Oil prices soar, interest rates hard to lower, Seven Sisters at a standstill: Which main lines should we focus on for excess returns in Q2 of the US stock market?

Written by: DaiDai, Frank, MaiTong MSX Research Institute

Q1 has just concluded, and the market has delivered a rather challenging report card.

The seven sisters have broadly declined, and the overall index is weak. However, if you have positioned yourself in the areas of optical communication, AI hardware, and energy resources, the earnings in Q1 are actually not bad. MaiTong MSX launched 39 targets in Q1, among which 4 targets with gains exceeding 100% are concentrated in the two main lines of AI hardware and optical communication (see also: “What does a ‘top student’ Q1 launch list hide about the temperature difference in the US stock market in 2026?”).

This reflects a very important idea: When the index no longer easily provides Beta, market money will flow more concentratedly towards a few directions that can realize industrial logic.

So the question arises, as we enter Q2, will this structure of "weak index, strong main lines" continue? Where should the money be placed?

Based on this, this article provides a systematic outlook on the macro environment, sector main lines, and trading logic for Q2. The core judgment can be summed up in one sentence—Q2 is more like a quarter characterized by high volatility, strong differentiation, and primarily structural opportunities. The Beta returns at the index level are limited, but Alpha has not disappeared; rather, it will be more concentrated, more selective, and more dependent on understanding the evolution of the main lines.

I. Macro Background: Oil Prices as Anchor, Interest Rates as Wall

To understand the market rhythm in Q2, we first need to see the two layers of ceilings pressing down on risk assets: one layer is oil prices, and the other is interest rates.

Recently, the market's expectations for the oil price center have clearly risen, with Brent prices trading at higher ranges. At the same time, US inflation data continues to show strong stickiness, and the Federal Reserve's stance has not genuinely shifted towards easing. In this combination, the most important reality the market needs to accept is that interest rate cuts may come, but they will not arrive quickly or smoothly enough.

This means that Q2 is unlikely to be a quarter that relies on "expansion of the denominator" to raise valuations overall. After all, if interest rates do not come down, long-duration assets will naturally be under pressure; if oil prices rise, it will be difficult for corporate costs and inflation expectations to easily decline, leading to high oil prices → sticky inflation → delayed interest rate cuts → compressed valuation expansion space.

For the market, this almost pre-defines the trading boundaries, making it increasingly difficult for directions that rely on valuation imagination to thrive, while those that speak in terms of orders, revenue, profits, and cash flow are more likely to gain funding recognition.

However, constraints do not mean there are no opportunities. A key point worth noting at the macro level is that the current environment does not treat all industries equally:

• For example, changes such as marginal improvements in regulation, revisions of capital rules, and a rebound in merger and acquisition activity are more likely to benefit the financial sector and some cyclical industries first;
• Meanwhile, the expansion of AI infrastructure, the release of military budgets, and the rise in energy and resource prices will concentrate opportunities in more specific segments of the industrial chain;

Therefore, Q2 is destined not to be a quarter of "broad-based gains," but rather one where "profit visibility determines premiums, and the speed of industrial realization determines elasticity."

II. Five Main Lines in Q2: Where Will the Money Flow?

If we summarize the current environment as "high oil prices + high interest rates + difficulty for the index to trend upwards," then the excess returns in Q2 will likely still come from a few clear main lines.

1. AI Infrastructure 2.0: From GPU to Networking, Storage, and Power

The AI story is far from over, but the market's trading focus has clearly shifted downwards.

In the past two years, the market has been more focused on trading GPUs, platform companies, and the narrative of large models; as we enter 2026, funds are beginning to ask more realistic questions: What paths are the capital expenditures of large companies continuously expanding along? Who will first convert this money into orders, and who will then convert orders into revenue and profits?

This is why the AI main line in Q2 is closer to a "spillover from infrastructure" logic, specifically pointing to four more concrete directions.

Including Lam Research (LRCX.M), KLA (KLAC.M), Applied Materials (AMAT.M), etc., the logic of this line has already begun to materialize in Q1. In Q2, we need to continue observing whether cloud companies will revise their CapEx upwards and whether equipment orders will continue, as this is the most front-end, hardcore capacity expansion logic.

Next is interconnectivity, networking, and optical communication, corresponding to the comprehensive amplification of high-density connection demands within data centers, including Arista Networks (ANET.M), Ciena (CIEN.M), Lumentum (LITE.M), Applied Optoelectronics (AAOI.M), Fabrinet (FN.M), Marvell Technology (MRVL.M), etc. The average gain of 8 new optical communication targets from MSX in Q1 was 64.6%, which essentially reflects the explosion of AI data center demand for optical interconnects, so this line in Q2 is still worth closely tracking.

Looking further, the benefits in the storage chain are also becoming clearer, including Micron Technology (MU.M), Western Digital (WDC.M), Seagate Technology (STX.M), etc. The core observation point is whether storage supply and demand and prices can continue to improve.

Finally, there are power and data center infrastructure, including Vertiv (VRT.M), Eaton (ETN.M), GE Vernova (GEV.M), etc. The core bottleneck of data center expansion is shifting from "is there computing power" to "is there electricity, can it be connected to the grid, and how long will it take to deliver?" Power and grid connection capabilities are becoming the most realistic constraints on AI infrastructure, which is also an incremental variable worth tracking separately in Q2.

In other words, the AI main line in Q2 is no longer just about simply "buying AI," but is closer to "spillover from infrastructure," meaning funds will continue to penetrate down the industrial chain from computing power → interconnectivity → storage → power. The market needs to answer a more specific question: to whom are AI investments ultimately flowing in the financial statements? The clearer this question is, the easier it will be for trading to shift from thematic speculation to systematic opportunities.

2. Finance and Cycles: Not Waiting for Rate Cuts, but for Capital Release

Finance and cycles are worth reassessing in Q2, but the logic is not just about "waiting for the Fed to turn dovish."

More noteworthy changes include marginal improvements in regulation, adjustments to capital rules, and a rebound in merger and acquisition activity, which are providing new profit elasticity for some financial stocks. For large investment banks and comprehensive financial institutions, the real benefits may not necessarily come from an immediate decline in interest rates, but more likely from alleviating capital occupation, restoring buyback space, a rebound in merger financing, and a general resurgence of financial activities.

Therefore, for leading financial institutions like Goldman Sachs (GS.M), Morgan Stanley (MS.M), JPMorgan Chase (JPM.M), the focus in Q2 will be whether they can convert policy improvements into performance expectation recovery more quickly.

As for the industrial and manufacturing sectors, such as Caterpillar (CAT.M), Deere (DE.M), Parker-Hannifin (PH.M), these targets are more suitable to be understood within the framework of "high nominal growth + cyclical revaluation." As long as industrial orders, equipment investment, and capital expenditure expectations can be maintained, funds will still be willing to give them a certain revaluation space.

Thus, the core of this line is not who is the cheapest, but who can first demonstrate the complete chain from marginal policy improvement → enhanced profit visibility → valuation recovery.

3. Aerospace: From Themes to Commercial Realization

Aerospace is the line in Q2 that is most likely to be underestimated but also most likely to be traded repeatedly.

On one end is the more certain defense budget, such as the US "Golden Dome" related cost estimates being raised to $185 billion, with space and defense capability construction transitioning from thematic narratives to real budget support. Corresponding targets include Lockheed Martin (LMT.M), Northrop Grumman (NOC.M), RTX (RTX.M), etc., corresponding to high certainty in defense spending logic; as well as Kratos (KTOS.M), AeroVironment (AVAV.M), etc., which are more flexible military varieties, reflecting the market's reassessment expectations for unmanned systems, low-cost combat capabilities, and new defense needs.

On the other end, commercial aerospace is gradually moving away from the vision narrative stage and entering a selection period of "who can realize, who can commercialize." Targets like AST SpaceMobile (ASTS.M), Rocket Lab (RKLB.M), Planet Labs (PL.M) correspond to different tracks such as satellite communication, launch services, and space data, and the market is increasingly willing to reorder them based on realization progress, order quality, and business models (see also: “With SpaceX IPO approaching, what really needs to be reassessed in the MSX space sector is not just ‘SpaceX’”).

Additionally, potential capital market actions surrounding SpaceX, even if still at the expectation level in the short term, can significantly catalyze sentiment across the entire sector. Its true significance is not just to bring attention but to potentially pull the market back to a question: If commercial aerospace is transitioning from a dream industry to a cash flow industry, which existing listed companies are most qualified to enjoy valuation mapping?

This is why the aerospace main line in Q2 is likely not a one-time spike, but rather a direction that will be traded repeatedly alongside event catalysts, budget advancements, and performance validations.

4. Seven Sisters and Software: Repair Window, Not Indiscriminate Return

The seven sisters remain important in Q2, but they are more like "style signals" rather than "the only main line."

The value of this group of assets does not lie in whether they will lead the index to a round of unilateral trends again, but in who can first prove that high capital expenditures are not merely consuming profits but are paving the way for future growth and profitability.

From this perspective, among them, Alphabet (GOOGL.M), Apple (AAPL.M), and NVIDIA (NVDA.M) are relatively stable, while Microsoft (MSFT.M), Amazon (AMZN.M), and Meta (META.M) still need more validation from profit margins and monetization efficiency. Tesla (TSLA.M) is likely to remain within a framework of high volatility and strong event-driven dynamics.

The software sector is similar. In Q1, many SaaS and software service companies exhibited a clear tendency of "first killing sentiment, then looking at fundamentals," with the market initially compressing based on high valuation growth stocks and then slowly distinguishing who was wrongfully punished and who was genuinely slowing down. By Q2, as software and IT services became crowded shorts in institutional holdings, this sector is likely to see localized repair opportunities.

However, what is truly worth watching here is not a vague statement that software will rebound, but which companies possess more solid cash flow, higher customer stickiness, and clearer segmentation barriers. Security software (PANW.M, CRWD.M) and enterprise platform leaders with relatively stable cash flow (ORCL.M, CRM.M) are generally more likely to attract repair funds than purely story-driven SaaS.

Therefore, this direction is more suitable for capturing tactical repair opportunities rather than being elevated to a new absolute main line.

5. Precious Metals and Resource Security: Conditional Opportunities, But Not to Be Ignored

Precious metals and resource security should still remain on the watch list in Q2, but they are more like directions "waiting to be triggered."

If the dollar and real interest rates decline at some stage, combined with a continued rise in geopolitical uncertainty, then gold, silver, and some resource stocks can easily regain trading heat. Gold ETF tokens, silver ETF tokens, and leading mining companies will naturally become the main expressions in this line.

More importantly, the significance of this line in the portfolio is not just to seek short-term elasticity, but because it has a lower correlation with tech growth, providing certain defensive value. For a portfolio that needs to balance offense and stability, the resource security direction may not always rise the fastest, but it often provides different support at critical moments.

III. What to Watch in Q2 from a Profit Perspective?

MaiTong MSX Research Institute believes that in an environment of high oil prices and high interest rates, what is most worth monitoring in Q2 is no longer just revenue growth itself, but whether profit margins can be maintained and whether guidance can be given more clearly.

The reason is simple. The market's patience for high investments is declining. If companies can only keep talking about capital expenditures, future space, and industry visions without gradually converting investments into revenue, profits, or clearer visibility, then valuation pressure will increase; conversely, those that can both embrace industrial trends and convert growth into financial statements will naturally receive higher premiums.

Therefore, what should truly be tracked in Q2 are mainly two things:

• First, whether AI has indeed brought real efficiency improvements, rather than simply pushing up capital expenditures;
• Second, whether cost transmission is smooth, especially in the case of high oil prices, which industries are more likely to pass on costs, and which industries will be squeezed by raw material, transportation, and financing costs;

In this sense, the reason why segments like equipment, networking, storage, and power are more advantageous at this stage is not because they are more "sexy," but because they align better with the current market's aesthetic for realizability.

Thus, rather than focusing on who slightly exceeds expectations in a single quarter, Q2 is more worth paying attention to who dares to provide clearer guidance for the second half of the year. The market's tolerance for "high investment" is decreasing, while the preference for "order realization" and "visibility enhancement" is increasing. This is also the underlying reason why segments like equipment, networking, storage, and power are more advantageous at this stage.

However, risks still need to be noted. The biggest external variable in Q2 remains the situation in the Middle East and its impact on oil prices and global inflation expectations. If inflation continues to rise and oil prices remain high, the Federal Reserve may be forced to maintain a more hawkish path, potentially reigniting market discussions about "interest rate risks."

Additionally, the upcoming US midterm elections and regulatory variables in the second half of the year may also be priced in by the market in Q2, leading to increased volatility in high valuation growth stocks.

Overall, at the starting point of Q2, many investors will ask: Should we lean more towards offense or defense now? MaiTong MSX Research Institute prefers to understand this question in a different way. In the current macro environment, the truly effective strategy is not simply answering "all offense" or "all defense," but how to achieve core positions betting on certainty, marginal positions betting on elasticity, while retaining necessary low-correlation defensive exposures.

In other words, the most reasonable approach in Q2 is not to place all chips on high-elasticity tech stocks, nor to retreat entirely out of fear of volatility, but to "bring defense to offense." Core positions can still revolve around AI infrastructure and aerospace chains, as they remain the clearest main lines for current orders, revenue, and industrial transmission; at the same time, it is also necessary to retain some exposures that are less correlated with the tech cycle, such as finance, software, precious metals, and resource security, to enhance the portfolio's resilience and ability to respond to unexpected events.

In Conclusion

Looking at Q1 and Q2 together, an increasingly clear trend is that the US stock market in 2026 is shifting from an era of "buying indices, buying narratives" to an era of "buying main lines, buying realizations."

Q1 has already validated this. The broad decline of the seven sisters and the pressure on the index do not mean there is no profit-making effect; what has truly emerged are those structural directions standing on the transmission chain of industrial trends.

As we enter Q2, this pattern is unlikely to disappear; it will only become more differentiated, more rhythmically demanding, and more challenging in understanding the paths of industrial realization. Therefore, the Beta returns at the index level are limited (with the S&P 500 benchmark expected to oscillate in the 6400-6900 range), but there are plenty of structural Alpha opportunities.

For investors, the most critical thing moving forward is no longer to bet on whether the index can rise unilaterally again, but to clearly see along which main lines funds will repeatedly migrate and which directions can continue to gain market pricing in an environment of high oil prices, high interest rates, and high volatility.

From this perspective, Q2 may not be an easy quarter to "lie back and win," but it is likely still a quarter where money can be made through structural understanding.

Let’s encourage each other.