Alpine Macro told clients that investor attention is migrating from the acute geopolitical shock to policy risks in Washington as signs of a possible resolution to the U.S.-Iran confrontation surface. While President Trump has indicated a willingness to end hostilities, the uncertainty around the timing of any settlement continues to influence fixed-income and energy markets.
In guidance to investors, the firm recommends staying long on bond duration and warns that different segments of the equity market will rotate in importance. "Energy producer and energy vulnerable equities will 'trade places' between now and year-end," the note said, while also cautioning that the evolving situation must be watched closely for potential monetary or fiscal missteps.
Dan Alamariu, identified in the note as Alpine Macro's Chief Geopolitical Strategist, places a 50% probability on a peace agreement being reached within the next one to two weeks. He assigns the complementary 50% probability to a scenario in which bombing resumes as the U.S. seeks to escalate to de-escalate. The analysts argue that renewed strikes would increase U.S. leverage by exposing weaknesses in Iran.
Alpine Macro judges the blockade around the Gulf to be ultimately unsustainable. The firm expects some form of resolution that will likely include reopening the Strait of Hormuz to be implemented over the next one to two months.
Turning to markets, analysts note that the Q1 earnings season produced notably strong results, leaving equities looking overbought in the near term, even as the broader trend for stocks remains constructive. To capture upside while managing risk, Alpine Macro recommends a barbell positioning that combines AI-focused technology leaders with cyclically oriented Old Economy stocks. This approach, the analysts argue, should help investors capture alpha and provide some protection against an outcome of excessively rapid growth.
Fixed income has shown acute sensitivity to the Iran-U.S. confrontation, according to the note. Yet after the initial shock, equities have proven relatively insulated from geopolitical disruption. The principal concern driving a divergence between stocks and bonds has been the fear that a spike in energy prices will entrench inflation, making it stickier and complicating the Fed's path.
The firm recommends that investors "fade any inflation scare" and anticipates that both bond and equity prices will be higher in three to six months' time. Alpine Macro reasons that substantially lower energy costs would ease the Federal Reserve's task and reduce the temptation for a hurried fiscal stimulus from the Trump Administration in the run-up to the midterm elections on November 3rd.
Projecting forward, the analysts expect oil prices to settle significantly lower over a three- to six-month horizon. That disinflationary path for energy costs, they say, would relieve pressure on both bond and equity strategies. The note adds that the current bond selloff should come to an end soon, as many firms that raised prices in response to tariff and energy cost headwinds will find those pressures do not persist indefinitely.
As oil reverts toward its prior range and geopolitical tensions moderate, Alpine Macro expects inflation measures to normalize. From the firm's perspective, policy choices - not macroeconomic fundamentals - pose the main risk to the bond market. While a fiscal stimulus push by the administration remains a possibility, consumer sentiment could improve if oil and related prices move lower.
The analysts also point to three drivers that have helped insulate equities from the oil shock so far: strong corporate earnings, an absence of Fed rate hikes amid steady growth, and a general expectation that oil prices will revert. Looking ahead, they contend that falling oil prices would both sustain the momentum in AI-related stocks and lift sectors that are heavy energy consumers.
Investment posture recommended by Alpine Macro
- Maintain long bond duration.
- Use a barbell equity strategy combining AI technology winners with Old Economy cyclicals.
- Fade near-term inflation scares while preparing for higher bond and equity prices in 3-6 months.
Market outlook summary
The note frames the dissipation of an immediate geopolitical shock as an opportunity for markets to refocus on the interplay between energy prices, inflation expectations, and U.S. policy choices. The timing and form of any political settlement with Iran - whether within weeks or stretching into months - will continue to influence energy and fixed-income dynamics until the Strait of Hormuz reopens and oil pricing settles.