Trend Following, Risk Management, and the Lessons of Q2
The second quarter was a reminder that markets often climb a wall of worry. Despite geopolitical stress, volatile interest rates, and continued debate about inflation and Federal Reserve policy, equity markets delivered a strong quarter. The leadership was not random. Investors continued to reward companies tied to artificial intelligence, technology infrastructure, semiconductors, earnings growth, and strong balance sheets.
Q2 also provided useful examples of rotation beneath the surface. Technology and AI-related stocks remained clear areas of relative strength, especially semiconductors, memory chips, data center infrastructure, and companies tied to the broader AI capital spending cycle. At the same time, leadership began to broaden late in the quarter. Equal-weight indexes, small caps, value stocks, industrials, financials, and healthcare all showed improving relative strength as investors looked beyond the narrow group of mega-cap technology leaders.
International markets also deserve attention. Emerging markets were particularly strong, helped by leadership from Korea and Taiwan, where semiconductor and AI-related companies remain important drivers. Developed non-U.S. markets also participated, although leadership was more uneven. Japan and parts of Europe continued to show improving trends, while the U.S. market remained heavily influenced by technology and AI leadership.
This is where trend following and risk management work together. We do not want to chase hype, but we also do not want to ignore leadership simply because it has already begun. Durable trends often persist longer than expected. The key is to participate with discipline: evaluate relative strength, monitor earnings support, manage position sizes, and be willing to adjust when leadership weakens.
At Emerald Asset Management, we remain of the view that the secular bull market we have written about many times is still alive and well. Even the ongoing conflict in Iran has not derailed the primary trend. That does not mean the path will be smooth. Volatility is part of every bull market, and not every stock, sector, or theme will work out along the way. That is why we believe trend following and risk management must go hand in hand: participate when the evidence supports it but stay disciplined enough to adjust when conditions change.
Content published by Emerald Asset Management reflects our opinions as of the date posted and is provided for informational purposes only. All investments involve risk, including the possible loss of principal, and past performance is not indicative of future results.
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