Overview
The tape is calmer, and that alone feels like progress after a week defined by AI crossfire and factor whiplash. The latest prints show the broad index ETFs closing Friday a touch higher, with SPY, QQQ, and DIA edging up while IWM outperformed. That bounce came alongside a decisive retreat in longer-dated Treasury yields and a firm bid for gold, a pairing that tends to appear when growth angst and positioning stress collide.
By midday, single-name action remains uneven. The heavyweight tech cohort is soft, with AAPL, MSFT, and NVDA trading below prior closes, while rate-sensitive and defensives are steadier. The message from the board is restraint, not chase. Traders are backing away from the corners most exposed to AI margin debates and capex fatigue, and leaning into balance sheets, cash flows, and duration hedges. That matters.
Macro backdrop
Rates set the tone. Over the last two sessions, the 10-year Treasury yield eased toward 4.09%, down from 4.18%, with the 30-year sliding to roughly 4.72%. The 2-year sits near 3.47% and the 5-year around 3.67%. A parallel drift lower in yields, strongest at the long end, lines up with Thursday’s rally in long Treasurys and confirms a modest risk de-leveraging impulse into the weekend. Equities did not collapse, but credit and commodities priced in more caution than bravado.
Inflation’s latest monthly readings were firm but not alarming. Headline CPI for January ticked to approximately 326.59 on the index scale, and core to 332.79. The details are thin, yet inflation expectations models are clustered in the mid-2s, with one-year around 2.59% and the five- and ten-year marks near 2.37% and 2.36%. The market is acting as if the disinflation path is intact, but not guaranteed, which keeps duration bids tactical and makes gold’s surge easier to explain.
There is a second, quieter macro current: policy and politics. Budget debates, deficit math, and regulatory resets are creeping back into risk premia. Market pieces this week flagged the deficit trajectory and the prospect of uneven funding flows. Add the ongoing tug-of-war over climate rules and energy infrastructure, and the setup argues for higher cross-asset volatility without a clean directional anchor. That disconnect stands out.
Equities
At the index level, the rebound into Friday’s close was real, if modest. SPY last changed hands around 681.63 versus a prior 681.27. QQQ printed near 601.81 from 600.64, and DIA hovered around 495.29 against 494.67. The bright spot was small-caps, with IWM at 262.92 versus 259.54. In other words, Friday featured a constructive risk skew even as the week’s dominant narrative was anxiety over AI disruption and capex returns.
Today’s single-name tape, however, is more hesitant. AAPL trades below its prior close, continuing a drawdown that has been amplified by AI roadmap doubts and product-cycle skepticism in recent press coverage. MSFT is also below its previous finish as investors digest the bill for AI infrastructure against robust Azure growth. NVDA is lower, a reminder that even obvious beneficiaries of hyperscale spending are caught in factor rotations when investors question the pace and payoff of that spend. On the other side of the ledger, TSLA is green, and pockets of healthcare are firmer, hinting at light rotation toward defensives and idiosyncratic growth.
The AI shockwaves that slammed software and then spilled into non-tech corners, from trucking to financials, still hang over the market’s psyche. A series of reports laid out how investors “shot first” as they tried to handicap where generative AI would compress margins or displace legacy stacks. That shift was visible in networking after a weak guide and margin pressure commentary, while a rival focused investors back on AI adjacency and discipline. The equipment complex, meanwhile, delivered a bullish outlook for semi tools that keeps the structural AI narrative intact even as weekly flows turn twitchy.
Consumer and communications are a tale of two tapes. AMZN is slightly lower midday as debate simmers around its 2026 data center capex plans and the durability of accelerating AWS growth. META and GOOGL are also softer, with advertising fundamentals fine, but the capex and AI platform arms race commanding the narrative. Streaming, meanwhile, has seen mixed signals. A content and device ecosystem name posted a strong subscription quarter late last week, supporting the view that distribution leverage still matters in a choppy ad market.
Industrial strength has been a recurring counterweight. Defense heavyweights like LMT and NOC are firmer today, and machinery bellwether CAT is higher. That pattern, alongside Friday’s bid to IWM, points to an underlying appetite for economically sensitive names with pricing power and backlog visibility, even as investors lean back from the most crowded megacap growth trades.
Financials are mixed. Money-center banks such as JPM and BAC are near flat lines, with GS a touch higher. The debate here revolves around net interest income resilience as the curve nudges lower, credit normalization in consumer, and the AI overhang on fee businesses like wealth and insurance. The factor optics are not helping: when bonds rally and defensives catch a bid, banks often drift.
Healthcare is doing its job. UNH is up sharply versus its prior close, MRK and LLY are higher, and PFE is modestly green. For a market that just endured a morale-sapping week around AI disruption, the comfort of earnings visibility, dividends, and secular drug pipelines is not trivial.
Sectors
Leadership has rotated and it shows on the sector board. The Friday-to-Friday snapshot has XLU, XLV, and XLI finishing in the green, with XLE also up. XLF is fractionally softer, while XLK managed a small uptick even as megacaps stumbled in single-name action. Consumer staples via XLP and discretionary via XLY were both mildly higher into Friday’s bell.
Why it matters now: the mix is defensive, not fearful. Utilities and health care strength, coupled with a firm energy tape, says investors are managing drawdown risk while keeping exposure to cash-generative cyclicals. Energy’s durability is not only a geopolitical story. Industry analysis this week emphasized capital discipline, shareholder returns, and a supply picture that remains tight enough to support cash flows even without fresh price spikes.
Tech’s internals are more nuanced than the megacap softness implies. A major networking name slumped on margin pressure linked to memory costs, while a peer calmed nerves around AI-driven demand and discipline. In equipment, a leading WFE provider laid out a bullish multi-quarter framework tied to AI infrastructure, reinforcing a theme that memory pricing pressure can be a headwind for some buyers and yet a tailwind for tool intensity and capacity adds. The market is trying to price both simultaneously, which produces noise but also opportunity for dispersion.
Bonds
The bond market looks steadier than equities today. Long duration continues to catch a bid, with TLT trading above its prior close and the 10-year yield slipping toward 4.09%. Intermediate duration via IEF is also higher, and the front end, proxied by SHY, is firmer.
Thursday’s rally in long Treasurys fit the classic pattern: equity volatility picked up, high-beta cohorts were under pressure, and investors reached for duration hedges. A bank desk view circulating in market notes argued the 30-year remains an effective hedge if carry trades involving the yen unwind in earnest, a scenario that could stress risk assets broadly. Whether or not that specific trigger fires, the larger point stands. With deficits large and issuance heavy, the market still reaches instinctively for duration when equity narratives fray.
Commodities
Gold is the standout. GLD closed Friday at 462.58 versus 451.39 a day earlier, an emphatic session that coincided with the drop in long yields and a wobble in megacap growth. Silver through SLV also advanced into Friday’s bell. The interplay is familiar. When risk rotations get choppy and real yields slip, precious metals tend to regain the upper hand.
Crude was slightly softer into the weekend, with USO ticking down against its previous close, while the broad commodities basket DBC edged higher. Natural gas via UNG was little changed to slightly lower. Oil’s resilience over recent weeks, despite episodic down days, has leaned on supply frictions and an improving demand ledger. At the margin, headlines around agricultural flows, including a move by a major producer to relax certain export restrictions, add a thin layer of nuance to the global commodity mix.
FX & crypto
The dollar is mixed. The euro trades near 1.186 against the greenback, with intraday ranges tight. With Treasury yields easing, the currency tape lacks a forceful directional driver at midday.
Crypto remains under pressure. Bitcoin is marked around 69,000 versus an open above 70,000, while Ether sits near 2,006 against an open north of 2,076. A busy stretch for the asset class included an exchange outage around peak stress and a loss-making quarter from a flagship U.S. platform, both of which did little to stabilize sentiment. Correlations have been unhelpful for certain broker and fintech names as crypto beta bled over into their equity tapes. For now, the crypto complex is trading like a high-volatility risk proxy, not a haven.
Notable headlines
- AI disruption anxiety widened. A MarketWatch overview argued the stock market is now reflecting fears of an “AI apocalypse” for white-collar jobs, feeding broad selling beyond software and hardware. That psychology helps explain why defensives and long bonds rallied as megacaps wobbled.
- Networking split the room. Cisco’s shares suffered their worst day since 2022 on margin pressure tied partly to higher memory costs, while a rival’s steadier tone kept investors focused on AI-driven demand rather than short-term price spikes. The divergence sharpened sector dispersion.
- Semicap confidence contrasted the jitters. Applied Materials’ results and commentary highlighted strong tool demand tied to AI infrastructure and an upbeat view for wafer fab equipment revenue growth this year.
- Bonds caught a safety bid. Long-term Treasurys had their best session in months as equities sold off, underscoring the market’s instinct to reach for duration when narratives get noisy.
- Energy kept the scoreboard honest. A sector recap emphasized why energy has led the S&P 500 this year, pointing to capital discipline and geopolitics alongside fundamentals.
- Crypto turbulence persisted. Coinbase swung to a surprise loss amid a broader crypto selloff, even as it talked up adjacent opportunities. The platform also reported a brief disruption around peak market stress, and one broker’s equity began tracking bitcoin more tightly than its revenue mix would argue for.
- Seasonal and calendar notes. There is an adjusted trading schedule for the Presidents Day holiday, which tends to thin liquidity around the edges.
Risks
- AI capex and margin compression: If the cost of AI infrastructure proves higher and the monetization window longer than hoped, growth multiples can de-rate further, especially across software, networking, and cloud-adjacent names.
- Policy and deficit uncertainty: A heavier deficit path and uneven funding can push term premia higher, complicating the equity-bond correlation and dulling duration’s hedge value in shocks.
- Supply chain and input costs: Surging memory prices improved the outlook for some suppliers while pressuring equipment buyers and OEMs, a tug-of-war that can broaden to other components.
- Crypto volatility spillover: Sharp moves in bitcoin and ether, plus operational hiccups at platforms, risk bleeding into fintech and brokerage equities just as consumer risk appetite cools.
- Geopolitical energy shocks: Any fresh disruption to oil or gas supply routes would test the market’s current comfort with energy cash flows and could reignite inflation worries.
- Carry trade unwind: A strengthening yen, as some strategists warn, could force deleveraging across risk assets, amplifying equity drawdowns and tightening financial conditions.
What to watch next
- Rates versus gold: Does the 10-year hold near 4.09% while GLD stays bid, or do we see a snapback in real yields that challenges the precious metals rally?
- Semis and equipment follow-through: After bullish equipment commentary, do downstream chip buyers and networking names stabilize, or do memory and component prices keep pressure on margins?
- Megacap tech breadth: With AAPL, MSFT, and NVDA softer midday, watch for any leadership handoff to defensives or industrials in the afternoon and into the next session.
- Small-cap stamina: Friday’s outperformance in IWM needs confirmation. Keep an eye on banks and industrials inside small-caps for signs of durable risk appetite.
- Energy tape: Can XLE and integrateds like XOM and CVX maintain relative strength if crude chops sideways?
- Crypto stabilization: BTC and ETH need calmer intraday ranges to stop equity sympathy selling in brokerages and trading-adjacent tech.
- Retail read-throughs: A closely watched big-box retailer reports this week under a new CEO, offering a clean look at consumer health and pricing power.
- Chips catalyst calendar: A marquee AI chipmaker’s results later this month loom large for sentiment across semis, cloud, and broader tech.
Breadth and flow notes
One look at the winners list explains the day. Defensives, dividends, and duration are doing the carrying. UNH is up against its prior close, MRK and LLY are firm, and utilities hold ground. Industrials are in the mix, with CAT and defense contractors like LMT and NOC higher. On the flip side, the biggest household tech brands are red or flat as investors continue to fade capex-heavy narratives and chase idiosyncratic stories elsewhere.
The style spread is hard to miss. Friday’s pop in IWM paired with today’s firmness in value-adjacent sectors keeps the “quality cyclical” theme alive, even as growth proxies sag. That mix, combined with lower long yields, is not the usual risk-on cocktail. It is a hedged one, and after last week’s AI storm, that feels familiar.
Bottom line
Markets are trying to reset their footing without abandoning the megatrends that carried returns for the last year. Long-end yields have retreated, gold is shining, and small-caps show a pulse. Yet the center of gravity in megacap tech is still heavy as investors re-underwrite AI’s cost, timing, and competitive dynamics. Until those answers get clearer, expect more days where the safest move is to let bonds breathe, let energy work, and let defensives carry the water while the biggest narratives cool off.