What Happened Last Week
- Tech-Led Selloff: Tech stocks lagged as investors exited crowded positions and looked to the broader market.
- Micron Earnings: Despite weakness in AI stocks, chip-making darling Micron posted a massive beat and signaled robust demand for AI infrastructure.
- Yields Fell: Easing tensions in the Middle East and falling oil prices have helped ease pressure on yields since the Fed meeting.
What We’re Watching This Week
- Jobs: Thursday’s non-farm payrolls report, as well as job openings and consumer confidence data, will bring a fresh look at economic activity.
- Central Banks: A global central banking conference in Portugal will help fill in the outlook for near-term interest rates.
- Rebalancing Flows: The end of the quarter and the first half of the year may bring more rebalancing and technically driven price action.
Investment Management Team’s Views
Technology stocks finally gave way as investors rotated toward the rest of the market. Despite another round of strong AI-related news, including Micron’s earnings beat and continued evidence of robust infrastructure demand, the Nasdaq-100 Index fell more than 4% while the S&P 500 Index declined roughly 2%. Beneath the surface, however, the average S&P 500 Index stock gained more than 1%, producing the widest weekly gap between equal-weight and cap-weighted performance since 2020. To us, the move reflected investor positioning more than deteriorating fundamentals. After an extraordinary run, the AI infrastructure trade appears to be entering a period where valuations and portfolio rebalancing matter more than incremental positive news. That said, the recent weakness has been concentrated in a narrow group of market leaders, while many sectors and stocks have begun to participate more meaningfully, a more positive backdrop than the read from looking at headline indices last week.
Lower oil prices and falling bond yields provided an important tailwind to broader risk appetite. Crude oil continued to decline as shipping through the Persian Gulf normalized, and investors grew increasingly confident that recent geopolitical tensions would not produce a lasting supply shock. At the same time, Treasury yields continued to retrace the sharp move higher following Kevin Warsh’s first Fed meeting, easing financial conditions after several weeks of pressure. With energy prices falling and inflation concerns fading, markets are increasingly looking beyond recent hawkish central bank rhetoric and toward a more supportive policy backdrop. In our view, the combination of resilient growth, moderating inflation, and lower yields remains constructive for equities, particularly outside the market’s most crowded leadership cohort.
The week ahead will focus on central bank communication and another important round of economic data. Investors will closely watch the European Central Bank’s annual conference in Portugal, where Chair Warsh will appear alongside several of the world’s leading central bankers for further insight into the evolving policy outlook. Markets will also receive key updates on manufacturing activity, labor market conditions, and Friday’s payrolls report, all of which will help shape expectations for interest rates through the second half of the year. After last week’s sharp rotation beneath the surface, investors will see whether broader market participation continues as rates stabilize and quarter-end rebalancing gives way to a new quarter.