Category: Newsletter

Five weeks of losses, one ceasefire announcement, and the market exhaled — at least for now. The week opened on a knife's edge. Trump's self-imposed deadline for Iran to reopen the Strait of Hormuz or face escalation kept futures volatile and conviction thin. Monday churned with no direction, the S&P closing essentially flat. Tuesday was similarly tortured. The index swung by more than 1% intraday before settling with a 0.08% gain as Pakistan urged a two-week extension.

March closed as the worst quarter for the S&P 500 since 2022, with the index down roughly 7% on the quarter and every member of the Magnificent Seven finishing in the red. This past holiday-shortened trading week saw a sharp reflexive relief rally from the oversold conditions we discussed last week.

This past week was another disappointing one. Markets opened the week surging after President Trump posted on Truth Social that U.S.-Iran talks had been "very good and productive" and that he was halting strikes on Iranian power plants. Brent crude fell more than 10% in a single session, its biggest single-day drop since early March, while the S&P 500 gained 1.15%. It was the kind of relief rally that tempts investors into believing a corner has been turned. It wasn't.

This week gave investors a brief exhale — and then took it back as Monday opened with genuine relief after news broke that a U.S.-led coalition would escort tankers through the Strait of Hormuz. On that news, oil pulled back sharply, the S&P surged 1.2%, and the Nasdaq led with a 1.4% gain. It was the index's best single session in over a month. However, that optimism didn't survive the week.

The S&P 500 extended its losing streak to three consecutive weeks, the first such run in roughly a year. The convergence of geopolitical shock, private credit stress, and deteriorating economic data gave investors little reason to buy the dip.

It was a brutal week on Wall Street. The S&P 500 finished at its lowest close since mid-December, logging a 2.0% loss, its largest weekly decline in nearly 5 months, and now sits 3.42% off its all-time high from January 27. The headline catalyst was unmistakably geopolitical: U.S. and Israeli strikes on Iran over the prior weekend sent shockwaves through global markets on Monday morning.

As we will discuss further in today's commentary, the market remains stuck in a fairly narrow trading range. The week opened with a broad selloff after Anthropic's expanded AI capabilities rattled software, cybersecurity, and financial stocks, with IBM suffering its worst session since 2000. CrowdStrike and Zscaler also dropped about 10% on the news. The financials sector fell more than 3% as American Express, Goldman Sachs, and Blackstone came under pressure on fears that AI could automate large portions of their businesses. A widely circulated Citrini Research piece warning of 10% AI-driven unemployment gave bears a macro narrative.

On Friday, theSupreme Court struck down Trump’s signature tariffs. The ruling affects tariffs levied under the International Emergency Economic Powers Act (IEEPA) which includes the so-called reciprocal tariffs at various levels against nations all around the world to address trade imbalances, as well as ones on China, Mexico and Canada ostensibly over flows of fentanyl into the U.S. It doesn’t impact tariffs on products including automobiles, steel, aluminum and copper under a separate authority known as Section 232.

We noted last week that February tends to be a weaker month for returns. So far, it has certainly lived up to its name. This past week opened with investors selling technology, and particularly software stocks, to buy value sectors. Energy, financials, and industrials continued to attract flows as investors leaned into cash flow, dividends, and near-term earnings certainty. However, as I noted on X this past week, while those sectors may have better earnings "certainty," the earnings growth rates don't justify the recent valuation expansions. As shown, the valuations for industrials, staples, energy, and materials are "cheap" compared to the market but very expensive relative to their own history.