Weekly Market Recap: Market broadening, Caution towards AI-Spending
Mega-cap weakness and renewed AI disruption fears weighed on the headline indices, even as broader market participation quietly improved. Defensive sectors continued to pick up the slack, underscoring a steady rotation away from the mega-cap growth leadership and dominance investors have grown accustomed to.
Market broadening is largely a good thing – but some volatility at the index level will likely persist until mega-caps and the largest technology stocks re-stabilize. For many of our portfolios, market conditions and outsized investor reactions to fourth quarter earnings have offered attractive entry points for several of these key growth names.
The Economy
Economic data sent mixed but broadly constructive signals. January nonfarm payrolls rose by 130,000, well above expectations, with unemployment dipping to 4.3% and wage growth remaining firm. That report reinforced the view that the labor market remains healthy.
At the same time, inflation data provided some relief: headline CPI rose just 0.2% in January (below expectations), and year-over-year inflation decelerated meaningfully. Retail sales, however, were flat in December, suggesting some moderation in consumer spending momentum.
Overall, the data painted a picture of an economy that is cooling modestly but far from stalling – strong enough to delay aggressive rate cuts yet showing incremental progress on disinflation.
The Federal Reserve
Policy expectations fluctuated throughout the week as markets recalibrated around incoming data. The stronger-than-expected jobs report reduced the probability of a near-term rate cut, pushing June cut expectations lower midweek. However, the cooler CPI reading later in the week reopened the door to easing later this year.
Treasury yields ultimately declined meaningfully, with the 10-year falling 15 basis points on the week to 4.06% and the 2-year declining 9 basis points to 3.41%. The bond market’s message was clear: inflation progress continues, but the Fed can remain patient. Rate-sensitive sectors such as utilities and real estate benefited from the downward drift in yields.
Geopolitics & Global Backdrop
Geopolitical developments added to volatility, particularly within energy markets. Early in the week, heightened tensions between the U.S. and Iran lifted crude prices and supported energy stocks. Later, comments from President Trump suggesting negotiations could be resolved within a month triggered a sharp reversal in oil, pressuring the energy sector.
Treasury data showing a narrower-than-expected budget deficit highlighted increased customs duty collections, subtly reinforcing the broader trade-policy backdrop.
While geopolitics did not derail markets outright, it amplified cross-sector dispersion and contributed to shifting leadership within energy and industrial names.
Fourth Quarter Earnings
Earnings and AI-related concerns were the dominant drivers of stock-level volatility. Mega-cap technology names, including Microsoft, NVIDIA, Apple, and Amazon, faced persistent pressure as investors questioned AI monetization timelines and the sustainability of elevated capital spending.
Software stocks were particularly volatile, with some sharp selloffs following earnings even when results beat expectations, reinforcing sensitivity to forward guidance. In semiconductors, memory names such as Micron and Sandisk experienced sharp swings but showed resilience midweek.
Outside of tech, dispersion was equally pronounced. Cisco warned of margin pressure from rising memory costs. Robinhood extended post-earnings losses. Utilities rallied broadly. Select industrial and materials names posted strong earnings-driven advances, highlighting that company fundamentals, not just macro themes, are driving differentiation.
Week Ahead
This week, earnings remain a key market driver with several large companies continuing to report – including cybersecurity bellwether, Palo Alto Networks and hyper-retailer, Walmart – as investors patiently await Nvidia’s earnings later this month.
Economic data will be relatively light compared to last week with some key housing market releases on Wednesday before the Fed’s preferred gauge for inflation, Core PCE, and personal spending metrics on Friday. We will also see the advanced report for fourth quarter GDP growth.
As always, please reach out to us for any questions and thank you for your trust.
Respectfully,
Michael Neill, CFA