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From Three Cuts to a Hike, The Macro Trade That Just Flipped

Six months ago, the market was pricing three Fed rate cuts for 2026. Today, the December meeting carries a real probability of a HIKE. That regime change is the single biggest macro story of the year, and most portfolios still aren't positioned for it.

June 28, 2026

Core PCE is running above 3%. Headline CPI hit 4.2% in May. Oil's stuck near $74 even after the Iran ceasefire. And the Fed has gone from patient to openly debating whether the NEXT move is up. If you're still positioned for the rate-cut trade you bought into last December, this issue is for you.

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Why the Rate Cut Trade Just Imploded

At the start of 2026, fed funds futures were pricing in three rate cuts by year-end. Today? The market is pricing a 60%+ probability of a HIKE by December, and Guggenheim now expects the Fed to hold at 3.50 to 3.75% through mid-2027. That's a complete regime change in six months.

What this means for your portfolio. Every position built for lower rates ahead is now misaligned. Long-duration tech, REITs that need cheap refis, growth names trading on 2027 DCFs, none of them work in a world where the 10-year yields 4.4% and isn't budging. The setup is asymmetric, and most retail portfolios still haven't adjusted.

How We Got Here

The story starts with the Middle East energy shock. The Strait of Hormuz disruption pushed Brent from the mid-$60s to nearly $94 average for 2026 per the World Bank. Even with the June 18 US-Iran memorandum, Brent is sitting at $74.41 and gold's at a record $4,024. That energy impulse fed straight into headline inflation.

But energy isn't the whole story. The second driver is the AI capex boom itself. Schwab's mid-year outlook flagged that AI-related goods and services are now an increasingly dominant factor in the inflation surge. Hyperscaler spending on chips, power, and data centers is creating its own inflationary impulse. The very thing pushing earnings is also pushing prices.

Layer in front-loaded fiscal stimulus, a 4.3% unemployment rate that won't crack and you have a Fed with no excuse to cut.

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Why This Sticks Around (And What Could Break It)

Sticky services inflation

Wages cooled, but core services CPI is still running near 3.5% . That's the slow-moving piece the Fed can't ignore.

The AI capex feedback loop

Hyperscaler capex is driving demand for power, copper, semis, and skilled labor. None of that is disinflationary.

A demand-resilient consumer

Wealth effects from record equity prices are propping up upper-income spending. The Fed can't cut into that.

Long-end yields grinding higher

The 10-year sits at 4.39% hovering near multi-decade highs. Bond vigilantes are back, and fiscal supply isn't slowing.

Hormuz still isn't fully reopened

Crude shipments hit war-period highs this week, but one more disruption and oil retests $90. That's the wildcard.

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What Happens From Here

Expect the regime to harden over the next two quarters. Banks have already gotten the green light to return capital after passing the Fed's stress test, with JPMorgan unveiling a $50 billion buyback and Goldman raising its dividend. That's a green flag for financials.

Long-duration assets stay under pressure. The equity risk premium is historically thin, so any further rise in the 10-year takes a direct bite out of multiples. Software and unprofitable growth names have already started getting hit, and that pressure isn't going away while rates hold above 4%.

Commodities and hard assets keep their bid. Gold at $4,024 isn't a fluke. Silver up 55% YoY isn't either. When real rates can't fall and inflation stays sticky, the textbook hedges work.

How to Play the Reversal

Lean into cash-flow generators, not duration

Free cash flow yield matters more than terminal growth in this regime. Mature businesses returning capital beat profitless growth.

Own the banks the Fed just cleared

The stress test results gave the green light for record buybacks and dividend hikes. That's a direct earnings tailwind.

Stay long real assets

Gold, silver, copper, and energy producers all benefit when inflation stays above target and central banks won't cut.

Underweight long-duration Treasuries

BlackRock is underweight long-end Treasuries for a reason. The fiscal supply alone keeps yields pinned higher.

Use volatility to add, not chase

The VIX at 18.89 is calm enough to add quality on dips. Don't be the person buying breakouts in this market.

Top Picks

JPMorgan Chase (NYSE: JPM)

JPM just unveiled a $50 billion buyback after passing the Fed's stress test, on top of a dividend hike. In a higher-for-longer rate world, JPM's net interest income is structurally protected, and the trading desk is printing money on commodity and rate vol.

The Fed clearing capital returns is the catalyst, and capital coming back to shareholders accelerates from here.

What to watch: a sharp recession would spike credit losses, and any softening in capital markets activity would dent IB fees.

Chevron (NYSE: CVX)

With Brent at $74 and the Strait still operating below pre-conflict capacity, Chevron is a setup the market's underestimating heading into Q2 earnings.

The forward yield sits at 4.15% and Chevron's upstream breakeven sits in the low $50s meaning every dollar of Brent above that flows straight to FCF.

The Hormuz risk premium isn't going away in 2026.

What to watch: a durable Iran deal that fully reopens Hormuz could push Brent toward $65, compressing margins fast.

Newmont (NYSE: NEM)

Gold at $4,024 is doing the work for you. With central banks unable to cut and inflation sticky, gold's bid stays intact.

Newmont is the cleanest large-cap miner with leverage to the price, and at current spot, FCF generation is the strongest it's been in over a decade.

What to watch: a sharp dollar rally or a sudden Fed dovish pivot would take some heat out of gold and unwind the trade.

AeroVironment (NASDAQ: AVAV)

Reports earnings June 29 with an EPS estimate of $1.49 on $570M revenue.

Defense budgets are getting bigger globally, and drone demand is structural.

The setup looks tight ahead of the print, the stock hasn't run into earnings yet and the macro backdrop (geopolitics, defense spend) is doing the heavy lifting.

What to watch: any miss on backlog conversion or margin compression on contract mix would hit the stock hard given the run-up in the sector.

Huntington Bancshares (NASDAQ: HBAN)

Just raised its dividend. Regional banks were the orphans of 2023-2024, but a higher-for-longer curve with a steeper 10Y-2Y spread (now at 31bps and climbing) is exactly the medicine they need.

HBAN's commercial loan book is repricing higher, and the dividend hike signals management sees the runway.

What to watch: any reignition of CRE stress or deposit flight to money markets would pressure the thesis fast.

My Take

The single biggest macro shift of 2026 is that the Fed's next move is no longer down. If you're still positioned for the rate-cut trade, you're fighting last year's war. Lean into banks getting capital-return clearance, real assets that hedge sticky inflation, and energy producers benefiting from the Hormuz premium, and cut duration where you can.

Setup Scorecard

Entry Zone: Add on pullbacks, JPM under $290, CVX under $148, NEM under $72, HBAN under $17, AVAV pre-print.

Target: 12-18% upside over 6-9 months on the basket, with NEM offering the most asymmetric upside if gold holds above $4,000.

Stop Loss: Trim positions if the 10-year breaks below 3.9% on a sustained dovish Fed pivot (kills the thesis) or if Brent breaks $60 on a full Hormuz reopening (kills CVX leg).

Catalyst Timeline: AVAV earnings June 29; CVX Q2 earnings late July; July FOMC meeting; August Jackson Hole.

Confidence Level: High on the macro regime call, medium-high on the basket execution. The biggest risk is a fast-moving political shock that forces an emergency Fed pivot.

That’s it for today’s edition—thanks for reading! Reply to this email with any feedback or let me know which macro trends or markets you’d like me to cover next.

Best Regards,
—Noah Zelvis
Macro Notes