In May, markets recovered most of the March–April drawdown. We used that rebound as an opportunity to reduce exposure rather than as an invitation to add beta. In June, we continued this de‑risking gradually: we remain invested, but with portfolios aligned to a market regime that is still supportive over the medium term, yet clearly more demanding.
Over the past month or so, markets have broadly traded sideways. Following the sharp rebound between April and May, indices have moved into a consolidation phase, lacking a strong enough catalyst to extend the uptrend. This pause comes just as some of the key drivers of the rebound, most notably AI‑related capex, are starting to show signs of strain. The volatility seen in the semiconductor space since 1 April is the clearest illustration of this: the segment has captured a disproportionate share of recent performance, driven by the AI spending wave and a narrow group of memory and advanced logic names. That same concentration, which powered the rally, is also its main vulnerability, as any bout of volatility in this segment quickly spills over into broader indices.
In US equities, the shape of the rebound is therefore more fragile than headline indices suggest. The move has been driven by a narrow cluster of semiconductor and memory names, while the Magnificent Seven (ex Tesla) have underperformed year to date, including during the rebound, despite being the main financiers of this investment cycle. By contrast, Europe fits into a more balanced picture, and Switzerland illustrates it particularly well: after being hit in the spring by the war and the energy shock, the region only partially participated in the US rebound and now shows a more stable profile, less dependent on the semiconductor complex. The Swiss market, supported by high‑quality companies and a safe‑haven franc, naturally offers a defensive profile well suited to an environment of rotation.
In the background, the conflict with Iran continues to shape the macro environment. The gradual normalization of flows through the Strait of Hormuz and the decline in oil prices have eased the spring energy shock, without removing geopolitical risk. The inflation path remains central in this context. Headline inflation, driven by energy, is still above target, while core is getting closer. Under Kevin Warsh, the Fed is signaling a regime shift in favor of credibility: tighter communication, removal of the easing bias and a stronger reliance on data rather than pre‑announced guidance. In this framework, the monetary “put” still exists, but at a higher strike, reserved for episodes of funding or credit stress, which means investors must accept more volatility in risk assets without counting on an automatic central bank backstop.
On top of this, there are more technical sources of fragility. Elevated leverage, particularly through US margin debt, creates an environment in which corrections can be amplified by margin calls and forced selling, especially in already concentrated markets. This risk is compounded by the potential unwinding of carry trades, notably those funded in Japanese yen: any perception of a monetary regime shift in Japan or a rise in global risk aversion could trigger rapid reductions in JPY‑funded positions. The combination of high leverage and a possible unwind of these carries increases the likelihood of disorderly drawdowns, even in the absence of a major fundamental shock.
Taken together, the rebound that began in April is now clearly losing momentum, and the market is entering a choppier phase, characterized by higher volatility and a gradual sector rotation. In this environment, segments that have lagged, in particular large technology platforms outside semiconductors, nuclear and software, now offer more balanced entry points, arguing for greater diversification across exposures. From a macro‑financial perspective, a more demanding Fed, inflation still above target, elevated leverage and the risk of carry‑trade unwind create conditions for episodes of stress in risk assets. Our view is straightforward: the spring catch‑up phase is behind us, and the market is now operating in a more constrained regime, with less liquidity, a less protective central bank and a more persistent volatility backdrop. In this setting, our strategy is to remain invested while adjusting portfolios: running lower beta, increasing selectivity, and relying on active management to navigate this transition phase.
