often brought relief rather than risk.

Headwinds: Negative Catalysts to Watch For

1. Inflation is re-accelerating, and the Fed has noticed. This is the big one. Headline PCE, the Fed’s preferred inflation gauge, ran at 4.1% year over year in May, its highest in three years.

The Fed did not change rates on June 17, but the updated dot plot, the committee’s own projection of where rates are headed, leaned toward hikes rather than cuts, with roughly half of policymakers open to higher rates this year.

Under new Chair Kevin Warsh, the message has been explicitly about getting inflation back to 2%. While, as I mentioned above, weaker economic data may keep the Fed at bay, as a weaker consumer will lessen the upward price pressures (they have less money to spend, which means less demand). However, strong inflation data could still force the Fed’s hand into aggressively raising rates.

2. Tariff pass-through is landing now. The average effective U.S. tariff rate rose to roughly 7.7% in 2025, the highest since 1947. Economists broadly expect the consumer-price pass-through to peak between April and October 2026, squarely inside our window. That’s a live upside risk to the very inflation prints that constrain the Fed.

3. A fiscal cliff sits on September 30. Government funding expires September 30. With FY2026 having already opened with the longest shutdown in modern history, another funding fight into the fall is a real possibility, and it lands weeks before the election. Longer term, federal debt is projected to climb from about 101% to 120% of GDP, which puts pressure on long-term bond prices.

4. Geopolitics remains an oil-shaped tail risk. The Middle East escalation earlier this year drove crude sharply higher before it retraced, and the Fed explicitly cited “elevated uncertainty” tied to the region in its June statement. WTI is back around $67 and Brent near $70, both still up roughly 15 to 17% on the year, but this escalation is a reminder of how quickly an energy shock can reignite inflation and compress valuations.

5. Recession risk isn’t zero, and valuations leave little room for error. Twelve-month recession odds range from about 30% at Goldman Sachs to 40% at EY-Parthenon to 49% at Moody’s Analytics. Meanwhile, the S&P 500 trades near 20 times forward earnings, above its five-year (19.9x) and ten-year (18.9x) averages. Higher-than-average multiples don’t cause corrections, but they can magnify the damage when a negative catalyst arrives.

Under The Hood: Rotation, Breadth, and Where the Market Leadership is Heading

The most constructive development of 2026 is the one the index level hides: the market is broadening.

For two years, a handful of megacap platform stocks did the heavy lifting. In 2026, leadership has rotated, and rotation is generally a sign of a healthier, more durable advance.

Technology still leads on a sector basis, but the character of that leadership has shifted.

It’s moved from the megacap tech names toward semiconductors, AI hardware, and the industrial and energy complexes that feed the AI build-out.

Energy is up nearly 20%, industrials nearly 19%, materials 13%.

On the other side, communication services (home to several megacap growth names) is the worst sector, down 6%, and consumer discretionary is roughly flat.

That split is exactly why the broad Russell 1000 Growth index is up only 4% while Russell 1000 Value is up 17%.

The breadth signals reinforce it. The equal-weight S&P 500 (+12.3%) is beating the cap-weighted index (+9.9%), which tells you the average stock is outperforming the handful of giants at the top.

Small caps are having their best first half since 1991, with consensus 2026 earnings growth for the Russell 2000 climbing to roughly 38%.

What I’m Watching Between Now and November

This is the checklist I’ll be running against our models:

· July 14: June CPI and the start of Q2 bank earnings. The first real test of both the inflation trend and the fundamentals.

· July 28–29: FOMC. A hold is expected. Watch the language on inflation and the balance of risks more than the decision itself.

· Mid-to-late July: peak Q2 earnings. Are the roughly 23% growth estimates and the AI-capex guidance holding up?

· September 15–16: FOMC with a fresh dot plot. The most important policy event of the window. Does the Fed still lean toward hikes?

· September 30: government funding deadline. Shutdown risk, weeks before the election.

· August through September: the seasonal soft spot, historically where midterm-year lows form. Treat weakness as a shopping list, not a fire alarm.

· Early November: the midterm elections. History favors the twelve months that follow, especially if the result delivers divided government.

· All along: the inflation path, the dollar, and oil. These three are the transmission mechanism for nearly every risk above.

The Skeptic’s Corner

The seasonal edge may be a story we tell ourselves. U.S. Bank looked at the same midterm data and concluded the pattern is statistically insignificant: a sample of just 31 elections across 125 years, with outcomes ranging from losses over 30% to gains near 50%.

Their view is that the economy, not the election calendar, drives returns. And the recent exceptions are real. 2018 and 2022 were both midterm years with vicious declines. Seasonality is a probability tilt, not a schedule.

The market is priced for an easing cycle that may not come. Equities near 20 times forward earnings are implicitly assuming the Fed cuts into a soft landing. Headline PCE at 4.1% and a dot plot tilted toward hikes describe a different world. If the market has to reprice from “cuts coming” to “higher for longer, or higher from here,” the correction won’t wait for a seasonal script.

Concentration cuts both ways. The broadening I praised above is encouraging. But the S&P 500 index is still roughly 40% in ten names, and the AI-capex boom powering earnings is increasingly funded by debt and running well ahead of AI revenue. If that spending cycle even pauses, the cap-weighted index has a long way to fall before the “average stock” cushions it.

In Summary

The weight of history says a midterm year serves up its deepest drawdown in the summer-to-fall window we’re now entering, and then, more often than not, its best returns in the year that follows.

The fundamentals (roughly 23% earnings growth, a $725 billion capex cycle, 2% GDP) argue for staying invested.

The risks (re-accelerating inflation, a hawkish Fed, tariffs, a funding cliff, stretched valuations) argue for staying disciplined.

Those two statements aren’t in conflict.

They’re the whole point of a rules-based, adaptive approach. You don’t have to choose between optimism and caution when your process is built to lean into strength and step back from deterioration on signals, not on feelings.

If the seasonal soft spot arrives, we’ll treat it the way the data suggests it has usually deserved to be treated: as an opportunity that shows up on schedule and gets bought by the patient.

I’ll be watching the July inflation print and the September Fed meeting most closely. Everything else is noise until those two tell us whether the market’s priced-in optimism survives upcoming inflation data.

Sources

· Market levels and returns: ARTAIS calculations from Yahoo Finance adjusted closing prices, December 31, 2025 base through the July 1, 2026 close.

· Seasonality, drawdown, and off-the-low figures: Carson Investment Research (Ryan Detrick, “Thinking About 2026,” November 2025).

· “Sweet spot” +20% and the Q2–Q3 soft patch: Stock Trader’s Almanac (Jeffrey Hirsch).

· Twelve months post-midterm: +15.4% (Capital Group, May 2026); positive in all 18 cycles since 1950 (Forbes, October 2022).

· Skeptic case: U.S. Bank (January 2026), pattern statistically insignificant across a 31-election sample.

· Fed policy: FOMC statement and Summary of Economic Projections (June 17, 2026); rate-path odds per CME FedWatch (late June 2026).

· Inflation: BEA PCE (May 2026, headline 4.1% / core 3.4%); BLS core CPI 2.9% (May 2026).

· Growth and labor: BEA Q1 2026 real GDP +2.1% (June 2026); BLS unemployment 4.3% (May 2026).

· Earnings: FactSet Earnings Insight (2026), Q2 growth about 23%.

· AI capital expenditures roughly $725 billion (+77%): Value Add VC / company guidance (2026).

· Valuation and concentration: FactSet forward P/E near 20x; top-10 weight roughly 40% of the index (Morgan Stanley Investment Management).

· Tariffs: Tax Foundation (effective rate 7.7%, 2025); Council on Foreign Relations and JPMorgan (pass-through peak April–October 2026).

· Fiscal: Committee for a Responsible Federal Budget (September 30 funding deadline); CBO (debt 101% to 120% of GDP).

· Recession odds: Goldman Sachs 30%, EY-Parthenon 40%, Moody’s Analytics 49% (March 2026).

· Breadth and small caps: CNBC (June 2026), Russell 2000 best first half since 1991, roughly 38% 2026 EPS growth.

DISCLAIMER

This article is published by John Rothe, CMT, principal of ARTAIS Capital Management, LLC (“ARTAIS Capital”), a registered investment advisor offering advisory services in registered states and in other jurisdictions where exempt. Registration does not imply a certain level of skill or training.

The opinions expressed in this newsletter are for informational and educational purposes only and do not constitute investment advice, a recommendation to buy or sell any security, or an offer to provide investment advisory services. All investments involve risk, including the possible loss of principal.

Any references to past performance, market data, or historical patterns are not indicative of future results. Forward-looking statements reflect the author’s current analysis and are subject to change without notice.

ARTAIS Capital Management, its principal, and/or its clients may hold positions in securities or asset classes discussed in this publication.

For personalized investment advice, please consult a qualified financial professional who can assess your individual circumstances.

NATURE OF THIS PUBLICATION: This screen represents the complete output of a systematic, rules-based quantitative methodology. It is published for informational and educational purposes only. It is NOT a model portfolio, NOT a recommended holdings list, and NOT personalized investment advice.

CONFLICTS OF INTEREST: ARTAIS Capital Management, its principal, and/or its clients may hold, buy, or sell any security listed in this publication at any time, without notice, and without regard to the publication schedule. Some securities appearing on this screen may also appear in ARTAIS client portfolios. Client portfolio decisions are made independently based on each client’s investment objectives, risk tolerance, time horizon, tax situation, and overall portfolio context. The appearance of a security on this screen does not mean it is held in any specific client account, nor does it mean it is suitable for any particular investor.

SUBSCRIBERS VS. CLIENTS: Paid subscribers receive this research for informational and educational purposes. ARTAIS clients receive personalized portfolio management under a written investment advisory agreement. This publication is not a substitute for individualized investment advice. If you are not an ARTAIS client and wish to receive personalized advice, please consult a qualified financial professional who can assess your individual circumstances.

PERFORMANCE: No performance data for this screen is published, calculated, or implied. Past inclusion of a security on this screen is not indicative of future results. All investments involve risk, including the possible loss of principal.

NO OBLIGATION TO UPDATE: Securities may be added to or removed from this screen at any time based on the methodology’s criteria. ARTAIS has no obligation to notify subscribers of changes between scheduled publications.

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Do not buy or sell any security solely based on its appearance on or removal from this screen.

© 2026 ARTAIS Capital Management, LLC. All rights reserved.

What’s Inside:

1. At a Glance - A “weight of the evidence” look at the current market environment, as well as my Regime map.

2. The Call - A deeper dive into the “weight of the evidence.”

3. Under the Hood - Current market internals, sector breadth, and intermarket analysis.

4. Sector Watch - Which sectors pass/fail the screening process.

5. Current Screen - Which stocks pass the screening process.

6. What I Am Watching - Stocks I am watching that are approaching a passing grade in the screening process. Plus, what changed from last week.

At a Glance

Market regime: Cautious to Improving

The Call

Cautious to Improving - The relative rotation graph (RRG) of the broad market indices is showing that rotation away from small and mid-cap stocks into their large-cap counterparts is beginning:

Currently, areas like large-cap growth are starting to display improving momentum at the expense of small and mid-cap names.

To help verify this rotation, we should look at the defensive sectors of the market.

Defensive sectors, like Health Care and Real Estate, provide goods and services people need regardless of the economy, so they tend to hold up better during downturns but grow more slowly.

Growth sectors depend on expanding economies and rising spending, offering bigger gains in good times but steeper losses when conditions turn.

In short, defensives prioritize stability and income, while growth sectors prioritize upside and capital appreciation.

For the past few weeks, money has flowed into these defensive sectors, but they are now trading at key levels.

For example, Health Care is trading near overhead resistance - an area where investors have sold in the past (which are often used as short-term price targets):

Health Care: trading at resistance

Why does resistance matter? It is a level that short and longer-term traders watch.

If short-term traders don’t sell here, it means they are expecting the sector to continue to rise.

Real Estate: trading at resistance

Longer-term traders will also be watching for a breakout above resistance.

A breakout is an indication that longer-term investors expect to see the rotation into defensive areas of the market to continue.

In other words, a breakout is viewed as a confirmation that the overall theme of the market has changed from growth to defensive.

Weight of the Evidence

When the market is at these transition points, I find looking at the weight of the evidence is helpful.

The Good

First, let’s talk about the positives.

1. The Intermediate, and Long-Term price trends I follow are all positive, and the short-term price trend, while negative, is improving:

2. Market rotation, as I mentioned above, is indicating that large-cap growth momentum is improving:

3. Market Breadth has also been improving. The number of stocks trading above their respective 50-day and 200-day averages continues to rise:

4. Historical trends indicate that the market is in a bottoming process.

   Since 1950, the summer before the US mid-term elections tends to be weak for the S&P 500 index - with the bottom usually occurring in July:

The Bad

1. Investors continue to worry about AI growth as news stories continue to show corporations rethinking their approach to AI:

   

Most of the lending to fuel AI growth and expansion has come from Private Equity:

Private credit is lending done by non-bank institutions—like specialized funds—directly to companies, rather than through publicly traded bonds or traditional bank loans.

These loans are typically illiquid and held to maturity, but they often offer higher yields to compensate investors for that reduced liquidity and added risk.

It is an area that is receiving more scrutiny as illiquid loans are harder to price, worrying some that the next banking crisis will come from these loans

The concerning question is whether growth can continue at the current pace, or if we are getting closer to a bubble popping similar to what occurred after the rise in tech during the late 1990s.

2. High-yield spreads, while currently at low levels, have begun to rise.

   

   When investors are beginning to worry about risk in the economy (like defaulting loans from AI companies), spreads typically begin to rise.

High-yield spreads are the extra yield (over comparable Treasuries) that investors demand to hold riskier, below-investment-grade "junk" bonds—a gauge of market risk appetite, where widening spreads signal rising fear and narrowing spreads signal confidence.

I will be keeping a close eye on high-yield spreads, as a break above the Cloud model often coincides with larger market pullbacks:

Under The Hood

Sector Watch

Read more

When the conflict with Iran shut the Strait in late February, the price of crude did what it always does when there is a conflict in the Middle East: it went straight up.

This week, the channel is (hopefully) reopening.

A tentative framework to end the war and lift the U.S. naval blockade is headed for signing, oil has given back almost the entire war premium, and the relief is already working its way into prices at the pump.

That’s the headline, and the headline is good news. But it’s more complicated than just a headline.

The more useful question isn’t “Is oil going down?”

It’s “What does cheaper oil set in motion — who it helps, what it does to inflation and the Fed, and which part of the energy story doesn’t actually care about the price of a barrel at all.”

What Actually Happened

When the U.S. and Israel struck Iran on February 28, Iran moved to choke off Hormuz, and the U.S. blockaded Iranian ports. Oil reacted exactly as the textbook says it should.

West Texas Intermediate went from about $67 a barrel to a peak near $112 in early April. Brent ran from roughly $73 to about $118.

Call it a 60 percent spike in a matter of weeks, driven almost entirely by fear that the supply route would stay closed.

Then, over the past two weeks, the diplomacy turned. A framework emerged, mediated by Pakistan, to end the war, reopen the Strait, and lift the blockade.

The U.S. Treasury issued a 60-day license allowing Iranian crude to trade again. Tanker traffic started inching back through the channel. And the price did the round trip in reverse.

As of this week, Brent sits below $80 and WTI in the low $70s — down more than a third from the wartime peak and only modestly above where they started before the first missile flew.

The market has, in effect, decided the war is over. The fear is being priced out.

BUT — The Strait Has to Actually Open

I want to be careful here, because “peace deal signed” and “oil route fully normalized” are not the same thing, and the gap between them is where investors can get hurt.

The framework is tentative.

Earlier this month, the talks were abruptly postponed for a few days before getting back on track, and the signing is still ahead of us, not behind us.

A 60-day license is a 60-day license — it’s a bridge, not a permanent settlement.

Implementation across a dozen-plus co-signing governments takes time, and the Strait has been a geopolitical pressure valve for fifty years. It can re-tighten.

So the current outlook is a probability, not a certainty.

The most likely path is that the channel reopens and oil stabilizes somewhere in the $65–80 range, with forecasters like JPMorgan already penciling year-end Brent closer to the mid-$60s.

But there is a case to be made that the deal wobbles and oil prices snap part of the way back.

The Inflation Dividend (this is the part that matters most)

Here’s where it gets interesting, and where last quarter’s pain quietly turns into this quarter’s relief.

Energy doesn’t just sit in its own “box” in the inflation data. It leaks into everything — what it costs to fly a plane, truck a pallet, make a plastic bottle, run a farm.

When oil spiked, it dragged the whole inflation index up with it.

Headline CPI, which was running a tame 2.4 percent before the war, jumped to 4.2 percent by May.

That spike is most of why the Fed’s new chair, Kevin Warsh, spent his first weeks talking about nothing but price stability and took rate cuts off the table.

Now run the scenario backward.

Gasoline prices adjust to crude fast, usually within weeks. As the war premium bleeds out of oil, it bleeds out of the inflation data too — first in the June reading, more visibly in July.

This is the single most important takeaway in the whole piece: the same oil move that made inflation look scary is now poised to make it look tame.

A good chunk of that 4.2 percent was always a war tax, not embedded, sticky, wage-driven inflation. War taxes reverse when the war ends.

There are two real consequences:

The first is for households — the energy tax on the family budget is lifting. This puts money back into the pockets of consumers, without anyone getting a raise.

The second is for the Fed. If headline inflation drifts back toward 3 percent and then lower over the summer, the case for a hostile and rate-hiking central bank gets weaker by the month.

Who Wins When Oil Falls?

When energy gets cheaper, the benefit doesn’t spread evenly. It concentrates in the businesses where fuel is a big, unavoidable line item.

This is the part of the market that was quietly penalized all spring and now gets a tailwind.

Many of these areas were treated as collateral damage during the oil spike.

As the premium unwinds, the same math that hurt them in April starts helping them.

What History Says: The 6 Months After an Oil Scare

This isn’t the first time a geopolitical shock spiked oil and then reversed.

Going back to 1980, the pattern has repeated often enough to be worth studying to see which sector benefited.

Note: The S&P 500’s eleven sectors, as we define them today, didn’t all exist back then.

The official framework (called GICS) only dates to 1999; Real Estate wasn’t split out until 2016, and Communication Services wasn’t reconstituted until 2018.

Here are the major episodes since 1980 in which a geopolitical or supply shock drove oil sharply lower, along with what the broad market did over roughly the following six months.

The most important column in that table isn’t the oil decline. It’s the recession column.

Across roughly seven oil-shock episodes since the mid-1980s, the S&P 500 averaged about a 24 percent gain over the following year, positive in six of seven, with the lone exception being 2008, when oil’s move coincided with a full financial-system breakdown.

What determines the next six to twelve months isn’t the direction oil moved; it’s whether a recession shows up.

And 2022 is the cautionary tale on the other side…

Oil fell hard in the back half of that year, but a Fed in full inflation-fighting mode dragged stocks down anyway.

When the central bank is the dominant force, it can override the oil tailwind entirely — worth remembering with Warsh in the chair today.

Sector Tilt

When the energy tax on households lifts, the money flows to where people spend it (discretionary), to the firms that move goods more cheaply (industrials and transports), and to the cyclical, risk-on corners that lead once recession fear fades (financials, tech).

Energy is the reliable laggard for the obvious reason. The defensive, rate-sensitive sectors — staples, utilities, real estate — usually trail in the rally but cushion the blow if the optimism proves wrong.

Caution: These are historical tendencies, not promises. Every episode had its own crosscurrents; the sample is small, and “on average” hides a lot of variation.

But AI Growth Needs Energy

When oil dropped, energy stocks dropped with it — many oil and gas names fell 10 to 20 percent in a month, leaving a lot of them below where analysts peg fair value.

The instinct is to read that as “oil is falling, so avoid energy.”

Sometimes that’s right. But it flattens an important distinction. When oil weakens, capital spending slows, the over-levered weak hands get washed out, and the survivors — the companies with clean balance sheets and low breakeven costs — come out the other side with less competition and more pricing discipline.

Selloffs driven by a headline rather than by company fundamentals are exactly where a patient investor goes shopping.

Not every beaten-down energy name; the strong ones with real free cash flow and a reason to exist below $70 oil.

I’m not naming tickers to go buy — that’s not what this article is about. The point is the category logic: a price-of-oil selloff and a quality-of-business problem are two different things, and the market routinely confuses them.

And the real interest in the Energy sector is due to the growth expectations for AI, and the business opportunities it can provide for Energy companies.

The Energy Sector Isn’t One Story. It’s Two.

Most people hear “energy” and think “oil price.” But the most powerful force in energy right now has almost nothing to do with the price of a barrel.

It’s electricity - specifically, the staggering amount of it that artificial intelligence requires.

Data centers are on track to consume on the order of 1,000+ terawatt-hours of electricity. (If they were a country, that would rank them among the largest power consumers on earth).

And the demand is growing around 15 percent a year, while the rest of the economy’s energy use barely moves.

After two decades of flat U.S. electricity demand, the growth forecast just bent sharply upward.

This is a structural, multi-year shift, and it does not care whether Hormuz is open or closed.

Crucially, a lot of that new demand is being met with natural gas, not oil.

Gas and oil prices have actually been diverging — oil falling on peace, gas firming on AI-driven power demand.

The reason natural gas demand is rising is due to the fact that the public grid can’t connect new mega-projects fast enough. As a result, hyperscalers are building dedicated natural gas plants right next to the data center.

source: TechCrunch

The economics aren’t close. A natural gas plant plugs in for roughly a tenth of the grid-connection cost of solar or offshore wind, and it can be powering servers in about 18 months, versus the multi-year wait for a grid hookup.

That’s why the winners of this growth aren’t only the oil companies — they’re the natural gas producers, the pipeline and “midstream” operators signing multibillion-dollar deals to power data centers directly, and the equipment makers who build the turbines.

One nuance worth flagging: the regulated electric utilities you’d assume are the obvious beneficiaries have actually lagged, because higher interest rates make their bond-like dividends less attractive.

If rates ease as inflation cools (see the section above), the interest in the Ulitlity sector may rise.

Will AI Keep Powering the Growth in Energy?

The case it continues: the demand is contracted, not speculative.

These are signed, multi-year power agreements tied to data centers that are already under construction.

Electricity, unlike a hot stock, is consumed and paid for every single day. And gas is the path of least resistance — cheapest to connect, fastest to build, available around the clock in a way intermittent renewables aren’t yet.

The case it disappoints: AI is getting more energy-efficient at a remarkable clip.

Better chips and leaner models can do more compute per watt, and if efficiency outruns demand, some of these power forecasts will prove too aggressive — the way fiber-optic capacity was massively overbuilt in 2000. (Remember Lucent?)

Build too many gas plants for demand that arrives slower than promised, and you get stranded assets and disappointed shareholders. The grid will also eventually catch up.

Skeptic’s corner

The deal could break. Everything above assumes the framework holds and the Strait stays open. If diplomacy collapses, oil re-spikes, the inflation relief evaporates, and the sector calculus flips. This is the single biggest risk to the whole thesis, and it’s not remote.

Cheaper oil isn’t always good news. Oil falls for two very different reasons: more supply (bullish for everyone else) or less demand (a warning that the economy is slowing). Most of this move is the supply story — Hormuz reopening. But if part of it is demand softening, then “cheaper gas helps the consumer” is cold comfort against a weakening jobs market. Watch which one it is.

The energy stocks may be cheap for a reason. If oil keeps sliding toward the mid-$60s or lower, today’s “oversold” names can get cheaper still, and weaker balance sheets can crack before the survivors re-rate. Oversold is not the same as safe.

DISCLAIMER

This article is published by John Rothe, CMT, principal of ARTAIS Capital Management, LLC (“ARTAIS Capital”), a registered investment advisor offering advisory services in registered states and in other jurisdictions where exempt. Registration does not imply a certain level of skill or training.

The opinions expressed in this newsletter are for informational and educational purposes only and do not constitute investment advice, a recommendation to buy or sell any security, or an offer to provide investment advisory services. All investments involve risk, including the possible loss of principal.

Any references to past performance, market data, or historical patterns are not indicative of future results. Forward-looking statements reflect the author’s current analysis and are subject to change without notice.

ARTAIS Capital Management, its principal, and/or its clients may hold positions in securities or asset classes discussed in this publication.

For personalized investment advice, please consult a qualified financial professional who can assess your individual circumstances.

NATURE OF THIS PUBLICATION: This screen represents the complete output of a systematic, rules-based quantitative methodology. It is published for informational and educational purposes only. It is NOT a model portfolio, NOT a recommended holdings list, and NOT personalized investment advice.

CONFLICTS OF INTEREST: ARTAIS Capital Management, its principal, and/or its clients may hold, buy, or sell any security listed in this publication at any time, without notice, and without regard to the publication schedule. Some securities appearing on this screen may also appear in ARTAIS client portfolios. Client portfolio decisions are made independently based on each client’s investment objectives, risk tolerance, time horizon, tax situation, and overall portfolio context. The appearance of a security on this screen does not mean it is held in any specific client account, nor does it mean it is suitable for any particular investor.

SUBSCRIBERS VS. CLIENTS: Paid subscribers receive this research for informational and educational purposes. ARTAIS clients receive personalized portfolio management under a written investment advisory agreement. This publication is not a substitute for individualized investment advice. If you are not an ARTAIS client and wish to receive personalized advice, please consult a qualified financial professional who can assess your individual circumstances.

PERFORMANCE: No performance data for this screen is published, calculated, or implied. Past inclusion of a security on this screen is not indicative of future results. All investments involve risk, including the possible loss of principal.

NO OBLIGATION TO UPDATE: Securities may be added to or removed from this screen at any time based on the methodology’s criteria. ARTAIS has no obligation to notify subscribers of changes between scheduled publications.

LARGE-CAP FOCUS: This screen evaluates securities with market capitalizations generally above $8 billion. This does not imply that large-cap securities are less risky or more suitable than other investments.

Do not buy or sell any security solely based on its appearance on or removal from this screen.

© 2026 ARTAIS Capital Management, LLC. All rights reserved.

What’s Inside:

1. At a Glance - A “weight of the evidence” look at the current market environment, as well as my Regime map.

2. The Call - A deeper dive into the “weight of the evidence.”

3. Under the Hood - Current market internals, sector breadth, and intermarket analysis.

4. Sector Watch - Which sectors pass/fail the screening process.

5. Current Screen - Which stocks pass the screening process.

6. What I Am Watching - Stocks I am watching that are approaching a passing grade in the screening process. Plus, what changed from last week.

At a Glance

Market regime: Cautious

The Call

Cautious - The relative rotation graph (RRG) for the broader market indices shows continued rotation in favor of small and mid-caps.

During the recent volatility, the small and mid-cap areas of the market held up much better than their large-cap counterparts.

The S&P 500 has yet to recapture its previous highs:

While small and mid-caps show improving relative strength vs the S&P 500 index, as they continue to rise to new highs:

The strength this past week tells the story for June. Industrials, Financials, and Utilities have led, while year-to-date leaders, Tech and Energy, have taken a pause:

However, taking a closer look at the rotation of the individual sectors within the S&P 500, we can see a rotation back into Tech (led by Semiconductors) is just beginning:

Market watchers will be paying close attention to some key events this week that can affect this rotation:

1. Micron (MU) releases Q3 earnings on Wednesday.

2. Nvidia (NVDA) annual shareholder meeting takes place on Wednesday.

3. PCE inflation data is released. (Watch for volatility as this is the first inflation data point after the FOMC released a more hawkish tone under the leadership of new Fed Chair Kevin Warsh.)

Under The Hood

Sector Watch

Read more

The Federal Reserve did the predictable thing yesterday. It held the federal funds rate at a target range of 3.50% to 3.75% — a midpoint of 3.625% — for the fourth consecutive meeting. That part surprised no one.

It was everything around the decision that was the surprise.

This was Kevin Warsh’s first meeting as Chair, and he used it to change how the Fed talks. The post-meeting statement was the shortest in years.

It described inflation as “elevated,” in part because of energy “supply shocks.” And the Summary of Economic Projections turned distinctly hawkish: the median official now sees the funds rate ending 2026 at 3.8%, up from 3.4% in the March projections and a quarter-point above where rates sit today.

Nine of eighteen officials now pencil in at least one hike this year; six see two or more. Forecasts for PCE inflation were revised up even as growth projections came down.

A hold is supposed to be a non-event. This one was read as hawkish, and the market reacted:

Stocks fell across the board and the VIX — the market’s fear gauge — jumped more than 12% in a single session, from 16.4 to 18.4.

That is the market repricing risk in real time. Not because rates moved, but because the Fed stopped telling investors what comes next.

What the Dot Plot Is, and Why a Missing Dot Matters

“Dot Plot” Source: FOMC

Four times a year, each of the Fed’s policymakers marks where they think the federal funds rate should be at the end of the next few years.

Those anonymous marks are plotted on a single chart — one dot per official — and the result is the famous “dot plot.”

The Fed introduced it on January 25, 2012, under Ben Bernanke, as a form of what he called aggressive forward guidance: a way to reassure markets, then pinned near zero, that rates would stay low.

The dot plot was never a promise. It is a snapshot of opinion, and it has often been wrong. But for fourteen years, traders have treated it as a roadmap — pricing bonds, mortgages, and equities off the median dot as if it were policy.

That is exactly the dependence Warsh wants to break.

At his first meeting, Warsh declined to submit his own dot.

Read that again: the Chair of the Federal Reserve did not tell the market where he thinks rates are going.

When the most important vote on the Committee goes blank, the median dot stops being a roadmap and starts being a guess about everyone except the person who matters most. This roadmap just lost its author.

The Case for Going Quiet

This was not unexpected. Warsh has argued for years that the post-2008 Fed talks too much.

In his view, constant guidance locks the Committee into stale forecasts and strips it of the flexibility to respond when the facts change.

At his Senate confirmation hearing, he was blunt: “I don’t believe in forward guidance. I don’t believe that I should be previewing for you what a future decision might be.”

His model is the Greenspan era of “constructive ambiguity” — a Fed that kept its cards close, let markets do the forecasting, and preserved room to maneuver. It is worth remembering how recent the transparency experiment actually is:

• The Fed did not even announce its rate decisions until February 1994.

• Press conferences did not begin until 2011.

• The dot plot arrived in 2012.

For most of its history, the Fed said far less than it does today. Warsh is not inventing something new. He is going back to how the Fed operated for most of the modern era.

Does Transparency Actually Calm Markets?

Here is where the conventional story deserves a harder look. The case for transparency is intuitive: if markets understand the Fed’s intentions, long-term rates adjust smoothly, and policy works better.

Research from the Federal Reserve Bank of San Francisco links the rise of forward guidance to a secular decline in policy uncertainty, particularly when rates were stuck at zero.

But the long-run market record is messier than the theory.

I reviewed S&P 500 daily data across three distinct communication regimes and measured both annualized price return and annualized volatility. The result does not flatter the transparency thesis.

In the opaque era — 1965 to 1993, when the Fed did not even announce its decisions — the S&P 500 returned 6.1% annualized with volatility of 14.2%.

As the Fed grew more transparent from 1994 to 2011, volatility rose to 20.0%. Even in the dot-plot era (2012–25), with the strongest returns of the three (12.5%, powered by zero rates and quantitative easing), volatility ran at 16.8% — still above the quiet years.

The honest reading: communication style is not what drives long-run returns or even average volatility. The economy does.

Recessions, earnings, and credit cycles move markets far more than the length of a Fed statement.

The quietest Fed in the sample presided over the calmest market; the chattiest era contained the global financial crisis and the COVID crash.

Correlation, not causation. This should make anyone skeptical of the claim that more Fed talk equals safer markets.

More Volatility, But of a Specific Kind

So will less transparency mean more volatility? The likely answer is yes — but concentrated, not constant.

The research is consistent on the mechanism: uncertainty tends to spike on announcement days and ease in between.

Strip out forward guidance, and you remove the shock absorber that lets markets pre-position. Re-pricing that used to happen gradually now lands all at once — on meeting days, on jobs reports, on inflation prints.

Yesterday was a preview of what is to come.

A routine announcement that the Fed was holding rates steady produced a 12% jump in the VIX because the market had to reassess the path on the spot, with no guidance to lean on.

Expect more of this: calmer stretches between meetings, sharper reactions when the Fed actually speaks or when the data surprises.

For long-term investors, that is noise. For anyone using leverage or short time horizons, FOMC announcements just got a bit riskier.

The Uncertainty Regime: What Tends to Win, and What Tends to Lose

If the Fed will no longer telegraph its moves, the obvious question is what historically performs when rate uncertainty rises, and policy support gets quiet.

We do not have a clean Greenspan-era factor dataset, so the best modern analog is 2022 — the last time the Fed surprised markets with a faster, less predictable tightening than expected. The dispersion that year was enormous:

In 2022, energy gained 58% while communication services fell 39% and consumer discretionary fell 37%.

Long-duration growth stocks (IWF) lost 30%, more than three times the 9.7% decline in value (IWD).

Defensive sectors — utilities, staples, health care — fell low single digits or held flat.

The pattern is the classic uncertainty regime: short-duration, cash-generating, value-oriented assets hold up; long-duration growth and rate-sensitive corners take the brunt.

Notably, 2026 is already rhyming with that script. Through June 17, value (IWD) is up 13.4% while growth (IWF) has gained just 1.8%. Energy leads at +22.5%. The defensive-versus-speculative split is visible in the year-to-date numbers below:

None of this is a recommendation to buy or sell anything. It is a description of how markets have historically behaved when the Fed pulls back its guiding hand.

Leadership can rotate quickly, and 2026 is not 2022. But the direction of travel — toward dispersion, toward stock- and sector-level differentiation — is the environment a less transparent Fed tends to create.

Skeptic’s Corner

The bear case on this entire thesis is that the market is overreading one meeting.

Warsh withheld a single dot at a single FOMC; he may simply be establishing a tone and could resume fuller communication once his framework review is complete.

Markets adapt quickly — the 1994–2006 Fed was far less transparent than today’s, and equities compounded handsomely through most of it.

The VIX jumping to 18 is hardly a crisis; it sat below its long-run average of roughly 19–20 even after the move.

There is also a real case that less guidance is healthier.

A Fed that stops pretending to know the path may make fewer promises it has to break, and markets that stop front-running the dot plot may price risk more honestly.

And our own regime data cuts against the alarmist read: the most transparent era was not the calmest, and the quietest era was not the most volatile.

If communication style barely moved long-run volatility in the past, we should be humble about claiming it will dominate the next few years. The economy, not the eloquence of the Chair, remains the variable that matters most.

Sources

1. Federal Reserve — FOMC statement and June 2026 Summary of Economic Projections — federalreserve.gov — June 17, 2026

2. Federal Reserve — Summary of Economic Projections timeline (dot plot introduced Jan 25, 2012) — federalreserve.gov

3. CNN Business — “Fed leaves interest rates unchanged but signals higher rates are ahead” — cnn.com — June 17, 2026

4. NPR — “Federal Reserve holds interest rates steady and hints at rate hike later this year” — npr.org — June 17, 2026

5. CNBC — Fed meeting recap (Warsh task forces; SEP detail) — cnbc.com — June 17, 2026

6. Moneywise — “Fed Chair Kevin Warsh says banks are too transparent with the public” — moneywise.com — June 2026

7. Yahoo Finance / 24-7 Wall St. — “Kevin Warsh Ready to Stop Telegraphing Fed Policy” (Warsh confirmation quote) — finance.yahoo.com — June 2026

8. Federal Reserve Bank of San Francisco — Working Paper 2019-12 (transparency, forward guidance and uncertainty) — frbsf.org

9. “Fedspeak” / Greenspan constructive ambiguity; FOMC began announcing decisions February 1994 — en.wikipedia.org

10. Yahoo Finance — historical and current price data: ^GSPC, ^NDX, ^DJI, ^RUT, ^VIX, SPY, IWD, IWF, IWM, RSP, sector SPDRs — finance.yahoo.com; ARTAIS calculations

DISCLAIMER

This article is published by John Rothe, CMT, principal of ARTAIS Capital Management, LLC (“ARTAIS Capital”), a registered investment advisor offering advisory services in registered states and in other jurisdictions where exempt. Registration does not imply a certain level of skill or training.

The opinions expressed in this newsletter are for informational and educational purposes only and do not constitute investment advice, a recommendation to buy or sell any security, or an offer to provide investment advisory services. All investments involve risk, including the possible loss of principal.

Any references to past performance, market data, or historical patterns are not indicative of future results. Forward-looking statements reflect the author’s current analysis and are subject to change without notice.

ARTAIS Capital Management, its principal, and/or its clients may hold positions in securities or asset classes discussed in this publication.

For personalized investment advice, please consult a qualified financial professional who can assess your individual circumstances.

NATURE OF THIS PUBLICATION: This screen represents the complete output of a systematic, rules-based quantitative methodology. It is published for informational and educational purposes only. It is NOT a model portfolio, NOT a recommended holdings list, and NOT personalized investment advice.

CONFLICTS OF INTEREST: ARTAIS Capital Management, its principal, and/or its clients may hold, buy, or sell any security listed in this publication at any time, without notice, and without regard to the publication schedule. Some securities appearing on this screen may also appear in ARTAIS client portfolios. Client portfolio decisions are made independently based on each client’s investment objectives, risk tolerance, time horizon, tax situation, and overall portfolio context. The appearance of a security on this screen does not mean it is held in any specific client account, nor does it mean it is suitable for any particular investor.

SUBSCRIBERS VS. CLIENTS: Paid subscribers receive this research for informational and educational purposes. ARTAIS clients receive personalized portfolio management under a written investment advisory agreement. This publication is not a substitute for individualized investment advice. If you are not an ARTAIS client and wish to receive personalized advice, please consult a qualified financial professional who can assess your individual circumstances.

PERFORMANCE: No performance data for this screen is published, calculated, or implied. Past inclusion of a security on this screen is not indicative of future results. All investments involve risk, including the possible loss of principal.

NO OBLIGATION TO UPDATE: Securities may be added to or removed from this screen at any time based on the methodology’s criteria. ARTAIS has no obligation to notify subscribers of changes between scheduled publications.

LARGE-CAP FOCUS: This screen evaluates securities with market capitalizations generally above $8 billion. This does not imply that large-cap securities are less risky or more suitable than other investments.

Do not buy or sell any security solely based on its appearance on or removal from this screen.

© 2026 ARTAIS Capital Management, LLC. All rights reserved.

Issue No. 4 · Tuesday · June 16, 2026

What’s Inside:

1. At a Glance - A “weight of the evidence” look at the current market environment, as well as my Regime map.

2. The Call - A deeper dive into the “weight of the evidence.”

3. Under the Hood - Current market internals, sector breadth, and intermarket analysis.

4. Sector Watch - Which sectors pass/fail the screening process.

5. Current Screen - Which stocks pass the screening process.

6. What I Am Watching - Stocks I am watching that are approaching a passing grade in the screening process. Plus, what changed from last week.

At a Glance

Market regime: Cautious — Improving, but momentum and intermarket signals are still mixed.

The Call

Cautious/Improving - The S&P 500 index is attempting to recover from its recent pullback on the news of a U.S. and Iran agreement extending their ceasefire for 60 days, with a formal signing ceremony expected this Friday and nuclear talks to follow.

The market is also waiting to hear from new Fed Chair Kevin Warsh this week. On Tuesday, the FOMC two-day meeting starts, with an official statement being released on Wednesday.

Currently, the market is not anticipating any rate changes, but it will be closely watching to see what Warsh’s first statement and outlook will be.

Taking a technical look at the S&P 500 index, momentum has not yet turned positive, and the index is still trading below our short-term trend indicators. (Intermediate and long-term trends are still positive).

The equal-weight version of the S&P 500 Index (RSP), however, is breaking out to new all-time highs. Our short-term trend indicator for RSP never went negative, and momentum continues to rise.

This is an indication of market rotation away from growth into value.

Month to date, sectors like Consumer Staples, Financials, and Real Estate have helped push the equal-weight index (RSP) higher, while the tech-heavy S&P 500 index was declining:

Relative Rotation Graphs (RRG), which help us visualize the relationship between momentum and relative strength, show the rotation away from tech and into sectors like Financials and Health Care over the past month:

This rotation may be short-lived. If I add the two Semiconductor ETFs (SMH and SOXX), we can see Semiconductors are re-strengthening and starting to rotate back into a leadership position:

If this trend continues, semiconductors will help the Tech sector rotate back into strength, possibly at the expense of this month’s value leaders.

Under The Hood

Read more

I wanted to take a deeper dive into the impact that rising oil prices have on inflation. Is it a short-term impact? What does inflation look like when oil is removed? Is there a trickle-down effect?

Let’s take a closer look…

Yesterday morning, the Bureau of Labor Statistics reported that consumer prices (CPI) rose 4.2% over the past year. This morning, it followed up with a producer price index (PPI) report that included a record data series.

Two hot prints in two days, six days before new Fed Chair Kevin Warsh holds his first FOMC meeting.

So is inflation actually as bad as 4.2% sounds? The honest answer is both less and more.

Is Inflation as Bad as the Headlines Say?

Less than it looks, in one important way. The core reading — everything except food and energy — rose just 0.2% in May, below forecasts, and sits at 2.9% year over year. Forecasters were expecting worse.

The gap between 4.2% headline and 2.9% core is the whole story of this report.

When those two numbers diverge that much, it usually means one category is doing the damage rather than prices rising everywhere at once.

That’s exactly what the category data shows.

But there’s a “more” side too, and it showed up this morning.

The Producer Price Index measures what businesses pay each other before costs ever reach you.

Inside the PPI data is what is called Stage 1 intermediate demand; the rawest industrial inputs, ie very start of the supply chain. This jumped 3.2% in May alone. That’s a record for the series. Year over year, those input costs are up 12.3%.

Consumer inflation tells you where prices have been. Pipeline inflation hints at where they might go. Right now pipeline inflation is rising.

Where is Inflation Hitting the Hardest?

The May report reads less like an inflation report and more like an oil report with footnotes.

What’s Going Up:

· Gasoline: +40.5% year over year

· Airfares: +26.7% — jet fuel is an airline’s second-biggest cost

· Energy overall: +23.5%, accounting for more than 60% of the monthly increase

What’s Not:

· Shelter: +3.4% and decelerating — the biggest component of CPI is cooling

· Food: +3.1% — elevated but stable

· Used cars: −2.0% — actually falling

The data is indicating that we are dealing with a narrow rise in inflation, not a broad one.

In 2022, price increases were everywhere: goods, services, rent, wages. This time inflation is more focused.

What Happens When You Take Oil Out?

The Bureau of Labor Statistics (BLS) publishes a series called “all items less energy” — the full consumer basket with energy removed.

It’s running at roughly 2.9%. In February, before the war and the Hormuz closure, headline CPI was 2.4%.

So the arithmetic answer is yes: remove oil and inflation drops dramatically, from 4.2% back to the high 2s, within shouting distance of the pre-war trend.

But the arithmetic answer is also a little too convenient, because oil doesn’t politely stay in its own category.

Do Higher Oil Prices Trickle Into Everything Else?

They do. But the better question is “how much and how fast?”.

Economists at the Federal Reserve Board studied exactly this (Conflitti and Luciani, 2017). Their finding: a 10% rise in oil prices adds roughly 0.1 percentage point to core inflation, spread over about two years.

Apply that to today. WTI crude went from about $67 before the conflict to roughly $91 now, with a spike to $113 at the worst of it. Call it a 36% sustained move. The Fed’s own framework says that should eventually push core inflation up by around 0.3 to 0.4 percentage points, slowly across eight quarters.

That’s real, and it’s why the Fed can’t simply ignore oil. But notice what it isn’t: it isn’t 4.2% inflation.

The direct, immediate effect of oil at the pump is enormous. The indirect effect on everything else is much slower.

Two things would change that math, and both deserve watching.

First, that record PPI intermediate-demand number — if input costs keep compounding at that pace, the pass-through estimates start to look dated.

Second, expectations. The slow inflation growth research assumes people keep believing inflation will come back down. The 1970s went wrong when they stopped believing it.

How Have Central Banks Handled Oil Shocks?

This is where history gets opinionated. Four episodes, four verdicts:

1973–74, Arthur Burns: Accommodate. (Wrong.) OPEC quadrupled oil prices, and Burns’s Fed kept policy loose. They reasoned that oil inflation wasn’t the Fed’s fault. Inflation expectations broke loose, and the 1970s became the decade of inflation.

1979–80, Paul Volcker: Hike to 20%. (Right, and brutal.) Cleaning up after Burns required a federal funds rate of 20% and back-to-back recessions. The lesson wasn’t that oil shocks demand 20% rates — it’s that letting expectations unanchor makes the eventual solution catastrophic.

1990, Alan Greenspan: Cut. (Right.) When Iraq invaded Kuwait, and oil doubled, Greenspan read the shock as a tax on growth rather than the start of an inflation spiral. The Fed cut through the spike. Inflation fell on its own as the economy slowed.

2008, Ben Bernanke vs. Jean-Claude Trichet: Hold vs. Hike. Oil hit $147 in July 2008. Bernanke held rates. Trichet’s ECB raised rates that same month — eight weeks before Lehman failed. That hike has been catalogued as one of the great modern policy errors, twice over, since the ECB repeated a version of it in 2011.

And the old debate has restarted. The ECB raised rates 25 basis points today — its first hike since 2023 — while futures markets price roughly a 98% chance the Fed holds next week.

Frankfurt and Washington just picked opposite sides of the 2008 argument again. History already picked a side once. We’re about to find out if it repeats.

Will High Oil Prices Do the Fed’s Job For Them?

This is the most underrated question in the whole debate, and it’s the strongest argument for holding rather than hiking.

Expensive oil is a tax. Every dollar a household spends on $5 gasoline is a dollar not spent on restaurants, travel, or furniture.

Energy is also an input cost for nearly every business, which squeezes margins and capital spending.

Oil shocks have preceded most U.S. recessions since World War II, not because oil causes inflation, but because oil destroys demand.

So a central bank facing an oil spike gets some tightening for free. The 1990 Greenspan episode is the cleanest example: the oil shock itself slowed the economy enough that the Fed’s next move was down, not up, and inflation came back to earth without additional hikes.

That’s the case for patience. If $91 oil persists, it bites growth, and the growth hit eventually pulls inflation down with it. Hiking on top of an oil tax risks doubling the restraint. This was Jean-Claude Trichet’s mistake.

What’s The Likely Path For The Fed?

Next week’s meeting (June 16–17) is Kevin Warsh’s first meeting as FOMC Chair, and he inherits a genuinely split committee.

The April meeting minutes showed an 8–4 vote, the deepest dissent since 1992. Markets have all but settled the near-term question: roughly 98% odds of a hold.

Source: CME Group

My read of the probabilities from here:

Base Case - Hold. Core at 2.9% and decelerating shelter give the Fed room to wait. The Greenspan-Bernanke playbook says look through the spike while watching expectations. Nothing in the core data forces a move in either direction. This is what the market is expecting.

Hike - If Hormuz stays shut and pipeline pressure keeps building, the next move is more likely a hike than a cut. A 12.3% annual rise in raw input costs is tolerable for a quarter. Compounding for a year, it threatens the “narrow inflation” story. The FOMC committee already has four dissenters favoring a rate hike.

The FedWatch tool, which is based on the futures market, has been forecasting an increasing chance of at least one rate hike by the end of this year:

Cut - Fast cuts only if the labor market cracks. That’s the 1990 template: the oil tax bites, growth rolls over, and the Fed’s problem flips from inflation to recession within a couple of quarters. If payrolls turn negative, the 4.2% headline will be forgotten remarkably fast.

What I’d watch, in order: the PPI pipeline series (does the record repeat?), market-based inflation expectations (still anchored, so far), and weekly jobless claims (the earliest crack in the 1990 scenario).

Skeptic’s Corner

Arguments against everything I just wrote:

“Core is 2.9% only because oil hasn’t hit it yet.” Fair. The Fed’s own research says 0.3–0.4 points of pass-through are coming over two years. If shelter stops decelerating at the same time, core could be back above 3.5% by mid-2027 without any new shock.

“The 1990 analogy assumes the shock is temporary.” Greenspan’s look-through worked partly because the Gulf War resolved in months. A Hormuz closure that persists for a year is a different animal — closer to 1973’s structural supply loss than 1990’s brief scare. The longer it lasts, the weaker the look-through case gets.

“Expectations are anchored until suddenly they aren’t.” The Burns error didn’t look like an error in real time. He had respectable arguments. So does today’s consensus for holding. The uncomfortable truth is that anchored expectations are only observable in hindsight.

“A record PPI print is a record for a reason.” I’m treating the stage 1 intermediate demand number as a warning light. A skeptic would call it the headline. If businesses pass those costs through rather than eating them, the narrow-inflation thesis dies quickly.

All fair. My counter is simply that the core data, as of today, hasn’t validated any of them — and policy should respond to evidence, not anticipation of evidence.

For now, the market has made its bet: hold next week, and hope the oil tax does the heavy lifting.

DISCLAIMER

This article is published by John Rothe, CMT, principal of ARTAIS Capital Management, LLC (“ARTAIS Capital”), a registered investment advisor offering advisory services in registered states and in other jurisdictions where exempt. Registration does not imply a certain level of skill or training.

The opinions expressed in this newsletter are for informational and educational purposes only and do not constitute investment advice, a recommendation to buy or sell any security, or an offer to provide investment advisory services. All investments involve risk, including the possible loss of principal.

Any references to past performance, market data, or historical patterns are not indicative of future results. Forward-looking statements reflect the author’s current analysis and are subject to change without notice.

ARTAIS Capital Management, its principal, and/or its clients may hold positions in securities or asset classes discussed in this publication.

For personalized investment advice, please consult a qualified financial professional who can assess your individual circumstances.

NATURE OF THIS PUBLICATION: This screen represents the complete output of a systematic, rules-based quantitative methodology. It is published for informational and educational purposes only. It is NOT a model portfolio, NOT a recommended holdings list, and NOT personalized investment advice.

CONFLICTS OF INTEREST: ARTAIS Capital Management, its principal, and/or its clients may hold, buy, or sell any security listed in this publication at any time, without notice, and without regard to the publication schedule. Some securities appearing on this screen may also appear in ARTAIS client portfolios. Client portfolio decisions are made independently based on each client’s investment objectives, risk tolerance, time horizon, tax situation, and overall portfolio context. The appearance of a security on this screen does not mean it is held in any specific client account, nor does it mean it is suitable for any particular investor.

SUBSCRIBERS VS. CLIENTS: Paid subscribers receive this research for informational and educational purposes. ARTAIS clients receive personalized portfolio management under a written investment advisory agreement. This publication is not a substitute for individualized investment advice. If you are not an ARTAIS client and wish to receive personalized advice, please consult a qualified financial professional who can assess your individual circumstances.

PERFORMANCE: No performance data for this screen is published, calculated, or implied. Past inclusion of a security on this screen is not indicative of future results. All investments involve risk, including the possible loss of principal.

NO OBLIGATION TO UPDATE: Securities may be added to or removed from this screen at any time based on the methodology’s criteria. ARTAIS has no obligation to notify subscribers of changes between scheduled publications.

LARGE-CAP FOCUS: This screen evaluates securities with market capitalizations generally above $8 billion. This does not imply that large-cap securities are less risky or more suitable than other investments.

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What’s Inside:

1. At a Glance - A “weight of the evidence” look at the current market environment, as well as my Regime map.

2. The Call - A deeper dive into the “weight of the evidence.”

3. Under the Hood - Current market internals, sector breadth, and intermarket analysis.

4. Sector Watch - Which sectors pass/fail the screening process.

5. Current Screen - Which stocks pass the screening process.

6. What I Am Watching - Stocks I am watching that are approaching a passing grade in the screening process.

At a Glance

Market regime: Cautious — Trend constructive, breadth not yet confirming.

The Call

Short-term indicators suggest caution, while longer-term indicators remain intact.

Cautious - Last Friday’s market decline caused the short-term indicators we follow to turn negative.

Momentum and Supertrend indicators both turned negative, indicating the market may be entering a period of caution.

Investors seem to be worrying more about the growth of AI, the approaching mid-term elections, and how new Fed Chair Kevin Warsh will handle the current inflation/stagflation cycle.

Intermediate and long-term indicators are still supporting a continuation of the current bull market.

The S&P 500 index remains above both the daily and weekly Cloud model.

High Yield Credit Spreads Are Still Low

High-yield credit spreads remain low, confirming this is a short-term pullback/consolidation. When HY credit spreads widen, it indicates higher perceived credit risk, which is usually associated with economic distress.

In addition, as I have mentioned before, this time of year is historically weak for the stock market. Typically, the summer before the midterm elections is weak:

Until short-term indicators turn positive, the weight of the evidence indicates investors are taking a “wait and see” approach to the market.

Under The Hood

Read more

In August 2023, Larry Summers posted a chart that made Wall Street uncomfortable. It overlaid the current inflation trajectory onto the CPI path from the mid-1970s, and the two lines tracked each other with unnerving precision.

The decline from the post-COVID peak mirrored the temporary decline after the first oil shock, right before inflation roared back in the late 1970s.

Critics dismissed it as a “chart crime” -- a convenient visual trick that cherry-picked start dates.

Three years later, Summers has updated that chart. The dotted projection line now extends through 2027, and market-implied inflation forecasts are tracking the path of the 1979 spike.

Source: Larry Summers

This is no longer an academic exercise. CPI hit 3.8% year-over-year in April 2026 -- the highest reading since May 2023 (Bureau of Labor Statistics, May 12, 2026).

Energy prices drove over 40% of the monthly increase. The Strait of Hormuz remains partially obstructed. NOAA forecasts a Super El Niño as the most likely outcome for late 2026.

And the Cleveland Fed has published research showing that consumer inflation expectations are functionally more unanchored today than they were at the peak of the 1970s crisis.

The question is no longer whether the parallels exist. It is: Will the parallels hold?

I’ve spent the past several weeks digging into this. What follows is a comprehensive look at 1970s inflation, economists warning about a repeat, the specific catalysts that could trigger a second wave, and how investors were positioned then.

Part I: The 1970s -- How Inflation Came in Waves

The First Wave (1972-1975):

The first inflation wave did not begin with oil. It began with policy.

The Vietnam War had been pumping fiscal stimulus into an overheating economy since the mid-1960s. By 1968, the war was costing roughly $3 billion per month, and the federal budget had expanded to $179 billion.

During this time, the federal deficit jumped from 0.2% of GDP in 1965 to 2.7% by 1968. Consumer prices, which had been rising at 1.3-1.6% annually through 1965, accelerated to 5.8% by 1969.

President Nixon, who was facing reelection in 1972, pressured then Fed Chair Arthur Burns to keep monetary policy accommodative.

Burns complied. The federal funds rate was 3.5% in early 1972 even as inflation was already running above 3%.

Nixon compounded the problem with wage and price controls under the Economic Stabilization Program of August 1971.

While this temporarily suppressed reported inflation, it created massive imbalances in supply chains and commodity markets. When the controls were removed in 1973, a wall of pent-up pricing pressure hit the economy all at once.

Then came the external shock.

In October 1973, OPEC imposed an oil embargo against the United States in retaliation for its support of Israel during the Yom Kippur War. Crude oil prices quadrupled from $3.56 per barrel to $11.58 between October 1973 and March 1974.

The combination was devastating. CPI surged from a 3.2% annual average in 1972 to 11.0% in 1974, a 7.8 percentage point increase in just two years.

This helped tip the economy into recession. Unemployment rose from 4.6% to 9.0%. The word “stagflation” entered the popular vocabulary.

Declaring Victory Too Early (1975-1977)

By 1976, it looked like the worst was over. CPI had declined from its 11% peak to 5.8%. The recession had ended. Oil prices had stabilized. The stock market was recovering.

Fed Chair Burns began easing monetary policy to support the recovery and lowered the federal funds rate from 13% in mid-1974 to below 5% by early 1977.

He treated the inflation episode as a one-time supply shock that had passed -- not as a structural shift in price expectations that required sustained restrictive policy.

This was the critical mistake.

The problem was that inflation had never returned to its pre-shock baseline. CPI bottomed at 5.8% in 1976 — nearly double the 3.2% average of 1972.

Inflation expectations had shifted upward. Workers demanded cost-of-living adjustments. Union contracts included 8-10% annual wage increases.

Businesses had learned they could pass through higher costs without losing customers. The wage-price spiral was already in motion, even as the headline numbers suggested progress.

This is the period Summers argues we are currently in.

CPI peaked at 8.0% in mid-2022 and has since declined - but to 3.8%, not to 2%. The Fed cut rates from 5.50% to 3.50% before inflation returned to target.

The parallel is uncomfortable.

The Second Wave (1978-1980)

The second wave hit harder than the first. CPI, which had never fully cooled below 6%, began re-accelerating in 1978.

Then the Iranian Revolution of January 1979 removed 5.5 million barrels per day from global supply, increasing crude oil prices 186%, from $13.10 to $37.42 per barrel.

Unlike the first wave, the economy had no margin for error. Inflation expectations were already elevated. The wage-price spiral was entrenched.

And the new Fed Chair, G. William Miller (Burns’ successor), proved equally unwilling to inflict the pain that would result from aggressively raising rates.

CPI hit 11.3% in June 1979, then 13.5% by March 1980.

The entire U.S. economy was repricing around the assumption that inflation would persist indefinitely. Mortgage rates hit 18%. The 10-year Treasury yield reached 15.84% in September 1981.

It took Paul Volcker, appointed as the Fed Chair in August 1979, raising the federal funds rate to 20% and deliberately engineering two recessions to finally break the inflation cycle.

Unemployment hit 10.8% in November 1982 -- the highest since the Great Depression. That was the price of the Burns-Miller policy errors.

What Burns Did Wrong

I keep coming back to Burns because his mistakes are so instructive. Five specific failures:

• Political capitulation. He explicitly accommodated Nixon’s reelection demands, keeping rates at 3.5% while inflation ran above 3%.

• Stop-go policy. He tightened when inflation surged, then eased as soon as growth softened. Each cycle left the inflation floor higher than before.

• Negative real rates during the false calm. The fed funds rate fell below the CPI rate for much of 1975-1977. In effect, the Fed was subsidizing inflation while claiming to fight it.

• Credibility destruction. After eight years of stop-go, markets and wage-setters learned to expect that the Fed would always blink.

• Misdiagnosis. He treated inflation as a supply-side phenomenon that monetary policy couldn’t address. His job was to prevent a one-time shock from becoming a sustained wage-price spiral. He failed.

Volcker’s approach was the mirror image.

On October 6, 1979, during a Saturday unscheduled FOMC meeting, he announced the most significant change in Fed operating procedures since the Treasury-Fed Accord of 1951.

Instead of managing the fed funds rate, the Fed would target the volume of bank reserves, explicitly allowing rates to rise as high as necessary.

The “Saturday Night Special” produced two recessions and unemployment of 10.8%, but it worked.

Part II: The Second Wave Thesis

Larry Summers

Summers, the Harvard professor, former Treasury Secretary, and the economist who correctly predicted the post-COVID inflation surge in February 2021 when most dismissed it - has been the most persistent voice.

His April 2026 update to the comparison chart came with a blunt assessment: the neutral interest rate is approximately 4.5%, well above the Fed’s estimate of 3%. If Summers is right, the Fed has been running too accommodative of a policy to fight inflation.

On the fiscal situation, Summers has described things as “fragile” and “on the brink of a crisis,” noting that DOGE failed to produce meaningful spending reductions while global investors are “edging away from Treasury bonds.”

Nouriel Roubini

Roubini doesn’t use the same 1970s-chart framing. His argument is broader: we are entering a prolonged era of “secular stagflation” in which inflation settles 2-3 percentage points above pre-pandemic norms.

His specific near-term forecast from July 2025 (that core CPI would climb to 3.5% by the second half of 2025) was correct.

In March 2026, Roubini warned of “Trumpflation risks” driven by tariffs, immigration restrictions tightening labor supply, large fiscal deficits, and geopolitical energy disruptions.

Roubini has provided the most explicit probability framing: he suggested investors should diversify away from long-duration Treasuries even if they believe there is “only a 20% to 30% chance” of his stagflation scenario playing out.

Mohamed El-Erian

El-Erian frames the risk through the 1977-1979 Carter/Burns lens: “There’s a real question mark as to whether this is a Reagan moment... or is this a Jimmy Carter moment in which the U.S. ends up in stagflation and ultimately recession?”

He notes U.S. financial markets are exhibiting patterns “more typical of developing countries,” including dollar weakness alongside rising yields.

His working probability: roughly a 30% chance of a Carter/stagflation outcome.

Jim Bianco

Bianco’s argument at the May 2026 Strategic Investment Conference was structural: “Six years into the post-COVID environment, the inflation rate is still 3% or higher, and they can’t get inflation below 3%.”

His core observation is that the Fed has effectively validated a new inflation floor. Every time they attempt to tighten, markets break, and they reverse, a pattern that mirrors the Burns-era stop-and-go.

Lacy Hunt

Hunt represents a notable case of a committed deflationist who revised his outlook.

At the May 2026 SIC, Hunt stated: “The current oil shock could lift the CPI by as much as 240 to 300 basis points.”

His pivot centers on two specific policy errors: the Fed’s December 2025 decision to purchase $40 billion in Treasury bills monthly and the Strait of Hormuz disruption. Hunt drew the Arthur Burns parallel explicitly.

The Cleveland Fed’s Dispersion Research

This might be the most underappreciated finding…

The Cleveland Federal Reserve published data in February 2026 showing that when you measure not just the level of consumer inflation expectations but the dispersion (which shows how widely scattered those expectations are), the degree of unanchoring in early 2025 exceeded the 1970s peak.

Consumer one-year-ahead expectations hit 9%, and the distribution was more dispersed than in any period since the University of Michigan survey began.

Part III: Oil -- The Primary Catalyst

The Strait of Hormuz crisis

On February 28, 2026, the U.S. and Israel launched coordinated airstrikes on Iran under Operation Epic Fury. Iran’s closure of the Strait of Hormuz on March 4 effectively removed approximately 20% of global energy supply from the market. Tanker traffic dropped 70% immediately and then fell to near-zero.

The IEA has called this “the biggest oil disruption in history.”

As of early June, Day 94 of the effective closure, only about 10 ships per day are transiting the Strait compared to the pre-war baseline of 95. Iran walked away from ceasefire negotiations on June 1, reversing progress that had briefly pushed oil prices lower.

Brent crude surged from approximately $72 per barrel on February 27 to nearly $120 at its peak in March -- a 67% increase.

Current readings: WTI at $94.60 and Brent at $97.13 as of June 2, 2026. WTI is up approximately 41% since the war began, from its $67.02 close on February 27.

The Stranded Spare Capacity Paradox

OPEC+ has roughly 5 million barrels per day of spare production capacity.

Under normal circumstances, that would be more than enough to offset a supply disruption. The problem is that most of this capacity is stranded behind the Hormuz closure.

Saudi Arabia, the UAE, Kuwait, and Iraq all export through the Strait. Their spare capacity exists on paper but cannot reach the market.

Gavekal Research estimates Gulf exporters can reroute at most 3.5 million bpd through alternative pipelines, leaving a potential shortfall of roughly 15 million bpd in a full closure scenario.

The Inflationary Pass-Through

The Dallas Fed modeled the Hormuz closure scenario and found that WTI at $100/barrel would push annualized U.S. headline inflation 1.3 percentage points above the no-conflict baseline.

The Fed’s general rule of thumb: a 10% increase in oil prices adds approximately 0.4 percentage points to CPI.

This means the approximate 41% increase in WTI oil prices since the war began implies roughly 1.6 percentage points of headline CPI pressure from direct energy alone.

The April CPI report represents the first wave of pass-through. The second wave -- as energy costs ripple through food production, shipping, and services -- arrives in the summer and fall readings.

Economists estimate that oil price increases typically take 3-6 months to fully transmit into CPI.

The Oil Normalization Timeline

History offers some guidance, and the answer is not encouraging:

• After the 1973 embargo, oil prices never returned to pre-embargo levels. Full normalization took approximately 13 years.

• After the 1979 Iranian Revolution, it took until 1986 -- seven years -- for oil to fall meaningfully.

• After the 2022 Russia-Ukraine spike, WTI fell from $120 to $70 within roughly 18 months.

The ADNOC CEO estimates full oil flow restoration will not happen before Q1-Q2 2027.

The concern to me is that, if oil remains above $90/barrel through the third quarter of 2026, the inflationary pass-through becomes increasingly problematic.

Part IV: The Super El Niño Wild Card

What NOAA is Forecasting

NOAA’s Climate Prediction Center forecasts an 82% probability that El Niño will develop by the end of July 2026, with a 67% chance of a strong or very strong event, aka the “Super El Niño”, peaking in November 2026 through January 2027.

For context: the 1997-1998 Super El Niño resulted in an estimated $5.7 trillion in lost global GDP over a five-year period.

The Food Price Pipeline

The food inflation pipeline is already under stress. As of May 19, 2026, 70% of U.S. winter wheat production areas were experiencing drought, along with 26% of corn and 29% of soybeans.

Current commodity prices confirm the early pressure:

• Wheat at $601.75 per bushel, up 12.3% year-over-year

• Soybeans at $1,162.50, up 11.7% year-over-year

• DBA agricultural commodity ETF up 6.3% year-to-date

Food represents approximately 13.5% of the CPI basket. The April CPI showed the food-at-home index rising 0.7% month-over-month -- an annualized rate of 8.4%.

The Compounding Problem

Elevated oil prices drive up fertilizer costs (natural gas is the primary input for nitrogen fertilizer), transportation costs, and farm equipment costs simultaneously.

Iran is a major fertilizer exporter, and the war has disrupted those supply chains.

Layer a Super El Niño on top of these existing pressures, and the food inflation channel could add 0.5-1.0 percentage points to headline CPI through 2027.

The food price impulse would hit CPI readings in Q1-Q2 2027 -- precisely when the oil shock pass-through should be at maximum intensity.

Two shocks, converging at the same time.

Part V: The Dollar Factor

In the 1970s, dollar weakness was a critical amplifier of inflation. Nixon’s abandonment of Bretton Woods in August 1971 removed the anchor that had kept currency markets stable.

The dollar depreciated dramatically through the decade.

Today, the dollar is range-bound. The DXY sits at approximately 99.47 as of June 2, 2026 -- virtually unchanged from a year ago. Cambridge Currencies forecasts DXY trading between 93 and 100 for the remainder of 2026.

The Scenarios That Matter

Weak dollar (DXY below 93): A declining dollar would amplify imported inflation precisely when food and energy prices are already elevated.

A 10% DXY decline historically adds approximately 0.5-0.8 percentage points to headline CPI. This is the 1970s replay.

Strong dollar (DXY above 103): A stronger dollar would provide a natural offset to oil and food price pressures by reducing import costs. This is the path that prevents the second wave.

Range-bound (DXY 93-103): The most likely near-term outcome. Oil and food supply shocks will transmit into CPI largely unimpeded by currency effects.

Part VI: Inflation Threat Matrix -- 1970s vs. Today

Here is a factor-by-factor comparison of where things stand:

Seven of twelve factors register as HIGH risk. But the structural wage-price spiral mechanism is significantly weaker today.

This is the single most important difference and the primary reason a full 1970s-magnitude second wave is unlikely.

In my opinion, we are unlikely to see CPI reach 13.5% as it did in 1980. But a re-acceleration to 5-7% - a miniature second wave - is a genuine risk IF the oil shock persists, El Niño materializes as forecast, and the Fed remains on hold.

Part VII: How Likely is There to Be a Second Wave of Inflation?

Based on the data assembled here, I assess the probability distribution for U.S. CPI through the end of 2027:

The weighted-average expected CPI for Q4 2027: approximately 4.5%. Not a repeat of 13.5%, but a definitive failure of the “soft landing” narrative.

I want to be clear about what this is and isn’t.

These are scenario-weighted probabilities based on my reading of the data. They are not calibrated forecasts from a formal model.

But the direction they point is uncomfortable: a roughly 65% probability of CPI exceeding 4.5% on a sustained basis, and a 20% probability of something considerably worse.

Part VIII: What Worked During the Second Wave -- And Will it Work Again?

The 1970s:

Will The Same Themes Work Today?

The short answer: partially, with important modifications.

Gold has already moved. At $4,472 per ounce, gold has risen 70.1% since the end of 2024.

In a mini second wave (CPI 4.5-6%), gold may continue to appreciate, but the easy gains are behind us. In a full second wave (CPI 6%+), gold could reach $5,500-6,000.

Energy equities have already repriced. XLE is up 30.5% year-to-date and 40.8% since the end of 2024.

If oil remains above $85/barrel, energy stocks continue to generate outsized free cash flow. But if a ceasefire is signed and oil drops to $70, the trade reverses.

Commodities broadly remain attractive. DBC is up 34.7% year-to-date. Morgan Stanley’s 2026 outlook emphasizes that commodities provide diversification when stocks and bonds fall together during inflationary periods.

Agricultural commodities face a unique setup. If the Super El Niño materializes, agricultural commodities could see significant price spikes by Q1 2027. DBA, up 6.3% year-to-date, may be early in its move.

TIPS offer direct inflation protection that didn’t exist in the 1970s. In a re-acceleration scenario, TIPS outperform nominal Treasuries as the inflation adjustment compounds.

Long-duration Treasuries remain the asset class to avoid. TLT is essentially flat year-to-date. In any scenario where inflation re-accelerates, long-duration bonds lose value as yields rise.

Part IX: What Investors Should Watch

The next six months will determine whether this cycle rhymes with the 1970s or diverges. Here are the signals to monitor:

• The May CPI report (June 10, 2026). If headline CPI exceeds 4.0%, the re-acceleration narrative gains significant momentum. If core CPI begins rising above 3.0%, the problem extends beyond energy.

• Iran ceasefire status. The single most important variable for oil prices. Iran walked away from negotiations on June 1 -- not a good sign.

• NOAA El Niño updates (monthly). A Niño 3.4 index crossing above +2.0°C confirms Super El Niño status and activates the food price channel.

• University of Michigan inflation expectations. If the one-year-ahead expectation holds above 5% through summer 2026, the unanchoring becomes self-reinforcing.

• Fed communication. Watch for language suggesting rate hikes are on the table. Kevin Warsh takes over with core PCE at 3.3% and rising.

• DXY dollar index. A break below 95 would amplify imported inflation. A break above 103 would provide a natural offset.

• Wage data. If average hourly earnings re-accelerate above 4.5%, the 1970s parallel strengthens significantly.

• Credit spreads and private credit stress. Apollo and Ares have gated redemptions. If the oil shock tips overleveraged borrowers into default, this could force the Fed’s hand in either direction.

Skeptic’s Corner

I want to take the counterargument seriously, because getting this wrong in either direction has real consequences.

The wage mechanism is broken. Without 35% union membership and automatic cost-of-living adjustments, the wage-price spiral that sustained the 1970s second wave cannot operate the same way.

Wage growth at 3-4% is simply not the 8-10% that characterized the 1970s.

This is the most powerful structural argument against a full repeat.

Technology is deflationary. AI and automation are reducing costs in services, logistics, and manufacturing at a pace that has no 1970s equivalent.

The Fed would act. Unlike Burns, the current Fed has demonstrated willingness to inflict economic pain. If CPI re-accelerates above 5%, the Fed would likely hike.

Oil shocks are temporary. Every oil shock in modern history has eventually resolved. The U.S. is now a net energy producer, which partially offsets the Hormuz disruption.

The chart is a “chart crime”. The Summers overlay is a sample of one. The Cato Institute called it “uninformed madness” in 2023, noting that CPI methodology changed substantially between the two periods.

These are legitimate arguments. The second wave is not a certainty. For now it is a risk to be aware of.

Conclusion: Positioning for the Range of Outcomes

The data assembled here does not prove that a second wave is coming.

What it proves is that the conditions that preceded the second wave in the 1970s are present in sufficient quantity to take the risk seriously.

CPI is at 3.8% and re-accelerating. An active oil supply shock with the Strait of Hormuz still partially obstructed on Day 94. A Super El Niño developing with higher than average probability of reaching strong or very strong intensity.

Consumer inflation expectations more unanchored than the 1970s by the Cleveland Fed’s dispersion measure. A Fed that has already eased 200 basis points before reaching its inflation target. And fiscal deficits running at double the 1970s levels.

The 1970s lesson is that the second wave did not arrive because anyone expected it. It arrived because policymakers and markets assumed the first wave was a one-time event, declared victory prematurely, and then were overwhelmed when the next shock hit before the structural vulnerabilities had been addressed.

I am not predicting a repeat of 1980. I am observing that the setup for a re-acceleration is in place, the catalysts are identifiable, and the market is not priced for it. The May CPI report on June 10 will provide the next major data point.

Investors who positioned for inflation in the 1970s -- gold, commodities, energy, real assets -- dramatically outperformed those who assumed the storm had passed.

Those themes are already showing signs of working again in 2026, with energy up 30.5%, broad commodities up 34.7%, and gold up 70% since the end of 2024.

The question is whether to add to these positions or reduce them. That depends on the ceasefire, the El Niño, and the next CPI print. I will be closely watching all three.

Source summary

1. Bureau of Labor Statistics -- Consumer Price Index, April 2026 (released May 12, 2026)

2. Bureau of Labor Statistics -- Historical CPI data, 1968-1983

3. Bureau of Economic Analysis -- Personal Income and Outlays, April 2026 (released May 28, 2026)

4. Cleveland Federal Reserve -- “Consumer Inflation Expectations May Have Been More Unanchored in 2025 Than the Late 1970s,” February 2, 2026

5. Semafor -- “Larry Summers’ New Chart Sounds the Inflation Alarm,” April 6, 2026

6. Energy Information Administration -- Historical crude oil prices, 1970-2026

7. CNBC -- “A Timeline of How the Iran War Shook Oil Prices,” April 21, 2026

8. CNBC -- “Oil Drops 20% from 2026 Peak on Optimism Over U.S.-Iran Ceasefire Talks,” May 29, 2026

9. Dallas Federal Reserve -- “What the Closure of the Strait of Hormuz Means for the Global Economy,” March 20, 2026

10. Capital Economics -- Oil price inflation pass-through estimates, 2026

11. NOAA Climate Prediction Center -- ENSO Diagnostic Discussion, May 2026

12. Fortune -- “A Rare Super El Nino Is Looking More Likely,” May 31, 2026

13. CNBC -- “From War to Weather: A Super El Nino Event Poses Fresh Risks to Global Food Costs,” April 9, 2026

14. Fortune -- “Tariffs, War, and Now a Historic Drought,” April 21, 2026

15. USDA -- Food Price Outlook, March 2026

16. National Drought Mitigation Center -- Drought Monitor, May 19, 2026

17. Federal Reserve -- FOMC Statement, March 18, 2026; FOMC Minutes, April 29, 2026

18. J.P. Morgan Global Research -- Fed Rate Outlook, 2026

19. Bank of America -- Rate Cut Forecast Revision, 2026

20. Cambridge Currencies -- USD Forecast 2026

21. Morgan Stanley Investment Management -- “2026 Commodity Outlook”

22. World Gold Council -- “Why Gold in 2026”

23. Schroders -- Historical gold returns during stagflation

24. NYU Stern (Damodaran) -- Historical Returns on Stocks, Bonds, and Bills

25. S&P Dow Jones Indices -- S&P GSCI historical returns

26. USDA -- Farmland price data, 1970-1980

27. Wharton Real Estate -- Inflation and Real Estate Investments

28. Yahoo Finance -- All current market data as of June 2, 2026

29. IndexBox -- “Inflation’s Second Wave: Are We Reliving the 1970s?,” 2026

30. Al Jazeera -- “How does the current global oil crisis compare with the 1973 oil embargo?,” March 24, 2026

31. SCMP -- “How the Hormuz attacks stoke oil-shock fears,” 2026

32. PIIE -- “The Risk of Higher US Inflation in 2026”

33. Nouriel Roubini / CNBC, Benzinga, ETF.com -- Stagflation forecasts, 2024-2026

34. Mohamed El-Erian / Fortune -- “Trump’s question mark moment,” July 15, 2025

35. Jim Bianco / Advisor Perspectives -- “Shootout at the Inflation Corral,” May 18, 2026

36. Jim Bianco / CNBC -- “Inflation shock, not recession scare,” March 23, 2026

37. Lacy Hunt / AgeWage -- “A Fed-Driven Liquidity Event and Oil Shock,” May 11, 2026

38. Cato Institute -- Summers chart critique, 2023

39. ECB -- “The Quiet Erosion of Central Bank Independence,” May 7, 2026

40. Wikipedia -- 2026 Strait of Hormuz crisis; 1973 oil crisis; 1979 oil crisis

DISCLAIMER

This article is published by John Rothe, CMT, principal of ARTAIS Capital Management, LLC (“ARTAIS Capital”) is a registered investment advisor offering advisory services in registered states and in other jurisdictions where exempt. Registration does not imply a certain level of skill or training.

The opinions expressed in this newsletter are for informational and educational purposes only and do not constitute investment advice, a recommendation to buy or sell any security, or an offer to provide investment advisory services. All investments involve risk, including the possible loss of principal.

Any references to past performance, market data, or historical patterns are not indicative of future results. Forward-looking statements reflect the author’s current analysis and are subject to change without notice.

ARTAIS Capital Management, its principal, and/or its clients may hold positions in securities or asset classes discussed in this publication.

For personalized investment advice, please consult a qualified financial professional who can assess your individual circumstances.

NATURE OF THIS PUBLICATION: This screen represents the complete output of a systematic, rules-based quantitative methodology. It is published for informational and educational purposes only. It is NOT a model portfolio, NOT a recommended holdings list, and NOT personalized investment advice.

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© 2026 ARTAIS Capital Management, LLC. All rights reserved.

It is a momentum-based strategy that screens for stocks that meet long, intermediate, and short-term momentum and trend screens.

This weekly report will highlight macro and sector rotations and the stocks within the ARTAIS universe that meet this screening process.

As a CMT charterholder and someone who has been managing money professionally for the past 30 years, I will also be highlighting charts of interest that help explain what I am seeing in the markets, including a PDF chart pack with my notes on the stocks that pass my screening process (which I will refer to as the actionable list).

In This Issue

• What the current market rotation says about the health of the market

• Notable “big picture” charts

• Why NVDA will play an important part in whether we get a summer rally in the stock market

• The ARTAIS Universe and which stocks are passing my screening process

• Full chart pack for this week, covering my opinion on the stocks that pass the screening process.

Macro Rotation

Over the past week, the broader market has reversed and started to see improvement in momentum. (If you are unfamiliar with Relative Rotation Graphs, aka RRG charts, here is a brief primer.)

Value took the lead, but growth names are quickly catching up. Only the dollar (DXY) is showing weakness.

Notable Charts

NVDA:

NVIDIA has successfully retested support. This is what you want to see if you are bullish on this market.

For the past few weeks, as the S&P 500 index rose higher, NVDA got weaker and weaker. A retest of support is an indication that this is where the market sees value.

This is an important retest, as NVIDIA plays a very important part in index returns.

Currently, the technology sector makes up nearly 40% of the S&P 500 index. In other words, tech has a huge “vote” on whether the market goes up or down.

Source: S&P Global

In fact, the top 10 names in the S&P 500 index are tech or tech-related names:

Mutual funds and ETFs also hold a very large amount of NVDA shares:

Source: Koyfin

As you can see, NVDA plays a very important part not just in the index, but in the portfolio performance of most investors as well.

As a side note, the Energy sector is up nearly 30% year to date, which makes sense given the rise in oil prices amid Middle East tensions.

However, the S&P 500 index only has a 3.1% allocation to the Energy sector. Energy stocks have almost no impact on the direction of the index.

Market Health

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The conversation is still dominated by semiconductors — by NVIDIA earnings calls, AMD product launches, and who has the fastest chip.

But the money is telling a different story. And the numbers behind it are large enough to change how you think about positioning in this market.

For example: A company that makes cooling systems for data centers has outperformed NVIDIA by a ratio of 4 to 1 over the past six months.

Vertiv Holdings returned 94% vs NVIDIA’s 14.89% year to date (as of 5/28/26). Is the market starting to refocus its AI trade on infrastructure over tech?

Don’t Ignore the Buildout

The five largest hyperscalers — Amazon, Alphabet, Microsoft, Meta, and Oracle — are guiding toward a combined $635 billion to $690 billion in capital expenditure for 2026.

Amazon alone is projecting $200 billion. Alphabet is guiding $175 billion to $185 billion. Meta targets $115 billion to $135 billion. Microsoft is tracking toward $120 billion or more. Oracle is targeting $50 billion.

These are not speculative projections. These are company-issued guidance numbers from earnings calls.

Goldman Sachs estimates AI-focused companies may invest more than $500 billion in infrastructure in 2026 alone. Since that estimate was published, the number has only grown.

The acceleration is staggering:

• 2024: ~$250 billion in combined hyperscaler capex

• 2025: ~$400 billion — the largest single-year step-up in corporate history

• 2026: $635–$690 billion guided — another 60%+ increase

Here is what most semiconductor investors are not thinking about: only about 25% of that spending goes to chips. The other 75% goes to the physical infrastructure — data centers, power systems, cooling equipment, networking hardware, and land.

The GPU is the brain. The data center is the body. And the body costs far more to build.

Source: Goldman Sachs, “Why AI Companies May Invest More than $500 Billion in 2026,” January 2026; Futurum Group, “AI Capex 2026: The $690B Infrastructure Sprint”; Company earnings guidance, Q4 2025 and Q1 2026 earnings calls.

The Stocks Nobody's Talking About

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It is a momentum-based strategy that screens for stocks that meet long, intermediate, and short-term momentum and trend screens.

This weekly report will highlight macro and sector rotations and the stocks within the ARTAIS universe that meet this screening process.

As a CMT charterholder and someone who has been managing money professionally for the past 30 years, I will also be highlighting charts of interest that help explain what I am seeing in the markets, including a PDF chart pack with my notes on the stocks that pass my screening process (which I will refer to as the actionable list).

In This Issue

• What the current market rotation says about the health of the market

• Notable “big picture” charts

• The ARTAIS Universe and which stocks are passing my screening process

• Full chart pack for this week, covering my opinion on the stocks that pass the screening process.

Macro Rotation

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This morning, the University of Michigan released its most recent survey on how the consumer is feeling. And it was bad. Really bad.

The Michigan Consumer Sentiment Index fell for the third month in a row. Considering the rising costs of pretty much everything nowadays, this isn’t unexpected.

What is unexpected is that the data is suggesting consumers are feeling worse now than they were during the period of high inflation and the aggressive rate policy of Fed Chair Paul Volcker.

In March of 1980, inflation (as measured by the CPI) peaked at 14.8%. Interest rates continued to climb, with the Fed’s target rate aproaching 20%.

For perspective, the latest CPI reading shows prices rose 3.8% annually. And the current Fed target rate is at 3.50% - 3.75%.

By any measure, today's economy is in a far better position than 1980's. Which is what makes the sentiment reading so strange.

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So here is where it gets interesting…

Consumers today say they feel worse than they did when mortgage rates were 18%, gas lines wrapped around city blocks, and the Fed was hiking into a recession on purpose.

That should be alarming.

The historical record says it is not — and the reason has nothing to do with sentiment itself. It has to do with what the market consistently does in the 12 to 18 months after readings like this one.

The hard part of being a contrarian is not believing the data. It is being willing to act on it while everyone you know thinks you have lost your mind.

In This Issue:

• What happened to the S&P 500 in 1980 — the full move, not just the headline number.

• The two other times since 1978 when sentiment dropped this low, and the forward return from each.

• The sectors that led the recovery after the Fed raised rates to nearly 20%.

• Why every previous low-sentiment episode looked different at the time — and what they all had in common 12 months later.

What Happened In 1980?

Leading up to 1980, inflation was relentless. Eventually, the CPI peaked in March of 1980.

Mortgage costs, energy, and food led inflation higher during this time.

What Did The Markets Do in 1980?

Surprisingly, the markets performed quite well after such an extreme reading.

In 1980, the S&P 500 rose approximately 24% from May to December, finishing the year up 31%.

Industries that performed well during 1980 include healthcare and energy:

What About Other Low Sentiment Years?

While consumer sentiment readings during the 2008-09 Financial Crisis were not as low as they are now, the S&P 500 also showed positive performance over the following 12 months from November 2008’s sentiment low. (Note: the S&P 500 initially continued to drop until March 2009.)

In 2022, consumer sentiment hit its lowest level on record up to that point (until April 2026 took out that low)

Like in 1980 and 2009, stocks rose over the next 12 months.

In Conclusion:

Poor consumer sentiment sounds scary, since the US is a consumer-based economy.

As the data shows, poor sentiment doesn't necessarily mean it's time to get out of the market. Data is often already priced into the market by the time it's released.

BUT - these are very few data points. Keep an eye on the charts, as causes for low consumer sentiment are often different from one episode to the next. (My theory on today’s data vs 1980 is that social media plus the 24-hour news cycle is making consumers more worried than in the past.)

Next week, I will be starting a new report that includes my screening process and the stocks that pass it.

Have a great and safe Memorial Day weekend!

John Rothe

5/22/26

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