What Happened Last Week
- Procyclical Rally: Global stocks rallied, led by cyclicals and small caps as yields rose across the curve.
- Competition in the Chip Space: Price action increasingly indicates a bifurcation in the AI infrastructure trade.
- Dealmaking Continues: Headlines continued to swirl about the high-profile bidding war for Warner Bros. Discovery.
What We’re Watching This Week
- Fed Meeting: The Fed is expected to deliver a hawkish 25-basis-point cut on Wednesday.
- Earnings Reports: Key reports from the AI theme and major U.S. retailers will bookend a very strong earnings season.
- Flaring Tensions: Several geopolitical hotspots saw violence break out over the weekend, and tensions continue to simmer.
Investment Management Team Insights
Equities continued to rally last week, led once again by cyclicals, tech, and small caps. Interest rates rose modestly after business and consumer surveys pointed to optimism for increased economic growth in 2026. Unsurprisingly, the dollar weakened slightly, pushing international equities to outperform, and reflecting the procyclical undertones of the recent risk-on move. The recent price action in both rates and equities slightly complicates the set-up for the Fed this week. Markets are expecting a hawkish rate cut with several dissenting votes. Because the Chair and other voting members will change next year, the Statement of Economic Projections will probably matter more for 2026 policy expectations than the statement or press conference.
AI news continues to dominate market attention, but indications are increasingly that competition in the chip-infrastructure space is reaching a critical juncture. This shift may pressure multiples across semiconductor names and heighten scrutiny of AI Capex for hyperscalers as investors increasingly demand clear monetization paths and efficiency gains. This week will bring two major off-cycle AI earnings reports. Markets remain focused on Oracle (ORCL) following its surprising post-earnings surge last season and the subsequent pullback tied to concerns about debt issuance. Broadcom’s (AVGO) report comes as the market digests the recent success of AI models trained on non-GPU hardware.
The backlog of outdated economic data continues to clear without provoking much reaction in markets. This week will bring more timely data: a widely followed small-business survey and two reports on the U.S. labor market. This data, along with some important consumer earnings reports from Costco and Lululemon, will add to the mosaic of the economic outlook. Beyond expected data releases, a spate of geopolitical flare-ups crossed the wire over the weekend. For now, none of these events appear to be market movers, but we are monitoring them and examining price action for any signs of broadening concern.