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The Great Rotation Just Started, and Most Portfolios Are on the Wrong Side

A weak June jobs print, sticky inflation from the AI buildout, and a commodity complex screaming higher have set up an H2 playbook that looks nothing like H1. The mega-cap AI trade is losing its grip on market leadership. The rotation into hard assets and cyclicals has already begun, and most portfolios aren't ready for it.

July 05, 2026

For the first half of 2026, the trade was simple. Own the hyperscalers, own the AI capex chain, and let the S&P do its thing. That worked, right up until last week.

Now the setup has flipped. Weak jobs, sticky inflation, and a commodity complex that's gone vertical are telling you the next leg won't reward the same names.

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The Rotation Is Already Underway

Look at what's moved. Silver is up 65.42% year over year to $60.96. Gold at $4,190, up 25%. Copper up 21%. Meanwhile, the June jobs report missed hard, and the Fed is being forced to rethink the second half. Real assets and cyclicals are being bid while AI capex names see their first cracks.

From my seat, this isn't a one-week wobble. It's a regime shift. The S&P is still riding high at 7,483, but under the surface, leadership has narrowed and rotated. If you're still 100% concentrated in the same seven names that carried you through H1, the next six months are going to feel very different.

What Broke the Old Playbook

Two things collided. First, the June jobs report came in soft, well under the Dow Jones consensus of 115,000 nonfarm payrolls. That's forced a Fed rethink after months of the market pricing hikes into the fall.

Second, inflation refused to cooperate. Core PCE services (ex-housing) is sitting stubbornly above 3%, per Schwab's mid-year work. And the culprit isn't wages. It's the AI buildout itself, chewing through power, silicon, and copper. That combination, softening jobs plus sticky prices, is the definition of an environment where real assets outrun paper ones.

Add in the geopolitics. The US-Iran deal cooled Brent, but Kuwait's June production spike and Hengli scrapping West African oil purchases hint at a supply chain still very much in flux. Uncertainty is fuel for gold. Gold is up 25% for a reason.

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Why This Trade Has Staying Power

Fed on Hold, Then Cutting Into Weakness

J.P. Morgan sees the Fed on hold, but a weak jobs trend forces a cut later this year. That's rocket fuel for gold and silver.

AI Capex Is Now an Inflation Source

Schwab flagged it explicitly. Data center buildouts are lifting core goods prices, which keeps real yields capped and metals bid.

Copper Supply Is Structurally Short

Every AI data center needs miles of copper. Fidelity's 2026 sector outlook called this out. Supply constrained, demand accelerating.

Dollar Is Firm, Not Rampaging

UUP is up just 5.5% year over year. Not enough strength to cap commodity gains, but enough to keep imported inflation live.

Fiscal Deficits Aren't Going Away

Capital Economics flagged fiscal risk as a 2026 theme. When governments keep spending, hard assets tend to be the release valve.

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What Happens Next

Expect the 10-year to chop between 4.25% and 4.75% as the market wrestles with cuts versus sticky inflation. That's a tough backdrop for long-duration tech at 30x+ earnings, and a tailwind for anything with a hard asset on the balance sheet.

The dollar likely holds a firm bid but doesn't break out. That's the sweet spot for miners, since revenue is dollar-denominated but the metal keeps climbing. And with the VIX still parked at 16, complacency in equity index positioning is high. The rotation has room to accelerate before the broader market notices.


Own Producers, Not Just the Metal

Miners give you leverage. If gold holds $4,000, gold producers see cash flow expansion the ETFs can't match.

Add Diversified Base Metals Exposure

Copper isn't a story you rent for a quarter. AI plus electrification is a multi-year setup. Lean into producers with expanding output.

Rotate Some AI Capex Winners Into Cyclicals

Trim the names that ran 100%+. Redeploy into ag, chemicals, and materials with fresh operating leverage.

Watch the 10-Year for Timing

A break below 4.25% is the green light for the next leg in gold. A break above 4.75% pauses the trade.

Top Picks

Franco-Nevada (NYSE: FNV).

With gold trading at $4,190 and the Fed likely tilting dovish on weak labor data, royalty and streaming models are where the real leverage sits.

FNV takes no operational risk, collects a piece of production revenue, and expands margins as gold climbs.

The stock hasn't caught up to the underlying commodity yet, which is exactly the setup you want.

What to watch: a sharp reversal in gold below $3,800, or an operational hiccup at a key streaming partner, would compress the premium quickly.

Teck Resources (NYSE: TECK).

Pure-play copper exposure after the coal divestiture. Copper is up 21% and structurally short as AI data center buildouts pull tons of the metal into the grid.

Teck's QB2 mine in Chile has been working through an extended operational stabilization period, and the path to consistently hitting full production targets has proven harder than originally guided.

That means volume upside is still on the table if the operation finds its footing. But analysts pricing in a smooth ramp may be getting ahead of themselves.

What to watch: a China growth scare would hit copper first, and Teck is highly correlated to Chinese demand signals.

Nutrien (NYSE: NTR).

Potash and nitrogen prices are firming as food and energy costs stay sticky.

Nutrien is the largest producer in the world, and the balance sheet is clean after years of debt paydown.

If Brent stabilizes in the $70 to $90 range J.P. Morgan expects, nitrogen margins expand meaningfully.

What to watch: an aggressive Belarus or Russia potash export ramp would pressure prices, and a stronger-than-expected US harvest could dent 2027 demand.

Kinross Gold (NYSE: KGC).

Mid-tier gold miner with production growth ahead through the Great Bear project in Ontario.

With gold at record highs, Kinross's all-in sustaining costs give it real operating leverage. Every $100 move in the gold price flows almost entirely to cash flow.

Free cash flow guidance keeps drifting higher and buybacks are picking up.

What to watch: an unexpected mine disruption or a sharp USD rally would take the shine off the setup.

Where I Land

The market's leadership is shifting from AI capex beneficiaries to hard assets and cyclicals. Weak jobs, sticky inflation, and record commodity moves are the signal. Add exposure to gold, copper, and materials producers on any pullback, and trim your most stretched AI winners into strength.

Setup Scorecard

Entry Zone: Scale into producers on any 3% to 5% pullback in gold, silver, or copper. Don't chase vertical days.

Target: Gold $4,600, Silver $75, Copper $5.75/lb by year-end 2026.

Stop Loss: Gold closes below $3,800 on a firm dollar rally, or the 10-year breaks above 4.75% and stays there.

Catalyst Timeline: July FOMC (July 29), August nonfarm payrolls, September rate decision. Three catalysts in eight weeks.

Confidence Level: High. Weak jobs plus sticky inflation plus AI-driven commodity demand rarely line up this cleanly.

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