Johanna Kyrklund 5.0 8 ideas

We still need to be underweight duration. We still need to price out some rate cuts. People still need to digest this shock from a price perspective. The market entered the year pricing in aggressive rate cuts from central banks. However, the sudden inflationary shock from $100+ oil will force the Fed and ECB to hold rates higher for longer to prevent second-wave inflation. As rate cut expectations are priced out, bond yields will rise, causing bond prices to fall. Shorting long-duration Treasuries capitalizes on the market's forced adjustment to a higher-for-longer interest rate environment driven by the energy shock. The energy shock quickly morphs into a severe deflationary recession, forcing central banks to panic-cut rates to save the economy, which would cause bond prices to rally.

We are underweight credit as well because there's very little reward of credit spreads to take account the risks we see not only from an inflation perspective it also potentially increasing default rates. Corporate bond spreads are currently priced for a perfect soft landing. However, companies are now facing a dual threat: higher input costs (energy/inflation) and higher borrowing costs (central banks holding rates). This margin compression will inevitably lead to credit downgrades and higher default rates, forcing spreads to widen. Corporate credit is mispriced for the current macro risks. Shorting investment grade and high yield credit ETFs protects against widening spreads. Corporate earnings remain ultra-resilient despite higher costs, or central banks successfully engineer a soft landing without triggering a default cycle.

Generally we favor the U.S. over Europe at this point because it is less volatile the oil price and also benefits from some of the trends in technology. Europe is highly dependent on imported energy, making its economy and corporate margins highly vulnerable to Middle East supply shocks. The US, by contrast, is a net energy producer and its major equity indices are heavily weighted toward secular growth sectors (like AI and tech) that are largely insulated from physical supply chain disruptions. The US equity market serves as a relative safe haven compared to Europe during global energy shocks, supported by domestic energy independence and tech dominance. A prolonged energy spike eventually drags the US consumer into a recession, pulling down all global equities regardless of relative strength.

We like China. There still a huge technological disruption going on. Aside from the U.S., China is one of the leaders in technology. I think Korea is also tied to the technology theme. While Western markets are consumed by inflation fears and Middle East geopolitics, Asian markets like China and South Korea offer discounted exposure to the global AI and semiconductor boom. Their structural tech growth provides a non-correlated return driver relative to US-centric macro volatility. Allocating to Chinese and South Korean tech sectors provides geographic diversification while maintaining exposure to the secular AI/tech growth theme. Escalating US-China trade tensions, tariffs, or a slowdown in global semiconductor demand negatively impacting Asian export economies.