What Happened Last Week
- Dollar Decline: The dollar had its worst week in a year as no “day one” tariffs from the Trump administration lifted risk assets.
- AI Doubts: The release of a cheap Chinese large language model struck fear into investors in this important theme.
- Ex-U.S. Outperformance: International equities outperformed, with a soft dollar, strong luxury earnings, and positioning contributing.
What We’re Watching This Week
- Earnings: This is the biggest week for S&P 500 earnings this season; color on the Chinese AI developments, capex plans from the Mag 7, consumer health, and energy are top of mind.
- AI Positioning: We are closely following this week’s early price action as investors reevaluate the AI theme as a whole.
- Central Banks: The Fed, European Central Bank (ECB), and other global central banks will likely highlight global economic and policy divergence.
Investment Management Team’s Views
Equity investors celebrated the first week of President Trump’s second term with fresh S&P 500 highs, but the real story was the currency markets. The U.S. dollar had its worst week in over a year, driven not by debt concerns—long-term bond yields were flat—but by a reassessment of the likely timing and scale of Trump’s tariff policy. International equities outperformed, with Europe gaining on strong luxury earnings and Japan benefiting after the Bank of Japan (BOJ) event risk passed. The dollar’s drop and European stock strength seem like positioning shifts, not new trends, though trade policy, macro data, and earnings remain key indicators for us.
Beyond the relaxation in the tariff threat, bulls found additional support last week from generally positive fundamental news. Earnings reports collaborated with the consumer strength reflected in macro data. Industrials rose on strong earnings, while tech gained from Netflix’s stellar results and optimism around AI spending tied to the newly announced Stargate program. On the negative side, Apple (AAPL) fell from its position as the largest stock over China sales concerns and a slower iPhone upgrade cycle. Nvidia and other semis experienced a drop on Friday that has accelerated in early trading today as investors assess the fallout from last week’s release of a Chinese open-source AI model that rivals the capabilities of OpenAI’s flagship reasoning model at a fraction of the training cost. Capex spending and plans for AI monetization are key areas of focus heading into the bulk of the Mag-7 earnings reports this week and next.
In addition to monitoring DeepSeek developments and reports from four of the Mag-7 AI-focused companies, the earnings calendar features releases from smaller AI-tangential names, EU luxury retailer Louis Vuitton (LVMH), and consumer spending barometers Visa and Mastercard. U.S. and European 4Q GDP readings, plus the Fed’s preferred inflation and wage cost measures, will set the baseline for forward policy expectations. Lastly, while the Fed seeks a low-profile Wednesday meeting, central banks in Canada, Europe, and Brazil will highlight global economic divergence.