Equities at the half year mark

 

Even with the Iran War, the equity markets are generally up double digits for the year, with the only laggard being the S&P top 50 firms. June seems to be seeing a notable rotation out of information technology and communication services and into other sectors, such as industrials and health care. There also seems to be a rotation from growth into quality, although momentum was still a market leader. The rotation theme also seems to indicate a shift from large-cap stocks to small caps. In fact, small caps have been the best-performing sector. 

US stocks are still performing well versus the rest of the world in June and for the year. Nevertheless, international equities showed strong performance for the quarter. Fixed income showed slight gains for the month and quarter, but commodities have continued to slide. 

Our biggest concern for the second half of the year is the risk of a correction from high valuations. A rise in rates or a slowdown in credit growth to stop an inflation surprise is a likely downside surprise. 

Hedge funds and AI

 

HedgeWeek with Arcesium published a survey titled "Age of AI II: Understanding Hedge Funds' AI Capability versus Usage." It is a short piece, but what stood out for me was the interesting fact that smaller firms are embracing AI use more than large firms. The smaller firms are not only more active users but also seem willing to train employees in AI use. They are usng technology to potentially punch above their weight. The large firms do not seem as agile in using AI and are more concerned with data and output integrity. Will this translate into better returns? Harder to measure, but AI may be a disruptor to hedge funds.