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.
Markets stumbled into February, a historically weak month. February tends to deliver modest returns, with average performance trailing the stronger gains typically seen in January and March.
Markets ended the week mixed as investors processed the Federal Reserve’s latest policy decision, rising geopolitical tensions, and the early results of the S&P 500 earnings season. The Fed held the federal funds rate steady at 3.50–3.75 percent, as expected. Chair Jerome Powell maintained a neutral stance, noting that inflation is moving toward the target, but the labor market remains tight enough to avoid immediate policy shifts. There was no indication of a near-term rate cut, but Powell left the door open for adjustments later in the year if inflation continues to ease and economic activity slows.
This week's markets were driven by headline risk, economic uncertainty, and the early innings of earnings season. With the markets closed last Monday for the Martin Luther King holiday, U.S. equities sold off sharply on Tuesday. President Trump’s tariff threats against key European allies, tied to a controversial push for Greenland, triggered that selloff across global equity markets. The S&P 500 dropped more than 2%, while the Dow and Nasdaq logged their worst single‑day percentage losses in three months, stoking fears of renewed trade conflicts just as markets were trying to stabilize after year‑end weakness. European equities slid sharply, with major indices such as Germany’s DAX and France’s CAC 40 falling over 1% amid the tariff shock.