Thinking About Today's Uncomfortable Action

US technology, industrial and commodity stocks, along with pretty much the entire global equity complex, are seeing a notable selloff this morning. And while there are some pockets of strength (beneficiaries of some obvious rotation) -- financials, healthcare and consumer staples in particular -- the areas getting hit are essentially overwhelming the positives.

While indeed it is our view that we are now meandering through the late stage of the cycle, with its attendant volatility, our base case has remained overall constructive for the time being (specifically until we get into the latter part of this year and into next).

Those two words -- "attendant volatility" -- are the operative phrase at this juncture.

Here's how we're thinking about today's action*:

A Tough Day... But an Understandable One*

Today's market decline is broader than what we've experienced in many recent pullbacks, and several of our highest-conviction areas are among those under pressure.

Several factors appear to be converging today.

Much of today's weakness is concentrated in international markets—particularly Asia—as well as the global semiconductor supply chain. Those happen to be areas where we've maintained meaningful exposure based on our longer-term macro outlook. Japan, broader developed Asia, and several industrial technology holdings are all seeing outsized declines. Gold is also taking a notable hit today.

While the price action is uncomfortable, we see little evidence that today's move reflects a material deterioration in the underlying investment landscape.

Rather, today's action looks more like several independent forces converging at once. Investors continue to digest last week's somewhat more hawkish tone from the Federal Reserve, while concerns over whether the AI-driven capital spending cycle has become overly optimistic have sparked aggressive profit-taking throughout the semiconductor sector. Because many Asian equity markets have significant exposure to semiconductor manufacturing and equipment companies—and because Japan and parts of Asia have been among this year's strongest-performing markets—they've become natural sources of liquidity as investors reduce overall risk.

In other words, today's selling appears to reflect a broad repositioning by investors rather than a meaningful change in the longer-term investment outlook.

That distinction is important.

Our investment process has never been built around avoiding every difficult trading day. Quite the opposite. We intentionally own areas of the market that we believe offer attractive long-term value, even when those areas temporarily fall out of favor. If we owned nothing but the handful of stocks leading the market over the past several years, today might look different—but so would the risks embedded in the portfolio.

As always, we'll continue evaluating whether today's price action reflects changing fundamentals or simply changing sentiment. At this point, we lean toward the latter.

The macro forces we've discussed repeatedly throughout the year remain very much in place: unprecedented fiscal deficits, elevated government debt, enormous Treasury financing needs, what we continue to believe will ultimately be a weaker U.S. dollar, and an investment environment increasingly driven by spending on infrastructure, energy, manufacturing and industrial capacity. Those themes won't be validated—or invalidated—by a single trading session.

As always, our discipline is to let the fundamentals drive our decisions—not the emotions of a single trading session.

This note is for informational purposes only and should not be construed as investment advice or a recommendation to buy or sell any security. Past performance is no guarantee of future results.

*Prepared by Marty Mazorra, Chief Investment Officer, Private Wealth Advisors. Research synthesis and drafting assisted by AI tools under advisor review. All market views, analysis, and recommendations are those of the advisor.