One week / one topic: Frenemies

What happened?

We look at the same landscape, and yet we form different views.

Is this why we can’t have nice things?

AI and semiconductor stocks are still carrying equity markets to new highs, with memory, compute and infrastructure stocks doing all the heavy lifting while everything else struggles.

The earnings and capex story still works, but extended positioning and high leverage mean that the margin for error is shrinking.

Meanwhile, Korean stocks are the poster child for this AI-fueled and retail-driven rally – with history-making levels of outperformance.

Is the end of the road approaching though, or is this just the beginning of a multi-year trend?

Inflation and rates increasingly look like a structural problem, not a blip.

Recent CPI and PPI prints reinforce the idea that inflation is sticky, broadening and increasingly structural – and not just energy‑driven noise.

Heavy fiscal spending, AI capex and sovereign issuance are keeping pressure on the long end, with bonds struggling to play their usual hedging role.

Equities — especially tech — are ignoring this for now, but history suggests that this sort of tension rarely resolves painlessly.

Is it different this time?

Oil and geopolitics keep quietly(ish) taxing growth.

Markets look desensitized to the Iran/Hormuz risk, but oil remains a slow‑burn tightening force on consumers and cyclicals.

Short‑term softness in physical markets reflects destocking and demand destruction, particularly in Asia, rather than a clean resolution.

And sure enough – outside of the AI complex – the drag from higher energy costs is starting to show up in breadth, housing‑linked names and consumer behavior.

Brother, can you spare a dime?

This is all shaping up then as an ‘AI boom vs bonds’ contest, and – unsurprisingly – high conviction is hard to come by.

But what to do in the meantime?

Our observations

• Fundamentals: "Tomayto-tomahto"… One sees speculative excess, the other points to a technological revolution.

  The catch? They might both be right, as these interpretations are not mutually exclusive… eventually.

• Price action: Heavy options activity and systematic flows keep suppressing equities downside and encouraging repeated dip‑buying, at least into option expiry dates.

  In any case, indices keep marching merrily higher.

• Investor beliefs: Inevitably, some cracks are starting to appear.

  When the idea of a ‘citizen dividend’ was floated in Korea using excess tax on AI profits, local stocks shed $300bn in less than two hours.

So what?

In this business, biting the bullet sometimes means doing nothing.

Funny that, huh?

In the face of high dispersion within equities and credible concerns expressed by bond moves, retaining a constructive approach on most asset classes feels somehow uncomfortable.

Not only you might be wrong – with your biggest liability likely coming from how much equities you own – but the vaunted ‘portfolio insurance’ properties of DM government bonds might also prove elusive.

The abandon with which certain equity segments are going up – plus brewing stagflationary concerns from the energy disruption – bring about traumatic memories of the 2022 experience, when equities and bonds fell by and 18% and 16% respectively.

Importantly, between 2021 and 2022 there was also a big picture dynamic of ‘tech rally vs inflationary emergency’.

And yes, of course you can argue that the underlying situation is not the same, that not fighting the last war is usually advisable, and that one should be able to move on.

Nonetheless, let’s keep an eye on exit door… shall we?

Mood music: Christina Aguilera – Fighter

By popular demand, here is the One week / One topic playlist

The information provided should not be considered a recommendation to purchase or sell any particular security.