Flash note - Investment strategy
Flash note
A weekend debate over “recursive self-improvement,” the risk that AI could accelerate its own development to the point where humans struggle to stay meaningfully in control, prompted some in the industry to call for a more cautious pace of development. We think the correction in AI stocks on Monday was overdone. Investors may be conflating two separate questions: how fast frontier AI capability should advance, and how fast the world adopts the AI that already exists. The first is genuinely more uncertain. The second isn’t, and it’s the second that drives datacentre capex cycle.
“Don’t look for the needle in the haystack. Just buy the haystack!” John C. Bogle, 2007 the founder of Vanguard. The advice still holds. But the haystack has changed: ten stocks now make up 38% of the S&P 500.
Nothing seems to curb the 10-year Treasury yield’s rise. Meanwhile, Japan’s currency defense is drying up it’s FX reserves and the S&P 500 is hiding something important. Each week, the Syz investment team takes you through the last seven days in seven charts.
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“Don’t look for the needle in the haystack. Just buy the haystack!” John C. Bogle, 2007 the founder of Vanguard. The advice still holds. But the haystack has changed: ten stocks now make up 38% of the S&P 500.
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U.S. markets finished a volatile week mixed, caught between rising energy costs, a more hawkish Fed and renewed strength in AI stocks. The Nasdaq outperformed as semiconductor and other AI-related shares recovered from an early sell-off, while the Dow and small caps declined. Growth stocks also held up better than value. The Fed raised its policy rate by 25 basis points to 3.75%–4.00%, its first increase since 2023. The unanimous vote was more hawkish than many expected, and policymakers signaled another increase before year-end. Earlier in the week, the 10-year Treasury yield briefly reached 5.04%, its highest level since 2007, before easing after the decision. Oil added to the market’s uncertainty. Attacks on Saudi energy infrastructure initially pushed crude prices higher, while record U.S. diesel prices sharpened inflation concerns.
The significant policy tightening priced in offers high carry and a favorable balance of probabilities.
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