The term "rotation" is rapidly climbing the list of buzzwords dominating the early-year market narrative. I touched on the subject a few days ago, but it bears revisiting as the divergences are widening. Yesterday on Wall Street, tech stocks – particularly the largest – dragged indices into the red. The Nasdaq 100 fell by over 1%. The S&P 500 dropped 0.5%, despite the number of gainers significantly outpacing decliners. The 11 largest US companies by market capitalisation all lost ground yesterday. In short, quantity triumphed over quality – or rather, over weight. Since the start of the year, the rotation away from mega-caps has gathered pace. This is illustrated by the performance of five asset classes since 1 January (the graphical version is available here):
Roundhill Magnificent Seven ETF: -1.8%. As the name suggests, this ETF tracks the seven US tech giants. It has struggled since the beginning of the year.
Nasdaq 100: +0.8%. The US tech-heavy index, with significant exposure to the aforementioned seven, remains under pressure.
S&P 500: +1.1%. The broad US index is also heavily weighted towards the tech sector, and this drag continues to be felt.
S&P 500 Equal Weight: +3.9%. This version of the index gives equal weight to each of its 500 constituents. It has outperformed the standard S&P 500, reflecting the stronger showing of smaller-cap stocks.
Russell 2000: +6.9%. The small-cap index is off to a strong start this year, buoyed by expectations of a medium-term rate cut in the US. It’s a wager on Jerome Powell’s eventual departure and the arrival of a more rate-cut-friendly Fed chair under the Trump administration.
So, while Wall Street slipped yesterday, European markets held up better despite some declines (Germany’s DAX, France’s CAC 40). The tone was generally bullish in London, Zurich and even across the Stoxx Europe 600, where record highs were in focus. Investors continue to diversify away from crowded trades and the political and economic turbulence in the US.
Still, Washington sent several calming signals yesterday in a bid to defuse certain tensions. Donald Trump, for instance, assured markets that he had no intention of removing Federal Reserve Chair Jerome Powell before the end of his term in June, despite the criminal investigation into cost overruns tied to the Fed’s headquarters renovation. The announcement of that inquiry – widely perceived as political rather than legal – sparked a backlash, including among Republicans. The White House also hinted it had received assurances from the Iranian regime regarding the crackdown on domestic protests. That statement sent oil prices lower. Commodities also eased after a further announcement that the administration would forgo additional tariffs on essential mining imports. This string of conciliatory messages helped soothe nerves in the financial markets. It’s worth noting, however, that the White House did impose a 25% tariff on certain semiconductors, as previously pledged. Chips destined for key sectors – broadly defined to include AI, public services, and start-ups – will be exempt from these levies.
Thursday’s agenda will be dominated by a slew of macroeconomic data, including German GDP and US confidence indicators, as well as speeches from central bankers and continued earnings releases from major US financial institutions (Morgan Stanley, The Goldman Sachs Group, BlackRock). Weekly US jobless claims will also be released, following last night’s publication of the Fed’s Beige Book, which confirmed a slowdown in the labour market.
In the Asia-Pacific region, Japan slipped 0.4% in its first negative session of the week. Mainland China and Hong Kong remain under pressure following news of tighter Chinese regulation on leverage. India and Taiwan are also edging lower. South Korea, by contrast, continues its remarkable rally with a tenth consecutive session of gains in 2026, despite the won’s rebound. US Treasury Secretary Scott Bessent publicly expressed concern over the Korean currency’s recent slide to its lowest level since 2009, and issued a similar warning about the yen. European markets are expected to open higher.
Today's economic highlights:
On today's agenda: in the United Kingdom, the RICS House Price Balance, monthly GDP, 3-month average GDP, monthly industrial production, goods trade balance, monthly manufacturing production, and non-EU goods trade balance; In Germany, wholesale prices year-on-year and month-on-month followed by full-year GDP growth; In Italy, monthly industrial production and trade balance; In the Euro Area, the ECB economic bulletin, monthly industrial production, and trade balance; In the United States, monthly import and export prices, weekly jobless claims, the Empire State and Philadelphia Fed manufacturing indices, followed by speeches from Bostic, Barr, and Barkin, and finally the long-term TIC flows. See the full calendar here.
- GBP / USD: US$1.34
- Gold: US$4,605.68
- Crude Oil (BRENT): US$64.55
- United States 10 years: 4.14%
- BITCOIN: US$96,213.1
In corporate news:
- Rio Tinto and BHP announce a joint initiative to increase iron ore output by 200 million metric tons through shared infrastructure at Yandicoogina and Yandi mines.
- EQT makes an unsolicited cash offer for all shares of Oxford Biomedica PLC, with a deadline set for February 11, 2026.
- The Weir Group announces a joint venture with Olayan Saudi Holding Co to expand operations in Saudi Arabia's mining sector.
- Home REIT declares cooperation with the Serious Fraud Office (SFO) in ongoing investigations.
- Mirriad Advertising reports disappointing Q4 sales and a significant drop in its revenue forecast for 2025.
- Compagnie Financière Richemont reports third-quarter revenue of €6.4 billion, surpassing expectations with 11% growth at constant rates.
- Generali appoints Giulio Terzariol as director general and deputy CEO.
- Partners Group reports $185 billion in total assets under management after a $30 billion increase last year.
- SEB upgrades its recommendation to "buy" with a target price of 270 SEK.
- BNP Paribas Exane and Citigroup raise target prices for Nordnet to 255 kr and 288 SEK respectively.
- Pepco Group reports a 4.3% increase in year-over-year revenue to €1.4 billion in Q1 FY26.
- PNE AG plans to expand its wind farm portfolio to 497 MW by the end of 2025.
- eBay announces its inaugural climate strategy, aiming for net-zero emissions by 2045.
- Microsoft purchases 2.85 million soil carbon credits from Indigo Carbon for up to $228 million over 12 years.
- OpenAI announces agreements with Cerebras to purchase and integrate up to 750 MW of computing power over three years.
- AGI Inc announces its upcoming U.S. IPO and NYSE listing.
See more news from UK listed companies here
Analyst Recommendations:
- Persimmon Plc: Deutsche Bank downgrades to hold from buy with a target price of GBX 1419.
- Wh Smith Plc: Investec upgrades to buy from hold and raises the target price from GBX 690 to GBX 820.
- Itv Plc: Bernstein maintains its market perform recommendation and reduces the target price from GBX 76 to GBX 75.
- Rightmove Plc: Bernstein maintains its outperform recommendation and reduces the target price from GBX 790 to GBX 674.
- Hays Plc: RBC Capital maintains its outperform recommendation and reduces the target price from GBX 75 to GBX 65.
- Diploma Plc: Peel Hunt maintains its buy recommendation and raises the target price from GBP 61.50 to GBP 64.50.
- Flutter Entertainment Plc: Bernstein maintains its market perform recommendation and reduces the target price from USD 245 to USD 225.
- Prudential Plc: UBS maintains its buy recommendation and raises the target price from GBX 1295 to GBX 1385.
- Gamma Communications Plc: Citi maintains its buy recommendation and reduces the target price from GBP 14.20 to GBP 14.
- Easyjet Plc: Deutsche Bank downgrades to sell from hold and reduces the target price from GBX 535 to GBX 465.
- Pearson Plc: Goldman Sachs maintains its buy recommendation and reduces the target price from GBX 1400 to GBX 1300.
- Diageo Plc: Jefferies maintains its buy recommendation and reduces the target price from USD 125 to USD 108.
