Most markets finished the week lower, though the Australian market held its ground. The pattern is telling: a dip through the middle of the week and a partial recovery into Friday.  The oil price traced almost the exact mirror image, spiking to around US$80 a barrel before easing back to US$76. The Australian dollar barely moved, holding near 69.5 US cents, while ten-year Commonwealth bond yields settled around 4.83%.

Given the renewed sabre-rattling between Iran and the Trump administration, markets look remarkably sanguine, but there is a logic to it. As BCA Research's Marko Papic argues, a view we share, when oil prices are relatively low both sides have some incentive to posture without pushing too far; the reaction function would likely change if prices ran much higher. For now markets are looking through the conflict, and flight paths are largely undisturbed. The important caveat is economic: passage through the Strait of Hormuz has fallen dramatically in recent days.

That is probably why we saw a flight to perceived US tech safety and reverse of the "rotation trade” which had come back into favour over the past month and Europe led the way down last week, off around 3%, while the Nasdaq was volatile but more resilient by week's end. The more interesting story in recent weeks was below the surface, within the AI complex. While US big tech reacted as a safe haven chip manufacturers were volatile and the Korean chip manufacturers continued to plummet. That reflects a genuine debate: whether it is the hyperscalers spending the cash or the chip-makers receiving it that offer better value. The chip-makers may have over-earned, and look less cheap once you fade those earnings and treat this partly as a cycle rather than a wholesale secular shift; the hyperscalers, range-bound for six months, may in turn be less expensive now.

Peeling the onion further there has been growing evidence of leverage in single-stock leveraged ETFs are starting to distort the marginal pricing of some chip names, a phenomenon that began in the US but for which Korean stocks became a lightning rod, to the point the local regulator reportedly regrets approving the products. In isolation these names are a small slice of global portfolio markets, even if they dominate the index; the more interesting question is what they signal about overall fragility. On that, our own reading of valuations in the context of real yields is instructive. We last examined this in 2023 as real yields began to rise; since then equities have climbed sharply while real yields drifted only mildly. With the US five-year real yield now back above 4% — expected inflation easing but nominal rates rising — the hurdle equities must clear is back to roughly its 2023 level. The difference is that in 2023 markets were still recovering from the 2022 setback, whereas today both real yields and valuations (with S&P price-earnings ratios, not just earnings, having climbed) are elevated. Together, those two things can breed fragility.

This is not a call to run for the hills. Andrew Hunt's latest analysis points to clear bifurcation — a K-shaped economy — but also to continued strength in parts of the US economy. Similarly leverage, particularly within private credit in the US is high but still growing and the credit cycle is still expanding: amber lights, in his words, rather than red. Advisers may wish to remind clients that a good deal of positive news is already priced in, which is precisely why these signals bear watching. The week ahead brings US CPI and the start of earnings season, the banks first, then TSMC as a global bellwether for the all-important chip sector.

Separately, in this week’s What We Are Working On video we are introducing a new emerging-markets manager (Aikya) who happen to have little exposure to Korea or Taiwan and a constructive view on the broader emerging-market opportunity set. A source of diversification, and of earnings and valuations that are rather less stretched than those dominating Western indices and perhaps another interesting conversation to relate to clients.