What Happened Last Week
- Strikes on Iran: Over the weekend, a U.S.-Israeli coalition began heavy strikes against Iran, killing Ayatollah Khamenei and much of the country’s senior leadership.
- AI Disruption Fears: Last week’s trading saw investors grapple with rapid advancements in AI tools that could broadly disrupt the tech sector.
- Deteriorating Sentiment: Mideast risks, weak tech shares, and a disappointing Nvidia report weighed on sentiment.
What We’re Watching This Week
- Middle East: The military operation is still underway, and violence is spreading to other Gulf states as Iran launches counterattacks.
- Economic Data: This week will bring economic surveys, a February jobs report, and January retail sales.
- Earnings Week Eight: The week’s data will be supplemented by earnings reports from a host of retailers and semis heavyweight, Broadcom.
Investment Management Team’s Views
Escalation in the Middle East will shape market action in the near term. The conflict’s rapid intensification over the weekend is likely to dominate trading, though the situation remains fluid and difficult to assess. With reports that Iran’s political and military leadership structure has been disrupted, uncertainty is likely to remain elevated. From a market perspective, the key issue is not the headlines themselves but whether the conflict leads to sustained economic disruption. In our view, oil prices remain the clearest gauge of the market’s view on the conflict. So far, the relatively measured market reaction suggests investors are leaning toward a contained outcome. Notably, while the dollar has firmed, Treasury yields have risen rather than fallen, reflecting inflation concerns tied to commodity prices. Starting conditions matter as well, with the 10-year yield having dipped below 4.0% last week for the first time since November 2025.
AI disruption fears, rather than fundamentals, drove last week’s equity weakness. Technology stocks led declines in the S&P 500, and concerns about private credit spilled over to banks and other financials. Even Nvidia’s strong earnings and guidance failed to stabilize sentiment, with the stock ending the week down 6.7%. We continue to monitor AI-linked sectors closely, and we view fears of widespread business disruption and surging white-collar unemployment as overstated. Beyond the news itself, the story was about how only a small amount of incremental information was needed to trigger sharp moves in previously crowded trades. The recent price action highlights how sensitive sentiment has become in the leadership cohort that has powered global equities higher since early 2023.
Aside from the fast-evolving geopolitical situation, macro data and retailer earnings will shape positioning in the week ahead. Business survey readings early in the week, followed by Friday’s nonfarm payrolls and retail sales, will provide important signals on labor market conditions and consumer demand at a time when markets are focused on the durability of growth. A busy slate of retailer earnings, including Best Buy, Target, Costco, and Kroger, will offer additional insight into spending trends and margins. Broadcom will also update investors on its business at a critical time for sentiment in the tech sector. With geopolitical tensions still elevated, reactions to both economic data and earnings may be amplified. In this environment, we think markets will focus less on the numbers themselves and more on what they signal about overall growth.