Ivanhoff Capital

MarketSurge powers the charts in this video.

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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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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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 latest reactions to tech earnings haven’t been bullish at all. Google crushed earnings estimates and gapped down. Palantir crushed estimates, gapped up initially, and then sold off quickly. Amazon missed earnings estimates and gapped down. AMD beat the estimates and sold off. META beat earnings estimates, gapped up, and quickly sold off. Upside gaps were used for profit-taking. Slight missteps were punished harshly. The only thing all big tech companies had in common this earnings season was announcing a significant increase in capex spending. This explains the relative strength in semiconductors and industrial stocks – anything needed to build AI data centers. 

While tech and crypto have been under significant pressure lately, energy, regional banks, industrials, transportation, and consumer staples are making new highs. This is why I can’t really call the recent carnage in the market a correction. It is more of a sector rotation. 

Then why are the headlines scary, and so many people are running away from the market and raising cash positions? Tech outperformed by such a large margin in the past 20 years that it has become “the market” in terms of market cap and capturing people’s attention. Everyone’s portfolio is tech-heavy, so a correction in tech is felt much harder by most.

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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.