Core Viewpoint - The article emphasizes that while a "ceasefire deal" may be reached quickly, the normalization of energy trade is crucial for the market to truly reflect a return to pre-war conditions. The delay between the ceasefire and normalization could make the investment environment in 2026 more challenging than previously anticipated [1]. Group 1: Market Dynamics - The narrative around the U.S.-Iran ceasefire negotiations is forming, but investors should focus on the normalization of energy trade as a key variable [1]. - The report concludes that investors may have to operate under more "stagflationary" conditions in 2026, with inflation and interest rates slightly higher than previously assumed, while economic growth and stock valuations may be relatively suppressed [1]. - The market has begun to incorporate a "more stagflationary" world into pricing, with rising interest rate expectations from central banks due to persistent inflation [2][3]. Group 2: Central Bank Policies - Due to sticky inflation, interest rate hike expectations are increasing across major economies, with the market pricing in three rate hikes in the UK, two in Europe, and 0.5 in the U.S. this year [3]. - There is skepticism about the need for aggressive rate hikes if oil prices merely stabilize at high levels, indicating potential policy errors by central banks [5]. Group 3: Investment Strategies - The consensus among investors is to buy U.S. Treasuries with a steepening yield curve and to short the U.S. dollar [6]. - The steepening of the yield curve is expected as a ceasefire would lower short-term interest rate expectations while inflation expectations and term premiums rise, pushing long-term rates higher [6]. - The dollar is anticipated to decline as the risk premium associated with the U.S. market diminishes post-ceasefire, compounded by uncertainties surrounding the upcoming Federal Reserve leadership change [6][8]. Group 4: Sector Performance - The macro environment shift will lead to significant micro-sector reshuffling, with sectors previously underperforming during the conflict, such as consumer goods and capital goods, likely to lead in the recovery phase [10]. - If credit contraction can be avoided, bank stocks are expected to outperform the market post-ceasefire, while capital goods and consumer-related stocks will regain momentum as energy trade normalizes [11]. Group 5: Japan's Economic Outlook - For Japan, the ceasefire alone is insufficient; the normalization of energy trade is critical due to the country's heavy reliance on energy imports [13]. - The Bank of Japan faces challenges in achieving neutral policy rates, leading to concerns about its lagging behind the yield curve, which will likely push long-term rates higher [14]. - The outlook for Japanese equities and the yen has been downgraded due to pessimistic expectations regarding stagflation in the long tail period [15].