Market Performance Overview - International markets have significantly outperformed domestic markets year to date, with MSCI Korea Total Return leading at 78.08% [1] - The S&P 500 Total Return stands at 17.81%, indicating a stark contrast with international performance [1] Sector Performance - In the US, large-cap stocks, particularly in technology, have been the leaders, with the NASDAQ showing strong performance [5] - AI stocks have been the primary drivers of market gains, with notable performances from Micron Technology (181.89%), Palantir Technologies (122.79%), and Broadcom (75.069%) [10] International vs. Domestic Trends - Outside the US, value stocks have led the market, contrasting with the growth lagging behind in the US [11] - Small-cap stocks have also performed well internationally, with gains over 30% [11] Commodity Performance - Commodities have had a strong year, particularly Platinum (83.73%), Gold (60.39%), and Palladium (58.56%), while crude oil has decreased by 6.47% [14] Real Estate and Bonds - International real estate has outperformed domestic real estate markets [15] - Bonds, especially in the intermediate range of 3 to 10 years, have shown strong performance, with the iShares 7-10 Year Treasury Bond ETF returning 8.86% [18]

Core Insights - The artificial intelligence sector is showing signs of a potential significant correction, with AI stocks, particularly the "Magnificent Seven," making lower highs since December 2024, diverging from broader market performance, a pattern that historically precedes major corrections [1][20]. Hedging Strategies - The I/O Fund has been 100% hedged since December 27, 2024, as investors seek alternative opportunities amid high AI unicorn valuations of $2.7 trillion despite limited revenue and profits [2][20]. - Volatility ETFs, such as the ProShares Ultra VIX Short-Term Futures ETF (UVXY), offer leveraged exposure to short-term VIX futures, making them effective during market stress, with current VIX hedging premiums at 2.2% for a one-year put option on the S&P 500 [3]. - Inverse ETFs like the ProShares UltraPro Short QQQ (SQQQ) provide direct negative correlation to major indices, with SQQQ surging 30% during recent Nasdaq declines [5][6]. Defensive Instruments - Long-duration Treasury bonds, particularly the iShares 20+ Year Treasury Bond ETF (TLT), benefit from flight-to-quality dynamics during equity corrections, averaging 2.1% gains during significant VIX spikes [7]. - Treasury Inflation-Protected Securities (TIPS) offer protection against inflation and downside protection during market stress [8]. Defensive Sector ETFs - Consumer staples and utilities sectors provide stability during market corrections, with the Vanguard Consumer Staples ETF (VDC) offering exposure to recession-resistant companies [9][10]. Sectors Positioned for Growth - The energy sector is expected to benefit from AI's power demands, with companies like Constellation Energy anticipating 10% annual earnings growth through 2028 driven by AI demand [11]. - The demand for copper is expected to rise significantly due to infrastructure development for AI, with the iShares Copper and Metals Mining ETF (ICOP) providing exposure to copper mining operations [12][13]. - Small-cap value stocks are showing historic outperformance versus tech stocks, with the Russell 2000 Value index performing strongly as investors rotate from expensive tech stocks [14][15]. Geographic Diversification - Emerging market equities provide low correlation to US tech stocks, offering diversification benefits during AI corrections, with ETFs like the Vanguard FTSE Emerging Markets ETF (VWO) gaining popularity [16][17]. Current Market Dynamics - Hedge fund positioning indicates increasing caution toward US stocks, with major funds adjusting their portfolios despite the AI boom [20]. - Market technicals suggest the S&P 500 must hold above 5860–5885 to avoid confirming a drop into the 5600 region, with a break below these levels potentially triggering a larger correction [21].