Sell in May and go away…so goes the saying in investor circles. Meaning that one can usually maximize gains by reducing long positions in May, raising cash and then buying those positions back again in late Q3 or early Q4. This mantra seems to work well in most years and especially so in mid-term election years. For the Nasdaq, instead of May…June seems to be a better month to trim back.
Now the question is…
Whether the market weakness that we saw in March was some sort of pull forward of this seasonal Summer decline?
And something else to consider…
Will fiscal stimulus from the OBBB (One Big Beautiful Bill of 2025) hit the US economy right when we need it the most to keep the 2026 earnings train chugging along?
While you are at it, why not ponder one more item…we have been discussing it for weeks now on this substack…
Even if the ME war ends tomorrow, how long will it take for energy and commodity supply chains to normalize and will we see higher inflation for months post-actual-war-end?
Our diversified and bar-bell hedged portfolio has kept us on the right side of 2026 market trouble. We have been taking advantage of right-tail opportunities and are protected from left-tail risks.
This is the S.W.A.T. way.
On the beach here, we track secular, macro, fiscal, and monetary trends and catalysts. Based on these signals, we mapped out what we believed is likely to happen in each of the next 4 to 5 quarters, starting in Q4 2025. So far, we got most of it right and some of it wrong. And that’s okay. We do not profess to be fortune tellers. No one is right all the time. We strive to be like water and adjust to market conditions and macro developments as they come at us.
We continue to update our forward-looking market roadmap and today we will discuss our outlook for the rest of Q2 and early Q3.
We keep saying that this market is not to be trifled with…this is not the year to F.A.F.O. In Q2, our focus is to make the final turn as we pivot our SWAT portfolio for the rest of 2026.
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The market has been on a tear as is evident from the SP500 chart below. The index has blown past all upside resistance and all previous resistance levels can now act as downside support if markets drop.
Here is a recent quote from fintwit that sums up the state of the market:
When vols, memory pricing, and call chasing all go vertical together, you’re no longer trading fundamentals. You’re trading upside panic.
As we inspect the chart further, we should note that:
Daily trading volume has continued to drop lower.
Markets are in an overbought state even as momentum has started to wane.
We are not seeing many more new 52-week highs nor are more stocks higher than their 50DMA.
Large hedges remain in place as traders are positioning for left tail risk with one eye on the exit door.
If you look back at this time in 2025…similar market technicals existed. This was followed by stocks rising…and they did not stop going higher until Nov 2025.
But at that time we were headed towards a rate cutting cycle and oil prices were marking new lows.
If the SP500 loses 7,200, then it has to hold support at 7,100 and then 7,000. Below those lines and we are likely to quickly revisit the mid-6,000s.
Throughout this year’s volatility, our barbell hedges worked perfectly. When markets swooned lower in Q1, we stayed relatively flat in our YTD performance. Then as markets recovered in April, our portfolio climbed to new highs and is consistently tracking ahead of the indexes.
As I take stock of how I want to position for Summer 2026, I go back to the basics of my investing process:
This year I am overweight in artificial intelligence. The AI infrastructure capex cycle is still strong with more than $750B +70% yoy planned for building new and upgrading existing data centers. Now it is driving about 75% of the US GDP growth. Businesses, large, medium and small, are actively looking for ways to cut costs and increase margins by adopting AI within their operations. Enterprise agentic AI is starting to feel the need for better AI agent management, governance and cyber-resilience. Consumer AI is slated to take shape in late 2026 and ramp up in 2027. Bottomline, we have exposure to AI clouds, data centers, GPUs, networking, ASICs, agentic AI, AI-driven ad-tech, enterprise and consumer LLMs, agent security and data resilience.
This is how we are positioned across the AI themes and in the following stocks…
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