Oil prices surge, interest rates struggle to fall, the "Seven Sisters" stumble: Which main themes should you focus on for Q2 U.S. stock excess returns?

Original Author: DaiDai, Frank, MSX Research Institute (Maitong)

Q1 has just wrapped up, and the market has already delivered a report card that isn’t exactly easy.

The “Seven Sisters” declined broadly and the index overall stayed weak, but if you had positions along these lines—fiber-optic communications, AI hardware, and energy & resources—then Q1’s returns were actually not bad. In Q1 alone, MSX (Maitong) launched 39 “standards,” with 4 “standards” whose gains exceeded 100%—and all of them were concentrated in the two main themes of AI hardware and fiber-optic communications (Further reading: 《A Q1 “top student” launch list—what kind of 2026 U.S. stock valuation spread password is hidden behind it?》).

Behind this, it actually reflects a very important way of thinking: when the index is no longer willing to readily provide Beta, market money will concentrate more heavily into a handful of directions that can turn industrial logic into real outcomes.

So the question is: when Q2 arrives, will this “weak index, strong main lines” structure continue? And where should the money go?

Based on this, the article lays out a systematic forward look at Q2’s macro environment, sector main lines, and trading logic. The core judgment can be summed up in one sentence—Q2 is more like a high-volatility, strongly differentiated quarter driven mainly by structural opportunities. Beta returns at the index level will be limited, but Alpha hasn’t disappeared; instead, it will be more concentrated, more selective, and even more dependent on how well you understand the evolution of the main lines.

I. Macro backdrop: oil prices are the anchor, interest rates are the wall

To understand the market rhythm of Q2, you first need to clearly see the two “ceiling layers” currently pressing down on risk assets: one is oil prices, the other is interest rates.

Over the past period, market expectations for the crude-oil midline have clearly risen, and Brent prices were even traded into higher ranges. At the same time, U.S. inflation data has continued to show sticky strength, and the Fed’s stance hasn’t truly shifted toward easing. In such a combination, the reality the market needs to accept is this: rate cuts may come, but they likely won’t arrive in a way that is fast enough and smooth enough.

This means Q2 is unlikely to be a quarter that lifts valuations broadly by “expanding the denominator.” After all, if rates can’t come down, long-duration assets face natural pressure. And if oil prices rise and corporate cost pressures and inflation expectations can’t easily fade, then the chain of “oil stays high → inflation remains sticky → rate cuts get delayed → valuation expansion room gets compressed” becomes hard to break.

For the market, this is almost like drawing trading boundaries in advance—making it increasingly difficult to “eat with valuation imagination,” while it becomes easier to win capital recognition by talking instead about orders, revenue, profits, and cash flow.

However, constraints don’t mean there are no opportunities. The truly important point at the macro level is that the current environment is not treating all industries the same:

• For example, changes like improved regulatory margins, revisions to capital rules, and a rebound in M&A activity are more likely to first benefit financials and parts of cyclical industries;
• Meanwhile, AI infrastructure expansion, increased military-industrial spending, and rising energy and resource prices will channel opportunities into more specific segments of the industry chain;

So Q2 is definitely not a quarter of “broad-based rallies.” It’s more like a quarter where “earnings visibility determines the premium, and the speed of industrial execution determines the elasticity.”

II. Q2’s five main lines: where does the money flow?

If you summarize the current environment as “high oil prices + high interest rates + the index struggles to stage a sustained upward trend,” then Q2’s excess returns will most likely still come from a small number of clear main lines.

1. AI infrastructure 2.0: from GPUs to networks, storage, and power

The AI story isn’t over, but the market’s trading focus has clearly shifted downward.

Over the past two years, the market has mostly traded the GPU story, platform companies, and the narrative of large models themselves. But entering 2026, capital has begun to ask more realistically: when big tech keeps expanding capex, what paths is it actually transmitting through—and which players first turn that spending into orders, and which ones first convert those orders into revenue and profits?

That’s also why Q2’s AI main line is closer to a “spillover from infrastructure” logic. If we break it down more specifically, it points to four more concrete directions.

First, including Lam Research (LRCX.M), KLA (KLAC.M), Applied Materials (AMAT.M), and others—this logic started to be realized in Q1, and Q2 requires continued monitoring of whether cloud-factory CapEx gets revised upward and whether equipment orders keep going. This is the most front-end, most hardcore capacity-expansion logic.

Second is interconnects, networking, and fiber-optic communications—reflecting a broad amplification of high-density connectivity needs inside data centers. This includes Arista Networks (ANET.M), Ciena (CIEN.M), Lumentum (LITE.M), Applied Optoelectronics (AAOI.M), Fabrinet (FN.M), Marvell Technology (MRVL.M), and others. In MSX Q1, the 8 newly listed fiber-optic communications “standards” averaged a 64.6% gain; in essence, it reflects the burst of demand for optical interconnects from AI data centers. So in Q2, this line is still worth tracking closely.

Looking further ahead, the beneficiaries in the storage chain are also becoming more clearly defined, including Micron Technology (MU.M), Western Digital (WDC.M), Seagate Technology (STX.M), and others. The key thing to watch is whether storage supply-demand and pricing can continue improving.

Finally, there is power and data center infrastructure, including Vertiv (VRT.M), Eaton (ETN.M), GE Vernova (GEV.M), and others. The core bottleneck for data center expansion is switching from “do we have computing power” to “do we have electricity, can we connect to the grid, and how soon can we deliver.” Power and grid-connection capability are becoming the most realistic constraints for AI infrastructure—and this is the incremental variable that makes Q2 worth tracking separately.

In other words, Q2’s AI main line is no longer just about “buying AI.” It’s closer to “infrastructure spillover.” That is: capital will continue penetrating down the industry chain—computing power → interconnects → storage → electricity. The market needs to answer a more specific question: where does the final destination of AI spending show up on which companies’ income statements? The clearer this question is, the easier it is for trading to move from theme speculation to systematic opportunities.

2. Financials and the cycle: not waiting for rate cuts, but waiting for capital to be released

Financials and the cycle are worth re-rating in Q2, but the logic is not only “waiting for the Fed to turn more dovish.”

A change worth focusing on is that improvements at the regulatory margin, adjustments to capital rules, and a revival in M&A activity are providing new earnings leverage for some financial stocks. For large investment banks and diversified financial institutions, the real positive may not necessarily come from interest rates dropping immediately. It’s more likely to come from easing capital usage, restoring buyback capacity, improving financing conditions for M&A, and an overall re-acceleration in financial activity.

Therefore, for top-tier financial institutions like Goldman Sachs (GS.M), Morgan Stanley (MS.M), and JPMorgan Chase (JPM.M), Q2’s key point is whether they can translate policy improvements into repaired earnings expectations earlier.

As for industrials and manufacturing—for example Caterpillar (CAT.M), Deere (DE.M), Parker-Hannifin (PH.M), and others—these are better understood within a framework of “high nominal growth + cyclical re-rating.” As long as industrial orders, equipment investment, and capex expectations can be maintained, capital will still be willing to grant them some room for re-rating.

So the core of this line isn’t “who is the cheapest,” but “who first demonstrates the full chain of: improved marginal policy → higher earnings visibility → valuation repair.”

3. Aerospace and defense: from a theme to commercial delivery

Aerospace is the line most easily undervalued in Q2, but also the one most likely to be traded repeatedly.

On one side is defense budgets with stronger certainty. For instance, U.S. “Golden Dome” related cost estimates have been raised to 185 billion dollars. Space and defense capability building is moving from theme narratives toward budget support in real terms. The corresponding “standards” include defense leaders such as Lockheed Martin (LMT.M), Northrop Grumman (NOC.M), RTX (RTX.M), and others—this is a high-certainty defense spending logic. There are also more flexible defense-product categories such as Kratos (KTOS.M) and AeroVironment (AVAV.M), which capture the market’s re-rating expectations for unmanned systems, low-cost combat capabilities, and new defense needs.

On the other side, commercial space itself is gradually moving out of the “long-term vision” narrative stage and entering a screening period of “who can deliver, and who can commercialize.” Behind names like AST SpaceMobile (ASTS.M), Rocket Lab (RKLB.M), Planet Labs (PL.M), and others, there are different tracks—satellite communications, launch services, and space data. The market is increasingly willing to re-rank them based on execution progress, order quality, and business models (Further reading: 《As the SpaceX IPO gets closer, what the MSX space sector truly needs to re-rate isn’t just “SpaceX”》).

In addition, regarding potential capital-market actions related to SpaceX, even if in the short term they still remain at the expectation level, they’re enough to act as an important sentiment catalyst for the entire sector. Its real significance isn’t only bringing attention, but possibly pulling the market back to one key question: if commercial space is shifting from a dream industry into a cash-flow industry, then among existing listed companies, who is most qualified to enjoy valuation mapping?

That’s also why Q2’s aerospace main line is likely not just a one-time spike. It will be a direction that is traded repeatedly as events catalyze, budgets advance, and performance gets verified.

4. The “Seven Sisters” and software: a repair window, not indiscriminate return

The “Seven Sisters” remain important in Q2, but more like a “style signal,” not the only main line.

The value of this group is not whether they will bring the index back out of another one-way trend. It’s about who can prove first that heavy capital expenditures are not merely consuming profits, but laying groundwork for future growth and profitability.

From this perspective, Alphabet (GOOGL.M), Apple (AAPL.M), and NVIDIA (NVDA.M) are relatively steady. Microsoft (MSFT.M), Amazon (AMZN.M), and Meta (META.M) still need more validation from profit margins and monetization efficiency. Tesla (TSLA.M) will most likely continue to stay within a high-volatility, strongly event-driven framework.

Software is similar. In Q1, many SaaS and software services companies clearly had the meaning of “first kill sentiment, then look at fundamentals.” The market compressed high-multiple growth stocks as a whole based on valuation. Then slowly differentiated who was truly “overkilled” and who was genuinely losing momentum. In Q2, with software and IT services once again being crowded shorts in institutional holdings, this sector is likely to see localized repair opportunities.

But what’s really worth watching isn’t merely saying “software will rebound.” Instead, it’s which companies have more solid cash flow, higher customer stickiness, and clearer niche barriers. Security software (PANW.M, CRWD.M) and enterprise platform leaders with relatively steady cash flow (ORCL.M, CRM.M) will usually be more easily favored by repair-oriented capital than pure story-based SaaS.

So this direction is better treated as a tactical repair opportunity rather than being lifted again as a new absolute main line.

5. Precious metals and resource security: conditional opportunities, but don’t ignore them

In Q2, precious metals and resource security should still stay on the watch list. It’s just more like a “direction waiting for a trigger.”

If the U.S. dollar and real interest rates fall at some point, and at the same time geopolitical uncertainty keeps heating up, then gold, silver, and some resource stocks will be able to quickly regain trading attention. Gold ETF tokens, silver ETF tokens, and leading mining stocks will naturally become the main expressions of this theme.

More importantly, the role of this line in a portfolio isn’t only to chase short-term elasticity. It’s that it has lower correlation with tech growth and offers some defensive value. For a portfolio that needs to balance offense with stability, the resource-security direction may not always be the fastest to rise, but it can often provide different kinds of support at critical moments.

III. If you look from the earnings perspective, what should you watch in Q2?

The MSX (Maitong) Research Institute believes that in an environment where both oil prices and interest rates stay high, what’s most worth tracking in Q2 isn’t only revenue growth itself, but whether profit margins can be defended and whether Guidance is clear and detailed enough.

The reason is simple. The market’s patience for heavy investment is declining. If companies can only keep talking about capex, future space, and industry vision—while failing to gradually translate investment into revenue, profits, or clearer visibility—then valuation pressure will keep building. Conversely, companies that can both capture industrial trends and convert growth into actual results on the statements will naturally earn higher premiums.

So, in Q2, there are mainly two things to track:

• First, whether AI truly brings real efficiency gains, rather than simply pushing up capital expenditures;
• Second, whether cost pass-through is smooth—especially when oil prices remain high: which industries can more easily transfer costs outward, and which industries get squeezed in the opposite direction by raw-material, transportation, and financing costs;

In that sense, why links like equipment, networks, storage, and power look more advantageous at the current stage isn’t because they’re “more exciting,” but because they better match the market’s current aesthetics for “things that can be monetized.”

So compared with who merely “beats slightly” in a single quarter, what’s more worth focusing on in Q2 is who is braver and clearer in providing Guidance for the second half. As the market’s tolerance for “high investment” declines, preference shifts toward “order execution” and “improved visibility.” This is also the underlying reason these areas—equipment, networks, storage, and power—are more dominant at this stage.

Still, risks need attention. Q2’s biggest exogenous variable is likely the situation in the Middle East and its impact on oil prices and global inflation expectations. If inflation continues to rise and oil prices stay high, the Fed may be forced to maintain a more hawkish path, and even re-trigger market discussions about “rate-hike risk.”

In addition, the U.S. midterm elections and regulatory variables for the second half may also be priced in by the market early in Q2, which could increase volatility for high-valuation growth stocks.

Overall, at the start of Q2, many investors will ask: should we lean more toward offense or defense? The MSX (Maitong) Research Institute prefers to understand this question in a different way. Under the current macro environment, the truly effective strategy isn’t simply answering “all-out offense” or “all-out defense,” but how to, in a high-volatility environment, use core positions to bet on certainty, use marginal positions to bet on flexibility, and at the same time keep the necessary low-correlation defensive exposure.

That means the most reasonable play in Q2 is not to put all chips on high-beta tech names, nor to retreat across the board just because you fear volatility. Instead, it’s about “launching the offense with defense.” Core positions can still be built around AI infrastructure and the aerospace-and-defense chain, because they remain the clearest main lines for orders, revenue, and industrial transmission. Meanwhile, you also need to keep some exposure that has lower correlation with the tech cycle—such as financials, software, and precious metals/resource security—to enhance portfolio resilience and your ability to handle unexpected events.

Write at the end

If you connect Q1 and Q2 together, an increasingly clear trend is that in 2026 U.S. equities, the market is shifting from the era of “buying the index, buying the narrative” to the era of “buying the main lines, buying delivery.”

Q1 already validated this. The broad decline in the “Seven Sisters” and pressure on the index doesn’t mean there was no money-making effect. The ones that truly ran were the structural directions positioned along the industrial trend transmission chain.

Entering Q2, this pattern will most likely not disappear. It will become more differentiated, more particular about timing, and it will test even more your understanding of the paths through which industry execution becomes real. As a result, Beta returns at the index level will be limited (S&P 500 base-case implies a range-bound cycle of 6400–6900), but there are still plenty of structural Alpha opportunities.

For investors, the most critical thing next is no longer betting on whether the index can resume a one-way uptrend, but understanding clearly along which main lines the capital will repeatedly migrate—and which directions can continue to receive market pricing in an environment of high oil prices, high interest rates, and high volatility.

From that angle, Q2 may not be a quarter that’s easy to “win while lying down,” but it’s very likely a quarter where you can still make money by understanding the structure.

Best wishes to everyone.