As the US reporting season gets underway, volatility has been creeping back into markets, and in a distinctly uneven way. At one point during the week emerging markets and the Nasdaq was down 4–5%, before both bounced overnight. But beneath the headline moves there is a clear bifurcation: many of last year's laggards have been remarkably stable, neither losing ground nor jumping about day to day, while the past year's winners have been the most volatile, something markets have been flagging for a while. Gold, which we have been discussing with clients, is a case in point: we are losing a little conviction there, with the metal now largely trading with markets rather than against them.

Korea has become the lightning rod. The fundamentals behind the Korean chip story are real, high-bandwidth memory chips, made mostly by Samsung and SK Hynix (and Micron in the US), remain in genuine shortage. But over recent months this became something more than a fundamentals story: a retail frenzy, with many of the institutional investors we speak to steadily peeling off. SK Hynix was up roughly 1,000% at its peak; since about 20 June it has fallen around 40%, and far more investors were in at the end of that run than the beginning. As is often the way when particular corners of a market turn volatile, it is the late arrivals who tend to suffer most.

The dispersion is telling. The emerging markets index is down around 10% over the past month. Yet a couple of EM strategies we follow, funds that avoided Korea either by mandate or on valuation grounds, are actually up about 1% over the same period. That is an 11% point gap in a single month, and possibly an early sign of a stock picker's market? At the very least it shows that where you sit within markets is starting to matter a great deal.

This connects directly to our conversation with Andrew Hunt in this week's What We're Working On video. Andrew traces the liquidity supporting markets back to Asia's export surpluses — chips being a large part of that — and how those surpluses are being recycled into asset markets. Importantly, he sees no sign of the credit expansion ending yet. His message is not to leave the party altogether, but to be careful about what you are holding.

Locally, the news was tentatively encouraging. The NAB Business Survey improved for a third consecutive month, and until recent events oil prices had been receding, something starting to show in the inflation numbers, with less focus on capacity constraints. The Australian dollar held near 70 US cents and long-term bond yields pushed a little higher: an uneasy mix that could point to higher rates, but equally to a relatively stronger, more stable economy.

Stability is in shorter supply in the Strait of Hormuz, where Iran and the US administration traded blows again and oil moved back up to about US$88. If sustained, that feeds back into inflation, though as Andrew Hunt notes, oil may not be the whole story. Asian chip demand pressures, the enormous AI build-out and rising defence spending all point towards capacity constraints in the US. Meanwhile the week's US inflation data was relatively benign, headline CPI fell 0.4%, a little more than expected, driven by energy, though core producer prices edged up, and new Fed Chair Kevin Warsh made clear he does not think the job is done.

The US earnings season opened broadly supportively. The S&P 500 did okay even as the Nasdaq churned, led by blockbuster investment bank earnings, boosted by the likes of the SpaceX IPO and AI-related activity. Beneath the surface there are question marks about the quality of those earnings, since capital-markets revenue can come and go. More striking was the punishment for disappointment: IBM missed by a small margin and fell 25%. That looks an ominous sign for the upcoming Australian reporting season, where recent seasons have shown the same pattern, heavy cross-sectional volatility, with winners modestly rewarded and disappointers hit far harder. Also worth watching: China's Kimi K3 model suggests Chinese AI may be only two to three months behind the US, and running much cheaper, a polemic about tech margins that may well surface when the big tech majors report in the coming weeks.

In summary First, the Australian economy is looking a little resilient, and a flat year behind us means a more stable valuation starting point, not such a bad thing. Second, the volatility in hotter corners of markets is worth discussing alongside how portfolios are positioned around it. Third, while we see no reason to run for the hills, the next year may not look like the last one. What we are seeing in Korea might be an early signal, or big tech earnings may continue to impress and settle things again.