Rotation Continues: Tech Falters, Energy Leads

Good morning! After a strong start to the week, markets are showing early signs of consolidation as investors weigh new tariff threats, key economic data, and mixed signals from the tech sector. This morning’s calendar includes the third estimate of Q4 GDP, initial jobless claims, and updated readings on retail and wholesale inventories—all of which will provide insight into consumer resilience and supply chain momentum.

Pending home sales will also be closely watched as housing affordability remains a major macro theme. On the earnings front, Walgreens Boots Alliance (WBA) and Tech distributor SYNNEX Corp (SNX) report results today, providing snapshots of healthcare and enterprise demand as Q1 draws to a close.

Trump Narrows Scope of Reciprocal Tariffs—for Now
President Trump is reportedly considering a more limited set of reciprocal tariffs, focused initially on autos, pharmaceuticals, and select imports from China, Canada, and the EU. Markets view the scaled-back approach as a sign the administration may seek to strike a balance between protecting U.S. industry and avoiding significant inflationary fallout. (WSJ)

Energy Shifts from Oil to Electricity
New research highlights a shift in what powers economic growth, with electricity now outpacing oil in terms of productivity and investment leverage. Sectors like AI, data centers, and electrified transport are driving this transformation. (WSJ)

Software Stocks Hit by DOGE Spending Fears
Concerns over federal cuts to digital infrastructure (via the DOGE office) have weighed on the software sector, but analysts suggest the worst may be priced in. Bargain hunting is beginning to emerge in names with recurring revenue and strong cash flow. (MarketWatch)

Copper Emerges as a Strategic Economic Indicator
Analysts point to copper as a more accurate bellwether than oil for U.S. economic health in the current cycle, driven by its role in construction, electronics, and renewable energy infrastructure. (MarketWatch)

Trump Ramps Up Tariff Threats Against Allies
Despite talk of narrowing April 2 tariffs, President Trump warned of “far larger” tariffs ahead targeting key U.S. allies, including the EU and Canada. The announcement follows reports of unresolved negotiations and retaliation planning from trading partners. (CNBC)

Stocks slide as tech stumbles and tariff worries resurface
U.S. equity markets declined on Wednesday, snapping a three-day winning streak, as renewed trade concerns and weakness in mega-cap tech weighed on investor sentiment. The S&P 500 fell 1.2%, while the Nasdaq dropped 1.8%—its worst session in several weeks—driven by losses in Nvidia and other leading chipmakers following reports of potential new export restrictions from China. President Trump’s fresh comments about auto tariffs, expected as early as this week, added to investor unease. Value-oriented sectors like consumer staples, utilities, and energy outperformed in a defensive rotation, while growth sectors—especially technology, consumer discretionary, and communications—led the decline.

Rotation in leadership continues
As rate-cut expectations moderate and tariff risk looms, equity market leadership continues to rotate. Year-to-date, energy, health care, and financials are among the top-performing sectors, while technology and consumer discretionary have lagged. This broadening of performance beyond last year’s tech leaders reflects a shift in sentiment and reinforces the case for maintaining diversified portfolios in the face of rising policy uncertainty and shifting macro conditions.

Durable goods surprise to the upside
Economic data provided a bright spot, with February durable goods orders rising 0.9%, well above consensus expectations for a decline. Core capital goods shipments—often viewed as a proxy for business investment—also posted solid gains, suggesting companies may be front-loading purchases ahead of expected tariffs. This marks the second consecutive monthly beat for durable goods data, reinforcing the view that the industrial side of the economy remains resilient despite headwinds.

Tariffs and Fed uncertainty keep investors cautious
While the Fed continues to signal a bias toward rate cuts later this year, recent comments from officials like Neel Kashkari suggest policymakers are in no rush, given lingering inflation pressures and policy complexity. Goldman Sachs revised down its 2025 U.S. GDP forecast, citing a likely rise in effective tariff rates, which could weigh on growth and earnings. With the April 2 tariff announcement looming, investors are increasingly positioning around trade risks and awaiting Friday’s PCE inflation report for further direction.

Commodities and Treasuries reflect cautious tone
Treasury yields edged higher, with the 10-year closing near 4.35%, while the U.S. dollar strengthened modestly. Oil prices rose to $69.65 on a bullish inventory report and continued geopolitical uncertainty, while gold held near record highs, reflecting ongoing safe-haven demand. The CBO's latest estimate projects the U.S. debt ceiling “X-date” could arrive as early as August, adding to the growing list of macro risks investors are monitoring as Q1 draws to a close.

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Volatility over the last month appears to have stabilized somewhat, and the path ahead may depend on the tone of economic data and trade policy headlines. Today’s GDP and housing numbers will help refine expectations for Q2, while Fed officials continue to reinforce a patient stance. With earnings still trickling in and the April 2 tariff deadline looming, investors remain cautious—but not panicked. A diversified posture and close eye on macro trends remain prudent heading into quarter-end.