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?

Weakness in the index doesn’t mean there are no opportunities. Relying on valuation expansion to “eat” Beta isn’t working anymore—excess returns are starting to live more in new main storylines.

By DaiDai、Frank, Maitong MSX Research Institute

Q1 has just wrapped up, and the market first handed in a scorecard that wasn’t easy at all.

The “Seven Sisters” broadly fell, and the overall index was soft. But if you had exposure along the optical communications, AI hardware, and energy & resources lines, your Q1 returns were actually not bad. Maitong MSX launched 39 tagged benchmarks in Q1; among the four benchmarks with gains above 100%, all were concentrated in the two main themes of AI hardware and optical communications (Further reading: “A Q1 ‘A-student’ listing—what 2026 U.S. stock valuation spread clues are hidden inside?”).

Behind this, there’s actually a very important takeaway: when the index no longer so easily gives investors Beta, market money becomes more concentrated in the few directions that can translate industrial logic into results.

So the question is: when we enter Q2, will this structure of “weak index, strong main themes” continue? Where should the money go?

Based on this, this article provides a systematic forward-looking analysis of the macro environment in Q2, the main theme sectors, and trading logic. The core judgment boils down to one sentence: Q2 looks more like a quarter with high volatility, strong dispersion, and opportunities driven primarily by structural themes. Index-level Beta returns are limited, but Alpha hasn’t disappeared—on the contrary, it will be more concentrated, more selective, and even more dependent on understanding how the main storylines evolve.

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

To understand Q2’s market rhythm, you first need to clearly see the two layers of ceiling pressing down on risk assets right now: one is oil prices, and the other is interest rates.

Over the past period, market expectations for crude oil’s mid-cycle level have clearly risen, and Brent prices were at one point traded into a higher range. At the same time, U.S. inflation data still shows strong stickiness, and the Fed’s framework hasn’t truly turned toward easing. In this combination, the reality investors most need to accept is that rate cuts may come—but they may not arrive in a sufficiently fast, sufficiently smooth way.

This means Q2 is unlikely to be a quarter where valuations can be lifted across the board by “expansion on the denominator side.” After all, if interest rates can’t come down, long-duration assets are naturally under pressure. If oil prices rise and companies’ cost pressures and inflation expectations can’t ease easily, then high oil prices → sticky inflation → rate cuts delayed → compressed room for valuation expansion.

For the market, this is almost the same as drawing trading boundaries in advance: it becomes increasingly difficult to “live off valuation imagination,” while directions driven by orders, revenue, profits, and cash flow are more likely to win funding recognition.

However, constraints don’t mean there are no opportunities. A point worth truly paying attention to at the macro level is that the current environment is not treating all industries equally:

For example, changes such as marginal improvement in regulation, revisions to capital rules, and a pickup in M&A activity are more likely to first benefit financials and parts of the cyclical sectors;

Meanwhile, AI infrastructure expansion, releases in defense budgets, and higher energy & resources prices will channel opportunities into more specific segments of the industrial chain;

So Q2 is definitely not going to be a “broad-based market rally” quarter—it’s more like a quarter where “earnings visibility determines the premium, and how fast industry realization happens determines the elasticity.”

2. The five main themes in Q2: where does the money flow?

If you summarize the current environment as “high oil prices + high interest rates + the index has difficulty trending upward,” then Q2’s excess returns will very likely still come from a small number of clear main themes.

1. AI Infrastructure 2.0: moving from GPUs to networking, storage, and power

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

Over the past two years, the market traded mostly the GPU space, platform companies, and the narrative of large models themselves. But as we enter 2026, capital has started to ask more realistic questions: along which paths is the capital expenditure of large tech firms continuing expansion going to transmit downward? Who turns that spending into orders first, and who turns those orders into revenue and profits first?

That’s also why the AI main theme in Q2 is closer to a “spillover of infrastructure” logic. When broken down more specifically, it points to four more concrete directions.

This includes Lam Research (LRCX.M), KLA (KLAC.M), Applied Materials (AMAT.M), and others. The logic for this line began to deliver in Q1; in Q2, you need to continue watching whether cloud vendors are upgrading CapEx and whether equipment orders stay steady. This is the most front-end, most hardcore logic for capacity expansion.

Next is interconnects, networking, and optical communications—corresponding to the broad amplification of high-density connection demand 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 Q1, Maitong MSX’s optics communications lineup added eight new tagged benchmarks with an average gain of 64.6%. Fundamentally, this reflects the explosion of demand for optical interconnects from AI data centers—so this line in Q2 is still worth tracking closely.

Further along, the beneficiaries in the storage chain are becoming clearer as well, including Micron Technology (MU.M), Western Digital (WDC.M), Seagate Technology (STX.M), and others. The key observation is whether storage supply-demand and pricing can continue improving.

Finally, there’s power and data center infrastructure, including Vertiv (VRT.M), Eaton (ETN.M), GE Vernova (GEV.M), and others. The core bottleneck in data center expansion is shifting from “do we have compute?” to “do we have power, can we interconnect to the grid, and how quickly can we deliver?” Power and grid-interconnection capability are becoming the most practical constraints for AI infrastructure—and this is an incremental variable worth tracking separately in Q2.

In other words, the AI main theme in Q2 is no longer just “buy AI.” It’s closer to “infrastructure spillover,” meaning capital will continue to permeate downward along the industrial chain from compute → interconnects → storage → power. The market needs to answer a more specific question: where does AI spending ultimately land on who’s in the income statement? The clearer this becomes, the easier it is for trading to move from theme speculation toward systematic opportunity.

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

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

What matters more is the change that regulators’ marginal adjustments, capital rule changes, and a rebound in M&A activity are providing new earnings upside elasticity to some financial stocks. For large investment banks and diversified financial institutions, the true positive may not be that rates immediately fall—instead it could come from easing capital usage, restoring buyback capacity, a rebound in M&A financing, and an overall re-acceleration of financial activity.

Therefore, for leading financial institutions such as Goldman Sachs (GS.M), Morgan Stanley (MS.M), and JPMorgan Chase (JPM.M), the focus in Q2 is whether they can translate policy improvements into earnings expectation repair earlier.

As for industrials and manufacturing—for example, Caterpillar (CAT.M), Deere (DE.M), Parker-Hannifin (PH.M), and other tickers—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 is still willing to give them some room for re-rating.

So the core of this line isn’t about who looks cheapest; it’s about who shows the complete chain earliest: marginal improvement in policy → earnings visibility improves → valuation repair.

3. Aerospace & defense: from “a theme” to “commercial realization”

In Q2, aerospace is the line that’s easiest to be underestimated and also most likely to be traded repeatedly.

On one end is defense budgets with stronger certainty. For instance, costs related to the U.S. “Golden Dome” have been raised in forecasts to $185 billion. Space and defense capability building is shifting from theme narratives toward budget support backed by real money. The related tickers include defense leaders such as Lockheed Martin (LMT.M), Northrop Grumman (NOC.M), and RTX (RTX.M)—they map to a high-certainty defense spending logic. And on the other end are more flexible defense products 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 emerging defense needs.

On the other end, commercial space itself is gradually moving away from the “vision narrative” stage and entering a selection phase of “who can deliver and who can commercialize.” Behind tickers such as AST SpaceMobile (ASTS.M), Rocket Lab (RKLB.M), and Planet Labs (PL.M) are different tracks like satellite communications, launch services, and space data. The market is increasingly willing to reorder them based on delivery progress, order quality, and business models (Further reading: “With the SpaceX IPO approaching, what the MSX space sector truly needs to re-rate—not just ‘SpaceX’”).

In addition, potential capital-market actions involving SpaceX— even if in the short term they still remain at the expectation level—are enough to serve as an important sentiment catalyst for the whole sector. Its real significance isn’t just increasing attention; it may also pull the market back to a question: if commercial space is turning from a dream industry into a cash-flow business, which among the currently listed companies is most qualified to enjoy valuation mapping?

That’s why the aerospace main theme in Q2 is likely not a one-time “blow-off” spike, but a direction that gets traded repeatedly alongside event catalysts, budget progress, and earnings verification.

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

The “Seven Sisters” remain important in Q2, but more like a “style signal” rather than the only main theme.

The value of this set of assets isn’t whether they will once again take the index into another one-way run. Instead, it’s about who can be the first to prove that high capital expenditures aren’t simply swallowing profits, but are paving the way 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, strong event-driven framework.

Software is similar. Many SaaS and software service companies in Q1 carried a clear “kill sentiment first, then look at fundamentals” undertone. The market first compressed the overall valuation of high-multiple growth stocks, then slowly differentiated who was truly oversold versus who was actually falling behind. Entering Q2, as software and IT services briefly became crowded shorts in institutional holdings, this sector is likely to see localized repair opportunities.

But what’s truly worth looking at here isn’t just saying “software will rebound.” It’s which companies have steadier cash flows, stronger customer stickiness, and clearer segmentation moats. Security software (PANW.M, CRWD.M) and enterprise platform leaders with relatively stable cash flows (ORCL.M, CRM.M) are usually more likely to win favor from repair-oriented capital than purely story-driven SaaS.

Therefore, this direction is better handled as a tactical repair opportunity rather than being lifted into a new absolute main theme.

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

In Q2, precious metals and resource security should still remain on the watchlist. It’s just that it’s more like a direction “waiting for the trigger.”

If the U.S. dollar and real interest rates decline at some stage, combined with ongoing warming geopolitical uncertainty, then gold, silver, and some resource stocks can easily regain trading heat. Gold ETF tokens, silver ETF tokens, and mining leaders will naturally become the main expressions of this theme.

More importantly, the role of this line in a portfolio isn’t only to capture short-term elasticity. It also tends to have lower correlation with tech growth and offers a degree of defensive value. For a portfolio that needs both offense and stability, resource security may not always be the fastest riser—but it often provides different support at key moments.

3. If we look from an earnings perspective, what should Q2 focus on?

Maitong MSX Research Institute believes that under a backdrop of high oil prices and high interest rates, what’s most worth tracking in Q2 is no longer just revenue growth itself, but whether profit margins can be preserved—and whether Guidance is clear enough and dared enough to be given.

The reason is simple. The market’s patience for high investment is declining. If companies can only keep talking about capital expenditures, future space, and industry visions—without being able to gradually translate those investments into revenue, profits, or clearer visibility—then valuation pressure will keep increasing. Conversely, companies that both capture industry trends and can translate growth into the financial statements will naturally command a higher premium.

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

First, whether AI actually brings real efficiency improvements, rather than merely pushing up capital expenditures.

Second, whether cost pass-through is smooth—especially when oil prices stay high, which industries can transfer costs out more easily, and which ones get squeezed in the opposite direction by raw material, transportation, and financing costs.

In that sense, why segments like equipment, networking, storage, and power are relatively advantaged in the current stage isn’t because they’re more “sexy,” but because they better match the market’s current aesthetic for realizability.

So instead of focusing on who is “slightly above expectations” in a single quarter, Q2 is more about who is bolder in giving Guidance for the second half—and who can give it more clearly. As tolerance for “high investment” declines, the market’s preference shifts toward “order execution” and “visibility improvements.” This is also the underlying reason why equipment, networking, storage, and power are relatively advantaged right now.

That said, risks still need to be watched. Q2’s biggest exogenous variable remains the situation in the Middle East and its impact on oil prices and global inflation expectations. If inflation keeps rising and oil stays at high levels, the Fed may be forced to maintain a more hawkish path, and could even reignite market discussions about “the risk of rate hikes.”

In addition, the U.S. midterm elections and regulatory variables for the second half of the year may also be priced in earlier by the market during Q2, increasing volatility in high-valuation growth stocks.

Overall, at the start of Q2, many investors will ask: should we lean more toward offense or defense? Maitong MSX Research Institute prefers to understand this question in a different way. Under the current macro environment, the truly effective strategy isn’t simply choosing “fully offensive” or “fully defensive.” It’s how to, in a high-volatility environment, anchor the core position on certainty, express the marginal position on elasticity, and at the same time keep the necessary low-correlation defensive exposures.

That is to say, the most reasonable play in Q2 isn’t to put all chips on high-elasticity tech names, nor to retreat across the board just because of volatility. It’s “trade offense with defense.” The core position can still be built around the AI infrastructure and aerospace/defense chains, because they remain the clearest mainlines for orders, revenue, and industrial transmission. At the same time, you also need to keep part of the exposure that’s less correlated with the tech cycle—such as financials, software, and precious metals/resource security—to improve portfolio resilience and the ability to handle sudden events.

Closing remarks

If you connect Q1 and Q2 together, one increasingly clear trend is that U.S. stocks in 2026 are shifting from the era of “buy the index, buy the narrative” to the era of “buy the mainlines, buy the realization.”

Q1 already proved this. The “Seven Sisters” fell broadly and the index faced pressure—but that doesn’t mean there was no money-making effect. The ones that actually ran were precisely those structural directions positioned along the industrial trend transmission chain.

Entering Q2, this pattern will most likely not disappear. It will only become more differentiated, more particular about pacing, and even more demanding in terms of understanding how industries realize along their execution paths. As a result, Beta returns at the index level are limited (S&P 500 baseline implies a sideways range of 6400–6900), but there are still plenty of structural Alpha opportunities.

For investors, the most critical thing next isn’t to bet on whether the index can resume a one-way uptrend, but to see clearly which mainlines the money will repeatedly migrate along, and which directions can continue receiving market pricing in high oil-price, high interest-rate, and high-volatility environments.

From this perspective, Q2 may not be an easy quarter to “lie down and win,” but it is very likely to be a quarter where you can still make money through structural understanding.

Wishing you the best.