For almost the entire year, nearly all of the market's gains have come from the AI infrastructure buildout, concentrated in chips and the broader set of companies selling into that buildout. Outside of that theme, most names are flat or down significantly on the year, and we see this divergence as a significant opportunity to begin rotating.
In our view, semiconductor names have likely topped for the short to medium term, and a rotation out of AI and into the rest of the market should begin soon. This does not mean we are bearish on AI. We simply see a better risk/reward opportunity elsewhere right now, and we think it is wise to rotate while that opportunity is open, with the plan to rotate back into AI once those names cool off later in the year.
At the end of May, we moved fully to cash and closed our Equity Market Cycle 1 portfolio. The decision came down to two things: we expected a local top to form around that time, and we wanted to refresh the portfolio and prepare a new one built to take advantage of the rotation we see coming.
We would look to rotate into the laggards around early/mid July 2026, the names that have not participated in this year's rally, which is effectively everything outside of AI. That includes several healthcare, fintech, and crypto names, and we would also consider adding Bitcoin and Ethereum, all around the same time.
The AI hardware, data center, and broader AI names would follow later, in September or October, since we expect those to bottom well after the rest of the market.
We expect a market correction of roughly 10% to 15% at some point between now and October, mainly driven by weakness in semis and technology. The laggard sectors/stocks are likely to bottom much sooner, around July 2026, as mentioned, while AI-related names will bottom later, closer to September/October.
From there, we anticipate a strong rebound in November and December, following the midterm elections, and we believe 2027 has the potential to be one of the best years in recent history. With that in mind, our priority is to position ourselves carefully from now through the end of October, capturing every opportunity that opens up and setting ourselves up for the year ahead.
Our investment approach is guided by the macro models we have developed to assess where the economy and financial markets stand within the broader cycle. An overview of these models is available on the Macro Models page.
Once our models determine the current stage of the cycle, individual equity positions are selected through a combination of bottom-up fundamental analysis and technical analysis. We aim to enter positions during the later stages of market downturns, when risk/reward becomes more attractive and the next phase of the cycle begins to take shape.
Portfolio positions are then held as the cycle progresses and are reduced or exited when our models indicate that the current equity market cycle is approaching its peak, or when we expect a major market rotation that could shift leadership away from our current holdings.
SoFi Technologies (SOFI) – Initiated on November 20, 2023
Hims & Hers Health (HIMS) – Initiated on August 26, 2024
Aspen Aerogels (ASPN) – Initiated on October 3, 2024
TransMedics Group (TMDX) – Initiated on October 23, 2024
Grab Holdings Limited (GRAB) – Initiated on December 4, 2024
Shift4 Payments (FOUR) – Initiated on December 18, 2024
Mobileye Global (MBLY) – Initiated on January 3, 2025
Nu Holdings (NU) – Initiated on January 3, 2025
Nebius Group N.V. (NBIS) – Initiated on January 28, 2025
Lemonade (LMND) – Initiated on February 6, 2025
Archer Aviation (ACHR) – Initiated on February 12, 2025
CAVA Group (CAVA) – Initiated on March 10, 2025
On Holding AG (ONON) – Initiated on March 10, 2025
Tesla (TSLA) – Initiated on March 11, 2025
Rocket Lab USA (RKLB) – Initiated on April 7, 2025
Oscar Health (OSCR) – Initiated on June 16, 2025
IREN Limited (IREN) – Initiated on March 9, 2026
Total Portfolio Return: 123.21%
S&P 500 Return: 84.46%
Current allocation is 100% cash. New positions will be added gradually consistent with the portfolio positioning and market strategy outlined above.