Alcoa’s $5.6bn deal says the commodity cycle isn’t over.

Transcript

Tom Alcoa dropping five point six billion dollars on a deal — buddy, the commodity cycle is not only alive, it's flexing. Welcome to Investment Flash, New York Edition.

Marie It's Wednesday, July first, twenty twenty-six. I'm Marie, with Tom and Gerald. Markets are woke — mergers and acquisitions, metals, and a bit of AI disruption.

Tom Gerald, yesterday we said buy Alcoa. Up what, two percent in the session? And now this megadeal. The aluminum bull case just got a whole lot louder.

Gerald Yeah, look, it's a nice pop. But at seven point two times forward earnings, some of that good news was already in the price. And the stock is still thirty-eight percent off its fifty-two week high. So I'm not exactly popping champagne.

Marie Wait — but the supply story with Iran is what matters. If sanctions tighten, we could see a real squeeze. That's not priced in.

Tom Exactly! Three separate sources all highlighting Iran risk. This is structural tightness.

Gerald Fair enough. But copper might be the better play here. The copper ETF, ticker CPER, benefits from the same supply constraints, and the mergers and acquisitions activity is a signal for broader metals.

Marie That's a good call. The copper ETF has been quietly moving. I'd add that to the commodity trade.

Tom Right, it's a basket approach.

Gerald Exactly.

Marie One hundred percent.

Gerald And speaking of yesterday's calls, we said sell BP. Well, the deputy CEO just retired after three months. That's some timing.

Tom Ha — fair. BP shares down four point seven percent in a week. Management exits never inspire confidence.

Marie FT and Journal both flagging it. New CEO Meg O'Neill is now flying solo, and the stock's forward P-E of eight point nine is cheap for a reason.

Gerald Honestly, it's a mess. I'd stay away. Momentum is negative, and energy spending is shifting elsewhere.

Tom But the mergers and acquisitions numbers, people — two point five trillion in the first half. That's a record. Goldman Sachs, Morgan Stanley, these bank stocks are printing fees.

Marie Hold on, Tom. Goldman is up ten point six percent year to date, but still ten percent below its fifty-two week high. It's not like it's screaming cheap.

Gerald And the broker-dealer ETF, ticker I-A-I, is similarly nine percent below its high. The mergers and acquisitions boom is structural, but a lot of it might be reflected. I'd say it's a hold, not a buy.

Tom But the trend is your friend, buddy. mergers and acquisitions pipelines are stacked. I think there's still room. But fair point on the run-up.

Marie Gerald, the FT piece on Germany trying to manufacture US weapons in Europe — that's a geopolitical shift. It's a win for the defense sector.

Gerald Yeah, I saw that. Rheinmetall is up eight point nine percent in a week, but still forty-nine percent below its fifty-two week high. So, to be fair, there's catching up to do.

Tom And Lockheed Martin at fifteen point nine times forward earnings isn't overly expensive. The defense ETF, ticker I-T-A, is near a high, but I think the Trump angle is real. Joint production means more orders.

Marie It's also a regulatory-friendly move. Germany is trying to get ahead of tariff risks. I'd buy the European names on that — Rheinmetall is my pick.

Tom Okay, so China. The Sungrow ban hit the stock twenty percent. But CNBC says bulls are betting on the China large-cap ETF, ticker F-X-I, because it's down twenty point seven percent year to date and near a fifty-two week low. That's a value trap if I ever saw one.

Marie No, wait — Tom, the contrarian case isn't just valuation. It's that the bad news is fully priced. Sungrow is a solar inverter maker, it's an isolated sector risk. The broader ETF is at multi-year lows. Sometimes you buy when there's blood in the streets.

Gerald I'm going to push back here, Marie. The trade tensions are escalating. FXI is basically flat from the fifty-two week low. No catalyst. I'd rather watch this one. The India trade from yesterday was better.

Tom Yeah, I'm with Gerald on this. China is a watch, not a buy. The trade war risk is too high.

Marie Alright, fair enough. But I'm keeping it on the radar. A small bounce could be violent.

Marie And the Sungrow ban is directly hitting the solar ETF, ticker TAN. Up fourteen point six percent year to date, so it's ripe for profit-taking. I'd sell that.

Tom Yeah, supply chain exposure to China is a risk we've been warning about. TAN could definitely pull back.

Tom Now for the most original take — Nikkei Asia reporting that Qualcomm is developing an AI chip that ditches HBM memory. This could be a game-changer! Lower cost, more efficient.

Gerald Tom, you sound like you're about to buy a Qualcomm-based laptop. The thing is, Nvidia's ecosystem is a moat. A deep one. Qualcomm's down six point four percent in a week, which tells you the market isn't exactly seeing it as a Nvidia killer yet.

Tom Ha — no, but this could be a flying car, buddy. If they pull it off, data center costs drop.

Marie But the architecture is novel — stacked low-power DRAM on a logic die. If hyperscalers adopt it, it could democratize AI inference. That's real disruption.

Gerald It's an early demo. Remember when AMD tried to take on Intel? Took years. Nvidia's forward P-E is fifteen point seven, not exactly expensive. I'd hold Nvidia, but Qualcomm? Maybe a speculative buy.

Tom And TSMC would manufacture it anyway, so that's a buy. TSMC up four point nine percent last session, at a fifty-two week high. The foundry play is solid.

Marie Qualcomm's forward P-E of sixteen point nine does make it interesting, but it's a longer-term play. I'm not fully sold.

Marie This bill to block foreign adversaries from AI tech — that's pure protectionism. The semiconductor ETF, ticker S-M-H, is up six percent in a week and near a high, so it's already pricing in that policy tailwind.

Tom But it protects domestic players like Nvidia and Alphabet. Alphabet up three point five percent in a week. I think it's a positive for the sector.

Gerald Yeah, but S-M-H at a high? I'd trim a bit. Policy tailwinds are great until they're not. But I wouldn't fight it, just be cautious.

Gerald Marie, the FT on EU border chaos — planes leaving half full. That's a direct hit to European airlines. Ryanair and IAG are sells.

Marie Agreed. Ryanair down ten point seven percent year to date, and this summer is going to be a mess. IAG down two point two percent last session. The structural border issues aren't going away.

Tom No-brainer. Sell both.

Tom And the FT report that US fossil fuel spending is overtaking China — this reflation trade is real! Energy sector ETF, ticker X-L-E, up sixteen point three percent year to date, but still sixteen percent below its high. I'm buying.

Gerald Well, the E&P ETF, X-O-P, is up nineteen point six percent and also below the high. But Tom, the bond market disagrees. The long bond ETF, T-L-T, is near fifty-two week lows at around eighty-six forty-two. That's pricing higher rates. Hammack's inflation warnings are sticking.

Marie And that's exactly the divergence play: long commodities, short duration. If inflation is sticky, energy wins and bonds lose. That's a pair trade with legs.

Tom I love it. Long copper ETF, short T-L-T.

Gerald It's not without risk. If the Fed pivots, those bond shorts get squeezed. But for now, momentum is with the reflation trade.

Marie Exactly. And the dollar index at one-oh-one point four suggests rate differentials are in play.

Tom Right.

Gerald That's it.

Marie Nailed it.

Gerald Alcoa up eighty-six percent from its low? That's not a commodity cycle, that's a meme stock.

Tom Ha — come on, it's actual aluminum, not a digital token.

Marie But seriously, Tom, China's FXI at a one percent premium to the low is not a trade I'd take. The value trap risk is real.

Tom Alright, that's the nuance. But the commodity cycle and this divergence trade — that's where the action is.

Marie We're back tomorrow at seven-thirty a.m. London time. If you're just finding us, hit follow on Spotify or check investmentflash.com for the full digest with charts and sources.

Gerald See you then.