Bulls and bears are both right. The only difference will be timing

Markets are going to spend the next six months arguing about whether to be bullish or bearish.

The bulls are shouting about the Trump Put, the unstoppable AI revolution and a soft landing. The bears are warning about Hormuz risks, an AI capex bubble and an imminent recession.

Both sides are utterly convinced they’re right. Here’s the thing, they both are, is only a matter of when.

This is shaping up to be a classic sequence trade, where your timing will bring more benefit than your stock-picking, and it will likely set you up for the rest of Trumps term. So while they argue, we plan

Why the Bears are right

The bear case is not one thesis, it is a stack of overlapping risks landing on top of multi-decade-high valuations. Any one of them on its own is manageable. Together, the math gets ugly.

Valuations are high: Valuations in the S&P 500 have now stretched to clear multi-decade extremes. The market is trading at levels that can only be described as priced for perfection, leaving almost no room for disappointment if economic data, corporate earnings or geopolitical events fail to meet sky-high expectations. Almost every major valuation metric – from long-term measures like the Shiller CAPE right through to more conventional price-to-earnings ratios and the Buffett Indicator – is flashing bright red with overvalued signals.

At these rarefied levels, history has been remarkably consistent. Markets sitting at similar extremes have delivered at least one meaningful 10%+ drawdown within the following twelve months in over 70% of cases. The margin for error is exceptionally thin right now, and the setup feels increasingly fragile as we head into the traditionally weaker May–October period.

Hormuz is a stagflation trigger: One of the most immediate risks weighing on investor sentiment is the potential for a short, sharp stagflationary shock out of the Middle East. Although the US-Iran ceasefire has provided some breathing room, the situation remains fragile with escalation probability sitting in the 30 to 35 per cent range. A disruption to the Strait of Hormuz would not be a regime-changing event for the global economy — it would be a classic short-sharp shock. Oil prices would spike, gasoline costs would hit the US consumer, and the Federal Reserve would find itself boxed in on inflation. Markets have always hated that combination, even briefly. The good news is these disruptions have historically lasted weeks or months rather than years, but in the near term they create exactly the uncertainty that can trigger a meaningful pullback.

Hyperscaler capex is spooking the buy-side: Adding to the near-term nervousness is growing investor scrutiny around the trillion-dollar AI infrastructure build by the hyperscalers. For the past couple of years the market cheered the massive capex, but now the buy-side is asking tougher questions about returns and timing. The recent de-grossing in mega-cap technology — where hedge funds cut both long and short positions simultaneously — has acted as an important canary in the mineshaft. It signals that conviction is being tested and the market is no longer giving every dollar of spend the benefit of the doubt. This is not the end of the AI story, but it marks a clear shift from blind optimism to a more measured assessment of how quickly that enormous investment will translate into earnings.

AI worker displacement, near-term cliff: The labour market data is finally catching up to what the productivity numbers have been hinting at for two years. Headcount cuts at the customer-service, paralegal, and junior-analyst tiers are accelerating. Payroll prints will start to reflect this, and the headlines will be brutal.

Election uncertainty due to the US midterm: Layer on top of this the well-documented 2026 midterm election cycle.

Since 1939, every single US midterm year has seen an intra-year pullback in the S&P 500. The average drawdown is 16.7%, and 78% of those lows have occurred inside the classic May to October seasonal weakness window. The data is remarkably consistent.

The market doesn't like uncertainty, and midterms deliver plenty of it. Add in the fact that August and September are historically two of the weakest months on the calendar, and the next six months look like a high-probability window for a discounted entry.

Why the bulls are right

So if the near-term outlook carries these risks, why are we constructive on the S&P 500 once a dip arrives? Every one of these worries has a clock on it.

The Hormuz-related energy shock, should it re-emerge, is not structural. History shows these disruptions fade and the inflationary impulse reverses, often paving the way for renewed central bank easing, the very fuel that has powered every post-2015 recovery to breakeven in an average of just 127 days.

On the technology front, compute constraints are real but not permanent. As Alphabet CEO Sundar Pichai noted in the company's Q1 2026 earnings call:

"Obviously, we are compute constrained in the near term... our cloud revenue would have been higher if we were able to meet that demand."

Once supply catches up, a process already underway, the earnings leverage from that capex will be significant.

Similarly, the labour market disruption from AI will sort itself out over the next three years, just as every previous technological revolution has done. The internet, smartphones and personal computers all created short-term displacement before delivering broad-based productivity gains and new job creation.

And here are the kickers…

The most reliable predictive signal in markets right now is not valuations or AI, it is Trump's self-interest. He has shown across both terms that a strong stock market is central to his legacy, and candidly, to his family's balance sheet. Deregulation, energy dominance, pressure on the Fed for lower rates, tax cuts, fiscal stimulus. All of it points one direction.

The historical base case is supportive. Trump's first term delivered 67% on the S&P 500 over four years, and that included a pandemic. The structural setup for term two is arguably better, lower starting Fed funds rate, a weaker USD tailwind for US multinationals, and a capex cycle still running.

Midterm years have a reliable dip, but a near-perfect bounce record too

Then there is the midterm election recovery statistic, which is genuinely one of the most reliable and remarkable patterns in US equity market history. Every single midterm year since 1950 has seen the S&P 500 rebound from its intra-year low — not once has the market failed to recover. The average one-year return from that trough stands at a very healthy 36.5%. Even in the weakest cycle back in 2014, the market still managed a respectable 10.9% gain, while the strongest cycle in 1982 produced a stunning 66.1% return. Remarkably, there have been zero losing cycles across nineteen midterms. On top of that, the final quarter of midterm years has been positive 86% of the time since 1940.

This track record is extraordinary. It tells us that while midterms almost always deliver a dip, they have also consistently handed investors an attractive buying opportunity followed by strong subsequent gains.

So what’s the plan?

This is a sequencing trade, not a stock-picking trade. The "what to buy" is genuinely the easy part. The "when" is where most investors get it wrong.

Step 1. Trim now. Reduce US equity exposure into the rally. Focus the cuts on the most overvalued segments, mega-cap tech where forward P/Es are most stretched, and US small-caps where earnings revisions are already turning.

Step 2. Write the shopping list. This is the step most investors skip, and it is the step that decides whether you actually execute when the dip arrives. Pre-commit, on paper, to the names you want to own coming out of the drawdown. Three to five ASX-listed core positions. Two or three global names accessible via your platform. The exact weights you want at full deployment. The price levels at which you start buying.

The point is to make the decision now, while you are calm and the rally is making you feel clever. When the panic actually arrives, the human brain does not make good investment decisions. Loss aversion overrides everything you know about long-term investing. Pre-planning takes the emotion out of it. You set your levels, you write your list, and when the panic hits, the plan executes.

At MPC, We've mapped out the sequence in a Structured Investment called "Buy the Dip", a S&P500 Index investment with a "Lookback" feature, which assigns you the lowest Monday close in the next 6 months, and rides the Index for the length of Trumps Term Click here to read more

Step 3. Be patient. This is the hardest part of the trade. Sitting in cash while the market grinds higher for another few months feels terrible. Watching CNBC tell you that "this time is different" while you wait for a dip that may take until October to arrive is genuinely uncomfortable. Do it anyway. The seasonal data, the valuation data, and the cycle data are all telling you the same thing. The dip is more likely than not, and your job is to be ready for it, not to chase the last 5% of an overvalued rally.

Markets are going to spend the next six months arguing about whether to be bullish or bearish. The better question is when to be which.

The 3 hardest decisions in investing are knowing when to sell, trying to pick the bottom….and having the patience to wait for either. But they only hard in isolation, not when they are part of your plan