AI Highway to Hell

Equity markets are experiencing a significant rotation in leadership as the Magnificent 7 tech stocks lag, allowing the EqualWeight S&P 500 and international indices to outperform. Despite pervasive bearish sentiment and fears of a global downturn, current economic indicators—including manufacturing and services PMIs—remain resilient, signaling no immediate recession. Tech momentum has reached levels reminiscent of the dot-com bust, creating oversold conditions that suggest a potential relief rally following the midterm elections. Fixed income remains a strategic focus, with a preference for short-duration assets to capture yield while navigating wider credit spreads. While inflation remains above the 2% target and growth data stays strong, the 10-year Treasury yield is likely to gravitate toward 5.25%, reflecting a volatile but fundamentally stable economic environment. Investors should look for value in corrected sectors like high-yield credit and non-agency mortgages.