Rotation Tests Market Faith

Investors are rediscovering a basic truth of finance: when too much money piles into the same trade, the exits can feel suddenly narrow. The fashionable word is "rotation". It describes a move away from the largest technology firms towards smaller, cheaper and less glamorous parts of the market. The evidence is hard to miss. America's biggest tech companies have recently dragged the main indices lower. The Nasdaq 100 has stumbled, and the S&P 500 has dipped, even though most individual stocks have actually been rising. All 11 of the largest American firms by market value fell in the same session.

Since the start of the year the pattern has become clearer. An exchange-traded fund tracking the so-called “Magnificent Seven” tech giants is down 1.8%. The Nasdaq 100 is barely positive. The standard S&P 500 is up a modest 1.1%. But an equal-weight version of the same index, which treats small and large companies alike, has jumped almost 4%. The Russell 2000, a barometer of small American firms, is up nearly 7%.

This is not just a technical reshuffle. It reflects a bet on the future direction of policy. Smaller companies are more sensitive to interest rates, and investors are wagering that cuts will arrive later this year. Some are even looking beyond Jerome Powell’s term as Federal Reserve chair, which ends in June, and imagining a successor under Donald Trump who might be more relaxed about easing. That is a long-dated trade, but markets are nothing if not impatient.

The irony is that this rotation has been happening even as good news emerges from the very sector investors are supposedly leaving behind. Taiwan Semiconductor Manufacturing Company (TSMC), the world’s most important maker of advanced chips, has just delivered a knockout quarter and a confident growth outlook. Its shares jumped sharply, pulling up a host of American chipmakers and equipment suppliers with it. Nvidia, Broadcom, Micron, Applied Materials and Lam Research all enjoyed solid gains. The promise of more chipmaking capacity in the United States remains a powerful story, even if it no longer carries the entire market on its shoulders.

Earnings season is picking up some steam. BlackRock, the world’s largest asset manager, reported higher profits and record assets under management, helped by last year’s rally. Goldman Sachs and Morgan Stanley are reporting too, rounding out results from America’s financial heavyweights. Banks, however, are facing political headwinds. A proposed one-year cap on credit-card interest rates at 10% has rattled investors.

Beyond equities, the mood is one of cautious relief. Washington has spent the past few days trying to lower the temperature. Mr Trump has insisted that he does not plan to remove Mr Powell before his term ends, despite a criminal investigation into cost overruns at the Federal Reserve’s headquarters renovation. The inquiry has been widely seen as political, and even some Republicans have bristled at it. The reassurance mattered. Markets still remember how quickly confidence can evaporate when central-bank independence looks shaky.

The White House has also hinted that it received assurances from Iran about easing its crackdown on domestic protests. That message, combined with signals that America will hold off on additional tariffs on essential mining imports, pushed oil and other commodities lower. Gold and silver retreated after hitting record highs.

Economic data are painting a mixed but not disastrous picture. The Federal Reserve’s Beige Book points to a slowing labour market, and weekly jobless claims are edging higher. At the same time, activity appears to be picking up slightly, and traders still expect at least two interest-rate cuts by the end of the year. In Europe, Germany has finally recorded growth after two years of contraction, and Britain’s economy has surprised on the upside. 

Asia offers fewer comforts. Japan has slipped into its first negative session of the week. China and Hong Kong remain under pressure as Beijing tightens rules on leverage. India and Taiwan are edging lower. South Korea is the exception, enjoying a remarkable run of gains even as its currency rebounds from a long slide. America’s treasury secretary has publicly fretted about the won and the yen, a reminder that currency worries are never far from the surface.

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.

• Dollar index :99,267
• Gold: $4,610
• Crude Oil (BRENT): $63.68 (WTI) $59.32
• United States 10 years: 4.14%
• BITCOIN: $96,870

In corporate news:

• KKR closed a $2.5 billion fundraise for Asia-Pacific private credit investments, including $1.8 billion for its Asia Credit Opportunities Fund II and $700 million from managed accounts.
• Microsoft, Mistral AI, and Perplexity joined Wikimedia Enterprise as new partners, alongside existing ones like Amazon and Meta, to support AI training needs.
• Chevron is expected to receive an expanded U.S. license to boost oil operations in Venezuela, with Marathon Petroleum and Valero Energy also in discussions.
• Amazon's AWS launched a European Sovereign Cloud service, investing over €7.8 billion to address EU data sovereignty with infrastructure entirely managed within Europe.
• Microsoft is under preliminary antitrust investigation in Switzerland over potential anti-competitive licensing fee increases for its Microsoft 365 suite.
• Keurig Dr Pepper launched a €31.85/share takeover offer for JDE Peet’s, planning to split into two U.S.-listed companies post-acquisition.
• Shearwater Geoservices won a five-month deepwater 3D seismic survey contract from Exxon Mobil's Trinidad and Tobago unit.
• Alibaba is upgrading its Qwen AI app to integrate more deeply into its ecosystem, boosting consumer-facing AI capabilities.
• Saks Global received U.S. court approval for $400 million in rescue financing despite Amazon's objections, as it restructures post-bankruptcy.
• London Metal Exchange, owned by Hong Kong Exchanges and Clearing, posted record trading volumes in 2025, driven by speculative investment in base metals.
• Trip.com shares plunged after Chinese regulators opened an antitrust probe, alleging abuse of its dominant market position in the travel sector.
• Verizon resolved a major network outage affecting hundreds of thousands of customers, promising service credits and facing potential FCC investigation.
• 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.

Analyst Recommendations:

• Albertsons Companies, Inc.: Morgan Stanley downgrades to underweight from market weight and reduces the target price from USD 20 to USD 14.
• Digital Realty Trust, Inc.: HSBC upgrades to buy from hold and raises the target price from USD 187 to USD 193.
• Draftkings Inc.: Wells Fargo upgrades to overweight from equalweight and raises the target price from USD 31 to USD 49.
• Entegris, Inc.: UBS upgrades to buy from neutral with a price target raised from USD 90 to USD 145.
• Ge Healthcare Technologies Inc.: UBS downgrades to sell from neutral with a price target raised from USD 73 to USD 77.
• Delta Air Lines, Inc.: Freedom Broker maintains its buy recommendation and raises the target price from USD 69 to USD 89.
• Expeditors International Of Washington Inc.: Truist Securities maintains its hold recommendation and raises the target price from USD 130 to USD 160.
• Freeport-Mcmoran Inc.: Raymond James maintains its outperform recommendation and raises the target price from USD 53 to USD 66.
• Marriott International, Inc.: Citi maintains its neutral recommendation and raises the target price from USD 285 to USD 345.
• Mdu Resources Group, Inc.: Citi maintains its neutral recommendation and raises the target price from USD 18 to USD 22.
• Micron Technology, Inc.: CTBC Securities Investment Service Co LTD maintains its add recommendation and raises the target price from USD 265 to USD 369.
• Seagate Technology Holdings Plc: China Renaissance Research maintains its buy recommendation and raises the target price from USD 325 to USD 452.
• Western Digital Corporation: China Renaissance Research maintains its buy recommendation and raises the target price from USD 193 to USD 286.