GAM’s Markham Warns Rally in Defense, Energy Stocks May Be Running Out of Steam

A recent surge in defense and energy equities has begun to raise red flags among seasoned market participants. Markham, a senior strategist at GAM, has publicly questioned how long the current rally can persist, pointing to stretched valuations and weakening momentum indicators. The defense sector, led by names like Raytheon Technologies and Lockheed Martin, has seen gains of over 18% year-to-date, while energy stocks, including ExxonMobil and Chevron, have climbed 22% since the beginning of 2026, driven by geopolitical tensions and supply concerns. The broader market’s resilience is under scrutiny, particularly as the CBOE Volatility Index (^VIX) has dropped below 13 — the lowest level since late 2023 — signaling complacency among investors. Meanwhile, West Texas Intermediate crude futures (CL=F) have surpassed $88 per barrel, a level not seen since mid-2023, raising concerns about inflationary pressures and potential central bank intervention. Apple (AAPL), while leading the tech sector with a 14% gain in February alone, is also showing signs of profit-taking, with its price-earnings ratio near 34, above the S&P 500 average. Markham argues that the rally, fueled by geopolitical risk premiums and tightening supply in energy markets, may be nearing a turning point. Historical patterns suggest that such momentum-driven moves often face corrections when sentiment shifts abruptly. With market breadth weakening and volume declining on up days, technical indicators suggest the rally could be overextended, particularly in high-beta sectors like defense and energy. The implications are significant: a reversal in these sectors could trigger broader market volatility. Investors holding concentrated positions in defense contractors or energy producers may face downside pressure, while options markets are beginning to price in increased uncertainty, with the VIX futures curve showing a steepening backwardation. The potential for a rotation into more defensive or value-oriented stocks could reshape sector leadership in the coming weeks.