Market Summary
The equity market experienced its first major drawdown on Friday since early April as trade tensions re-entered the conversation and offset any continued ‘buy-the-dip’ efforts towards new all-time highs.
The pullback stemmed from President Trump’s commentary (a social media post) on tightening export controls for rare earth metals to China.
Risk-off sentiment was broad based and reflected the sharpest within mega-caps, technology, materials, and energy.
Earlier in the week, mega-cap and AI-related names propelled the market higher with continued momentum surrounding the announcement of OpenAI reaching a similar deal with Advanced Micro Devices (AMD) as it did with Nvidia (NVDA) – a multi-gigawatt investment.
With little economic or earnings news throughout the week, and an extended government shutdown, the market was particularly susceptible to the macro-driven pullback.
As we approach third quarter earnings season, risk related to trade tensions will be on the market’s mind as investors navigate additional geopolitical uncertainty amidst expectations heading into earnings.
Key to this earnings season will be forward guidance – more so than usual as premium equity valuations not only reflect current results, but future earnings expectations, as well.
Heightened scrutiny will be placed on mega-cap stocks, related AI names, semiconductors, and growth stocks, in general, as investors gauge the near-term sustainability of this year’s post-April rally.
Week Ahead
This week, the start of earnings season will be in focus with major banks reporting throughout the week along with some key health care names.
The market will also look to rebound and balance risks after another post by President Trump that said, ‘Don’t worry about China; it will all be fine!’ Geopolitical tensions in the Middle East have also calmed as the Gaza ceasefire agreement led to the release of Israeli hostages.
So far, reduced geopolitical angst has been enough to spur buying interest early Monday morning. AI-related excitement has helped sentiment, as well, with an announcement of another gigawatt partnership between OpenAI and Broadcom (AVGO).
As always, if you have any questions or comments please do not hesitate to reach out.
Michael Neill, CFA