Everything 'Rips Higher' EXCEPT This: Fund Manager Warns After Calling Rally

Thomas Hayes argues the AI trade is overextended in the short term, driven by paper gains and frothy valuations. He expects a rotation into defensive sectors (staples, healthcare, utilities) once the Iran conflict is resolved, which would lower inflation expectations and allow the Fed to cut rates. He recommends Diageo, Hormel, Alibaba, and Advanced Auto Parts as attractive plays.

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Great Hill Capital 3.0
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Thomas Hayes 9.0

Everything 'Rips Higher' EXCEPT This: Fund Manager Warns After Calling Rally | Thomas Hayes

ndx

the AI trade is going to be down

3 calls

slightly better than random

5/20/2026 4:00:21 PM	short term cautious down	5 days later	+2.19%	-1.10%
10/9/2025 3:00:14 AM	short term cautious up	5 days later	+2.16%	+1.08%

rut

the everything trade, everything else that hasn't been working for the eight weeks of the war is going to rip higher

1 calls

-12

slightly worse than random

wti

oil is going to be down

2 calls

-11

slightly worse than random

9/24/2025 4:13:54 PM	medium term up	20 days later	-10.33%	-10.33%

yields

yields are going to be down

2 calls

no reliable edge (random outcomes)

5/20/2026 4:00:21 PM	short term down	5 days later	-2.03%	+2.03%

David

The S&P 500 is at all-time highs despite the Iran war, rising inflation expectations, and deteriorating consumer strength (savings rate down, debt and delinquencies up).
Thomas Hayes

The market is a tale of two cities: equal weight outperformed in Jan/Feb, but since the Iran war, only the AI trade has worked due to higher oil, inflation expectations, and yields.
Thomas Hayes

Earnings growth is largely driven by non-operating income (paper gains on equity stakes in AI startups like Anthropic), not operating improvements.
Thomas Hayes

Retail call buying is at 2021 extremes, margin debt is at records, and put skew has collapsed—nobody wants downside protection.
Thomas Hayes

Google's equity raise is smart: they're raising cheap capital at a high valuation, planning to buy back shares on a correction.
Thomas Hayes

The Iran war will be resolved via tweet (blink, pullout, victory, deal—doesn't matter) because of the election.
Thomas Hayes

Bernie Sanders' proposal for 50% government stakes in AI companies is unlikely; government involvement should be limited to national security cases like Intel.
Thomas Hayes

The Fed's mandate is to cut, but can't while inflation is above trend due to a man-made war. Once the war ends, the Fed will cut before year-end (non-consensus).
Thomas Hayes

A rate hike is unlikely unless the Iran war continues for another 1-2 months. Trump will resolve it to avoid decimation in the election.
Thomas Hayes

If the Strait of Hormuz is permanently closed, Democrats win, inflation hits 5%, 10-year yield at 5.5-6%, small caps decimated, recession begins.
Thomas Hayes

Bond vigilantes are selling because of inflation expectations from the war; the prudent trade is to bet on Trump being a rational actor and resolve it.
Thomas Hayes

The market cares about inflation expectations, not current inflation. If the war ends, yields fall, housing (18% of GDP) comes back.
Thomas Hayes

Rotate out of tech: the catalyst was the war. The AI trade is not insulated—hyperscalers ran out of cash flow, now issuing stock at highs.
Thomas Hayes

Specific defensive picks: Diageo ($3B FCF, turnaround), Alibaba (cheapest AI play, equity stakes in Chinese AI startups), Hormel (6% yield, 65-year dividend growth), Advanced Auto Parts (turnaround, $150 target), Estee Lauder (recovery).
Thomas Hayes

This is not 2000—we're mid-game (4th/5th inning). But short-term cautious: Q2 earnings will show no operating gains, capex may be pulled back, causing a price break.

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