Rotation, Not Ruin

Market volatility and the ongoing rotation away from high-flying AI chip stocks define the current economic landscape. While recent CPI and PPI data provided relief, rising oil prices and record crack spreads pose renewed inflationary risks. Investors are increasingly questioning the sustainability of massive capital expenditures on AI compute, leading to a healthy correction in semiconductor valuations. Despite this tech-focused turbulence, U.S. consumer spending remains resilient, supported by strong bank earnings and low delinquency expectations. Meanwhile, international markets, particularly South Korea, are experiencing significant instability due to leveraged retail positions and forced pension fund rebalancing. Housing affordability continues to struggle under the weight of elevated mortgage rates and rising insurance costs, highlighting the complex interplay between interest rates, supply constraints, and broader economic health.