A potential US-Iran peace deal removes a key market overhang. The market is driven by two tails: the left tail of higher rates/inflation from oil supply bottlenecks, and the right tail of the AI boom. If the left tail is removed (10-year yield stays below 4.5%), the right tail can continue. The 4.5% yield level is critical as it matches the S&P 500's PE of 22. Real rates have been driving the move, not inflation expectations. The market is not overly stretched when considering operating margins, earnings growth, and credit spreads.

Securities lending revenue grew 26% last year to $15.3 billion. The market is bifurcated: big hyperscalers (Amazon, Nvidia) have very low short interest, while AI-adjacent names like Infosys show strong negative conviction with high fees. WolfSpeed was reclassified as key AI infrastructure, leading to a 130% stock price jump, but shorts are now returning. IT stocks are the highest earnings sector in securities lending this year.

The off-price retail model is working well in a consumer-pression environment, targeting lower household incomes ($50-60k). Burlington has perfected its off-price model over the past 5 years. Gas prices above $4/gallon will cause demand erosion that takes time to work through consumers' wallets. The US discretionary sector is trading at a lower relative valuation than during the GFC, signaling investor concern about demand risk.

The SaaS business model is facing a real crack due to agentic AI, which makes coding cheaper and eliminates the certainty of recurring cash flows. Software multiples have collapsed from low-20s to low-teens in public markets and from mid-teens to high-single-digits in private markets. Software is only 7% of the S&P but was 40% of PE investments, creating a bigger problem in private markets. Opportunistic credit is favored over private equity due to flexibility and shorter duration. Default rates are at 5-6% and ticking up, creating restructuring opportunities.

Tech has come full circle after the Iran war selloff. Earnings season was remarkable with 25% S&P 500 earnings growth. Consensus expects high-teens growth for each remaining quarter. The typical midterm election pattern is for markets to buy protection (sideways to down) before the election, then rally in Q4 (21 of 23 midterms saw positive Q4, average +7%). Mega IPOs are not a concern - they represent only 0.12% of S&P market cap and historically occur during strong equity markets.

The narrative of the office tower being finished is wrong. There is a clear demarcation between highly specified office blocks and those without facilities. Gateway cities like New York, Miami, and Los Angeles are resilient, but political leadership is crucial. New York's current leadership is a concern, but the city has endured many cycles.