This article analyzes the recent weakness in tech stocks, the potential impact of President Trump's trade policies, and the upcoming earnings season. It explores the factors contributing to the tech sector's decline, including hedge fund divestment and insider selling. The article also discusses the implications of potential tariffs on Canada and Mexico, while highlighting the U.S.'s more assertive stance on trade with China. Finally, it provides an overview of key earnings reports expected this week.
Evidence of weakness among previously dominant megacap tech stocks continues to pile up, suggesting a potential change in sector leadership and a rough road ahead for the S&P 500. Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, provided a disquieting list of reasons to be concerned about tech stocks . In January, the S&P Information Technology Index underperformed the broader S&P 500 by almost six percentage points, the widest margin in eight years.
Price breakdowns have been common among the Magnificent Seven stocks. Five of them at this point – Microsoft Co., Nvidia Corp., Alphabet, Tesla Inc. and Apple Inc. – are trading below their 50-day moving averages. Ms. Shalett notes that hedge funds are reducing exposure to tech stocks and insider selling in the sector has reached levels last seen at the end of 2021, right before a painful 34.3 per cent correction in the tech index. BofA Securities head of equity strategy Savita Subramanian notes that capital spending guidance for the AI hyperscalers, indicating a planned US$290-billion in investment, implies that the AI capital spending cycle remains. She adds, however, that “DeepSeek reminds us of the bear case” for AI semiconductors, as “geopolitical risks in the midst of an AI arms race vs. China poses a threat.” Ms. Subramanian cited investor concerns about monetizing the AI trend. The massive spending on AI infrastructure is expected to shrink profit margins for the industry leaders as profits, if they ever happen, are down the road. Of the hyperscalers, only Meta Platforms’ stock price climbed after reporting results in the most recent earnings season. I’m not suggesting the current market is similar to February of 2000 before the internet bubble imploded and crushed index performance for the following three years. The current tech leadership is far less speculative – the fundamentals justify the stock prices to a far greater degree this time. But as RB AdvisorsThe relative performance of the S&P 500 Equal Weight Index and the conventional market cap weighted benchmark will be important to follow in the coming weeks. Equal weight outperformance will suggest more technology sector floundering and the need for diversification.President Donald Trump is more concerned with border security than trade deficits. He believes that tariffs on Canada “will either be avoided or not endure for long.” The announcement that tariffs would be delayed was accompanied by news on border issues, not trade, which is why Mr. Zezas thinks trade is just the political cudgel to get Canada to better police the border. The strategist believes the U.S. is equally hesitant about tariffs on Mexico because of the disruption this would cause to U.S. supply chains. China is another story, as trade remains the central issue. President Trump has had no qualms about applying levies to Chinese goods. Morgan Stanley economists have removed a March Federal Reserve rate cut from their base case for 2025 due to trade uncertainty and the potential for trade-related inflation.There’s not much for economic data but a lot of important earnings reports domestically this week. Building permits for December (a rise of 2.0 per cent month over month expected), manufacturing sales for December (up 0.7 per cent) and international securities transactions are about it for economics. The important earnings reports start with Shopify Inc. on Tuesday (US$0.425 per share expected). Wednesday will see results from Barrick Gold Corp. (US$0.431), Brookfield Asset Management Ltd. (US$0.388) and Sun Life Financial Inc. (C$1.769). On Thursday, Constellation Software (US$22.88), Telus Corp. (C$0.219) and Brookfield Corp. (US$0.87) release results. Friday will see earnings reports from TC Energy Corp. (C$0.984) and Enbridge Inc. (C$0.748
TECH STOCKS TECHNOLOGY SECTOR TRADING TARIFFS PRESIDENT TRUMP EARNINGS REPORTS INVESTING MARKET ANALYSIS
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