Author: Ivanhoff

MarketSurge powers the charts in this video.

Energy stocks have been the strongest sector year-to-date, and now we know why. The escalation in the Middle East is not a surprise, and the market has been anticipating it for some time. Crude oil and gold are having a sizable upside gap, US stocks are slightly lower, and Japanese and European stocks are the most affected. Historically, the US market rallies after the beginning of new wars, especially if the market realizes that the war is not likely to last long. If the oil infrastructure in the Middle East is not impacted, oil prices will also likely stabilize.

In the meantime, another Mag7 stock crushed estimates and sold off. The grand-daddy of AI, NVDA, is basically flat since last August despite record-breaking quarters and constant guidance increases. Institutions are selling. There’s distribution in tech. QQQ is still stuck in a range between 640 and 580. I wouldn’t be surprised if the lower end of the range is tested first in the next few weeks.

Financials remain weak and are bear-flagging below their 200-day moving average. The defensive, consumer staples, utilities, and healthcare are leading the market. The only tech exceptions have been fiber optic, memory chip, and HVAC stocks, which are some of the main AI infrastructure plays.

In other news, XYZ (the former Square) is planning to cut half of its workforce due to AI efficiencies – 4,000 people. Its CEO said that many other companies are likely do the same. This is a trend to watch. It is a slippery slope. Yes, your margins will improve initially, and your stock might bounce, but if every company does it, then the weaker consumer will impact everyone’s bottom line eventually, and the market might get spooked. The Fed can’t solve that by lowering interest rates.

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The indexes continue to look for direction, but the same trends persist under the surface:

Software remains a minefield. I don’t know how capable the so-called vibe coding really is in the long term, but any news release on the subject is tanking various parts of the software space. Cybersecurity stocks were hit hard on Friday after Antropic revealed Cloude Code Security. The market is in a “shoot first, ask questions later” mode. Even if those AI threats prove unsubstantiated and software companies continue to grow their earnings, the process of multiples reduction is likely to keep the pressure on their stocks. 

In the meantime, semiconductors and any AI infrastructure stock remain notably strong – GLW, AAOI, LITE, TSM, ASML, CIEN, SNDK, MU, JBL, COHR, LRCX, MOD, VRT, etc. NVDA reports earnings on Feb 25th after the market close. The stock is essentially flat since August of last year, while the semiconductors ETF, SMH, is up about 40% since then.

The Supreme Court said Trump’s tariffs are unlawful. There was a quick spike in retailer stocks on Friday that quickly faded. The market will need some time to fully digest that information. A couple of things that stood out on Friday were the relative strength of Big Tech vs small caps and the continued ascent of the South Korea ETF. EWY is now up more than 40% year to date.

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Disclaimer: Everything I share is for educational and informational purposes only, and it should not be considered financial advice. Read my full disclaimer here.

MarketSurge powers the charts in this video.

The stock market price action might seem irrational at the extremes, but there’s a method behind the madness. Take the biggest force of the past three years – AI has changed many companies’ destinies. Software has been under pressure over the past few months because the market has realized that AI could depress software companies’ margins, and therefore, they should trade at lower multiples. The odds are that the days when SaaS stocks can trade at 20, 30, 50 times their sales are gone. Since AI is likely to improve the margins for most other industries (productivity rises, fewer employees are needed), they might deserve to trade at higher multiples. This can explain the rotation into industrials, energy, financials, and transportation stocks year-to-date. 

In the meantime, the only stocks that are receiving favorable market treatment when they report earnings are AI infrastructure stocks. The vast majority of them gapped up this season. It is a different question that some have not been able to keep their gaps. When the general market is weakening, sooner or later, all stocks are impacted. Keep in mind that the employment growth is at levels typically only seen during recessions. Maybe this is why the major indexes have been piling up distribution days lately, and defensive sectors like consumer staples and utilities are showing relative strength.

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My subscription service includes a Discord room and private X feed with options and stock ideas, emails with concise market commentary, real-time market education, the Momentum 40 list of market leaders, and much more. See what subscribers say about my educational service.

Check out my free weekly email to get an idea of the content I share with members. See how my ideas/alerts performed.

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Disclaimer: Everything I share is for educational and informational purposes only, and it should not be considered financial advice. Read my full disclaimer here.