We made shifts at the end of 2025, trimming tech/AI exposure, adding to cyclicals like industrials, and bringing down growth overweight for a more balanced portfolio. This implies owning more international and less US overweight.

It tells me the market is confused. The combination of cyclicals and defensives going up together is unusual. I don't think we're looking at a recession. The labor report was solid, manufacturing is rebounding. This is more about a change in sentiment around the tech and AI trade, a rotation out of tech, and less about an economic fear.

It's hard. The rally in smaller sectors is because a lot of money is rotating out of tech (35-40% of the S&P) into much smaller sectors. For the market to go higher, we need some stabilization in tech. Selectively, there are tech names to own because valuations have come down and earnings are strong. This is more about sentiment than fundamentals.

It is a confusing market. Some data points support the bond rally (benign CPI, modest fiscal improvement). In the long term, I would be cautious about this rally in the 10-year, particularly as we get down to 4%. The cyclical trade is easier to explain given decent economic indicators. What I'm struggling with is the odd coupling of cyclicals and defense going up together.

I wouldn't use the word reliable, but better. We've gone back to an environment with more negative correlation between stocks and bonds as inflation and its volatility have come down. Compared to 10 years ago, I don't think that correlation is as strong. Are they as reliable a hedge as 10 years ago? Probably not.