The Weekly Edge

The Great Divide is a great way to describe some of the sharp divergences and departures we have seen over the last three months.

Some of these great divides are encouragingly positive, while others are distinctly negative.

While our quote, referencing the above scene from the 2011 baseball movie Moneyball, is an oversimplification and exaggeration, in our view, it is a fitting analogy for the divergent fundamentals, narratives, and sentiment that surround the global software and semiconductor industries today.

Over the last three years, equity investors could sing “We Had It All” when it came to tailwinds for markets.  The combination of an uptrend in earnings growth forecasts and a downtrend in 2 Year Treasury yields was incredibly powerful for risk asset returns.

Looking at these two components, the uptrend in earnings growth forecasts supported risk appetite, and thus valuations, while rising estimates also boosted total equity market returns as earnings growth consistently surprised to the upside.

The U.S. equity market’s long-term resilience is no accident. Domestic firms benefit from operating in the world’s most dynamic economy and represent a wide range of industries. This has helped companies generate reliably strong earnings growth across seasons and cycles, and it has created internal market diversification in periods of sharp rotations (when many country indexes driven by just one or two industries often falter).

U.S. stocks are holding up as conflict escalates in Iran, but rising oil prices and weakening consumers could change that fast. Here’s what investors need to watch.

Occasionally, instead of being optimistic about the future, equity markets become thoroughly “freaked out” by the future (singing along to “The Future Freaks Me Out” with those slightly neurotic synth-punk-emo purveyors, Motion City Soundtrack).

This week’s Edge (which you can probably read while listening to the entire 18 minutes of the “MacArthur Park Suite”) will look at the recent run in Value outperformance and examine the drivers that could make this run in Value sustainable (like in the early 2000s) or just another flash in the pan.

This “Lonely Hearts Club” for non-tech sectors has disbanded to start 2026, with huge outperformance by non-tech sectors and huge underperformance by tech areas (the broad tech sector, Mag 7, and, most painfully, software).

The Federal Reserve has trimmed its policy target by 175 basis points (1.75%) since September 2024, but longer-term Treasury yields are actually higher today than they were then.

U.S. consumers are so emo right now that they are reporting their worst, most sour, most negative sentiment since the depths of COVID and the Great Financial Crisis.