Markets Rebound from Intraday Lows as Broader Rotation Gains Momentum

Dip buyers reemerged Thursday after early-session weakness, helping markets claw back losses triggered by renewed skepticism around AI-driven tech spending. Mixed earnings from key tech names fueled volatility, with Microsoft dragging the S&P 500 and Nasdaq lower despite overall resilience in economically sensitive sectors. Meanwhile, commodities diverged as oil spiked on geopolitical tensions and gold retreated from record highs.

Key Headlines & Market Movers:

• AI Trade Faces Scrutiny, But Rotation Is Taking Hold: Microsoft’s 10% drop underscored growing investor impatience with the timeline for AI monetization. Despite strong top-line results, slowing cloud growth stoked doubts about near-term returns on aggressive AI investments. In contrast, Meta’s upbeat guidance and 10% surge reassured markets that spending can pay off with a clear strategy. The broader theme: a cautious recalibration of the AI narrative is underway, pushing investors to diversify beyond the megacaps.

Broader Market Rotation Gains Steam: Value and cyclical names outperformed as small-cap and industrial stocks saw renewed interest. Earnings from Caterpillar, Honeywell, IBM, and Southwest Airlines beat expectations and highlighted demand tied to real economy activity. This supports the ongoing shift away from growth concentration, particularly as earnings forecasts for the Magnificent Seven are expected to moderate through 2026.

• Commodities Diverge Amid Geopolitical Jitters: Crude oil jumped over 4% as tensions escalated between the U.S. and Iran, pushing Brent back above $70. Meanwhile, gold gave back gains after briefly touching a new high near $5,600. Despite the pullback, elevated precious metal prices suggest lingering demand for safe-haven assets amid market crosscurrents and geopolitical unease.

Market Volatility Rises Post-Fed, With Eyes on Apple: The day after the Fed left rates unchanged, markets showed increased sensitivity to earnings surprises. Tech volatility dominated as software names like Atlassian and ServiceNow sank on guidance concerns. Apple’s report today will be key in shaping sentiment around the AI trade and Mag 7 leadership. Notably, Microsoft, Meta, and Tesla’s post-earnings divergence highlights investors’ growing emphasis on monetization clarity and near-term growth paths.

S&P 500 Sector Performance

Looking Ahead

The AI boom remains a key market driver, but the trade is maturing. With expectations now baked into valuations, investors are becoming more selective, rewarding firms showing clear monetization and penalizing those without. This shift opens the door for a broader market participation story in 2026 led by cyclicals, value names, and under-owned sectors like financials and industrials. Apple’s results will be a key inflection point, while bond markets and geopolitical developments continue to shape macro sentiment. As earnings season accelerates, the balance of risk appears to favor stock pickers over index chasers.

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