Authoritative insights that help explain what’s really moving investor behavior right now.
The market narrative remains dominated by inflation, geopolitics, and AI. Everything else is table scraps.
- Inflation is real.
- The ceasefire is stale and seems asymptotic.
- Invest in the impact of AI, not the infrastructure of AI.
Inflation
Markets are always best with a clear path and clarity. Inflation is real. How to deal with it is the problem. The Fed is going to take a wait-and-see approach. In the meantime, every farmer in America is paying more for tires, gas, and fertilizer. It’s certainly not doomsday, but it is time to take a more serious risk approach with your investments.
How correlated is your portfolio to inflation? How can you reduce inflation risk in your portfolio?
One could reduce one’s long-term bond exposure, specifically in bond funds. Another example would be to reduce your growth stock exposure, specifically in AI infrastructure. One could also consider equities tied to inflation, e.g., energy stocks.
Geopolitics
No one is surprised that geopolitics is part of the narrative. We think this is a new normal. We see it as an asymptote situation for months to come.
The market impact is evident in a low VIX on a day-to-day basis, but high intraday risk. The next political move, social post, announcement, etc., is stale and reduces healthy risk spreads intraday. 0DTE has been greatly affected, and you need other ways to reduce risk beyond simple time to expiration. There is not much premium to take intraday risk.
Invest in the Impact of AI
Stock positioning remains cautious but not fully defensive. We are not calling for a complete capitulation. But we do see a leadership shift from Tech AI Capex-spending companies to companies benefiting from AI. Last Friday was a perfect indication of what has been happening all year.
The Mag 7 has already lagged. Eventually, I see chips following suit. The winners for the remainder of the year will be those companies that can increase their earnings, maintain their workforce, and utilize AI to enhance their earnings. This is the key. Look for companies benefiting from using AI, not necessarily deploying it.
Stepping back, the medium-term outlook remains cautiously optimistic with more intraday, short-term, volatility. Earnings still demonstrate underlying strength. I see this as positive. This creates a situation in which further downside is more likely to be driven by multiple compressions and macro uncertainties rather than by a decline in fundamentals.
In the long run, equities remain attractive for value. Therefore, the future approach is likely to involve being cautious about one’s correlations with inflation, geopolitics, and AI. Adopt a higher-quality defensive stance, with readiness to increase risk only after a confirmed geopolitical resolution or a complete tech-sentiment washout.
