After a torrid, years-long affair with AI stocks, investors are suddenly ghosting Big Tech and rebounding with… deodorant and cheeseburgers.

The market’s latest fling has been dubbed the “HALO” trade (heavy assets, low obsolescence). Traders are looking for shelter from industries getting smoked by mounting (and sometimes sketchy) evidence that AI is coming for them. So, they’re rushing to so-called “real” businesses like consumer staples, energy, or travel that they believe will survive either a technological armageddon, or the AI stock bubble bursting.

That’s led to a surge of interest in companies like McDonald’s, Budweiser, Walmart, and Costco over the past few days, while the software bloodbath is still ongoing next door.

The elusive “AI-proof” trade

In theory, their rationale makes sense: Even if we all become subjects of our robot overlords, we’ll still need paper towels and beer. But the HALO trade doesn’t exactly spell heaven for your portfolio.

The flip side is that a bunch of largely low-growth companies are now becoming overvalued due to a trend instead of their fundamentals. Case in point: Consumer staples are now trading at higher price-to-earnings ratios than the tech sector—a rare inversion that's coincided with a broader market downturn all three times it’s happened in the past seven years.

Reality check: A group of Morgan Stanley equity researchers argued in a note today that not only is the current AI-fear selloff overblown, but many of the stocks being “disrupted” by AI will actually benefit from the technology and are under-owned by investors. Companies viewed as most vulnerable to AI disruption make up just 13% of the S&P 500.

The team at Morgan Stanley argues that a stock-specific approach makes more sense than sector-wide judgements. They highlighted several companies it sees as positioned to benefit from the AI tailwind including software names like Microsoft, Salesforce, and ServiceNow, and banks like Citigroup. It also pointed to AI-adopter “underperformers” that could have huge upside potential, such as Accenture and Amazon.

More importantly, picking winners and losers is just plain difficult, given nobody knows how the dust will settle: “Stepping back, at the heart of the AI disruption debate is a technology that is improving at a non-linear rate, which presents challenges to assessing impacts given the dramatic ‘duration mismatch’ between the rate of AI capability growth and the long duration implied in most equity valuations,” wrote Stephen Byrd, global head of thematic and sustainability research at Morgan Stanley.

Even the HALO trade can’t protect investors from the force of gravity.—LB

The greenback just lost some color.

Yesterday, the US dollar posted its sharpest one-day decline since April’s tariff shock, sliding to its lowest level since 2021. The move accelerated after President Trump told reporters in Iowa that he thinks the dollar is “doing great,” a remark markets took as indifference toward the currency’s weakness.

The slide in the greenback lifted other major currencies across the board. The euro and British pound rose to levels last seen in 2021, while the Swiss franc surged to its highest point in 11 years.

What does a weaker dollar mean?

• For businesses, a softer dollar can be a tailwind. A weaker currency makes US goods cheaper for overseas buyers, supporting exports, while profits earned abroad rise when converted back to US dollars. “It doesn’t sound good, but you make a hell of a lot more money with a weaker dollar than you do with a strong dollar,” Trump said last July.
• For households, the impact is less favorable. A weaker dollar lifts import prices and adds to already-sticky inflation, with the burden falling unevenly. Higher-income consumers can absorb rising costs, while lower-income households feel the squeeze, reinforcing a K-shaped dynamic where spending holds up overall but problems emerge below the surface.
• For investors, the issue is confidence. When US leaders appear relaxed about a weaker dollar, markets see less commitment to currency stability. That pushes investors to reassess the risk of holding US assets and demand higher returns to compensate. Combined with growing doubts over policy direction, debt sustainability, and the Fed’s independence, a softer dollar stance risks discouraging foreign investment.

What comes next

Some investors think this isn’t just a bad day for the buck—it’s the start of something bigger.

Cole Smead, chief executive of Smead Capital Management, told CNBC that extended periods of US market dominance have often marked turning points for the dollar. Heavy investment into US markets over the past decade, amplified by the AI boom, has left US stocks highly valued. As investors rotate toward opportunities abroad in search of better returns, those capital outflows could put sustained pressure on both the stock market and the dollar.

But Alexander Campbell, CEO of Black Snow Capital, says investors shouldn’t write the dollar off just yet. In a recent Substack post, he noted that “The fall in the dollar feels large up close, but keep in mind we are still at least 25% above where the dollar typically bottoms.” He also pointed out that even if the dollar isn’t strong, it’s still ubiquitous, and it remains the reserve currency of choice around the globe.

The dollar is still dominant in the world of finance, but anyone keeping their money in cash might be left green with envy watching other assets climb as the greenback continues to slide.—SY

We’ve all heard about how the ongoing war in Iran is hurting the US economy. With oil prices rising to nearly $120 per barrel over the weekend, economists are calling this the biggest oil disruption in history, with many hinting at chances of stagflation.

US stocks slid over the past week, too. Airlines and cruise operators tumbled thanks to soaring fuel prices, while some tech firms faced disruptions tied to data centers in the Middle East.

Lee’s bullish case

This all sounds pretty grim, but Tom Lee, head of research at Fundstrat, has a different perspective: He argues that the rise in oil prices actually serves to benefit the US economy. That sounds pretty counterintuitive at first, but his reasoning comes down to a few key points:

1. Exports: The US is a net exporter of oil, shipping 35% more oil than it imported last year. When prices rise, that boosts revenues for domestic energy producers.
2. Competitive advantage: Many economies in Asia and Europe rely heavily on oil flowing through the Strait of Hormuz, while the US doesn’t. China, for example, gets 37.7% of its oil through the strait, compared with just 2.5% for the US.
3. Flow to growth: Oil shocks often push global capital away from cyclical markets and toward growth-heavy markets like the US, where tech dominates the major indexes and corporate earnings are less tied to energy prices and economic cycles.
4. The Trump “put”: If energy prices spike too much, political pressure increases. Lee argues the Trump administration can reverse the effects and offer quick resolutions that bring prices back down.

So, what happens now?

We’re already seeing signs of Lee’s last point becoming reality: In a press conference yesterday, President Trump said the war will end “very soon”. Oil prices fell yesterday, and sank another 8% this afternoon.

But even without his intervention, Lee notes that history often contradicts the instinctive panic around oil spikes. In several past episodes dating back to 1983, stocks actually performed pretty well in the months following price shocks.

With that in mind, Lee maintains his view that stocks will end this month higher than where they started. His favorite trades include energy and basic materials, along with industrials, financials, and small-caps. He also remains bullish on the Mag 7, bitcoin, and ethereum, arguing that the market may already be 95% through the current selloff.

Lee’s optimism is a ray of light in an otherwise gloomy market environment, but investors should still remain cautious as the geopolitical situation continues to evolve.—SY