Nick Colas & Jessica Rabe (DataTrek)

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2-year Treasury yields have become disconnected from the Fed’s forward guidance (the Dot Plot), convinced that the FOMC will be forced into hiking rates to quell tariff- and oil price-related inflation.

DataTrek's Nick Colas: "US bank stocks are a useful coalmine canary, providing a market-based warning about serious problems in the US economy and/or financial system." @barronsonline @LaMonicaBuzz barrons.com/articles/bank-…

AI is a global race and investors must allocate capital with that in mind so they don’t miss out on important growth opportunities outside the US. Non-China Asia Tech is widely outperforming this year due to strong fundamentals & excellent earnings/revenue growth.

The recent oil price shock has reset market expectations for Fed rate cuts this year, w/ Futures now putting the highest odds on either one 25 bp cut or none at all. Two-year Treasury yields are now above Fed Funds, suggesting a do-nothing Fed over the next 24 months.

Many Agentic AI use cases automate specific workflows over replacing entire occupations, suggesting any labor displacement will likely be concentrated in certain tasks, with the broader macro impact showing up more as higher productivity growth than a sharp rise in unemployment.

2/2 ...In the current still-uncertain environment, we think an index weighting to Energy is still sensible risk management. If you see oil prices rising further, Energy stocks likely still have room to run.

1/2 US large cap Energy (the $XLE ETF) have now outperformed the S&P 500 by more than 2 standard deviations over the last 100 days. Since 2010, that has happened 3 other times. Energy only went on to underperform when oil prices subsequently fell...

Implied earnings growth expectations have risen for every S&P sector since the start of 2026. Despite rising macro uncertainty, there's no evidence of any incremental risk discount in US large caps YTD. That bullishness is grounded in history, but its resilience is remarkable.

The S&P 500 is cheaper now than at the start of the year (20.9x forward earnings vs 22.2x). That is solely due to PE contraction in Tech, Financials, and Big Tech-heavy Consumer Discretionary. $XLK $XLF $XLY $VOO

US large cap Energy has now beaten the S&P 500 by +2 standard deviations over the last 100 days. Since 2010, that has happened only 3 other times. We update our views of this critical part of the S&P 500 in tonight's report. Sign up free on datatrekresearch.com to read it!

The latest JOLTS report out on Friday showed that, as of January, the US labor market was in healthy-enough shape for the Fed to focus on inflation amid higher oil prices. But we're still in “low hire, low fire” mode & more vulnerable to an economic shock than in recent years.

US Investment Grade corporate bond spreads over Treasuries are well off their recent lows, but not yet at the 2023 – present average.  Over the last 3 years, stocks have only bottomed during periods of uncertainty when IG spreads were above their mean reading.

Fed Funds Futures now put roughly equal odds (39 – 40%) on no or just one rate cut this year, implying higher inflation but little chance of a recession.

The US dollar rallied against every major developed economy currency last week and almost every EM currency.  The Swiss franc lost its safe haven bid.

Last week’s global/US equity price action showed a continued rotation back to US large caps and Tech, but at a decelerating rate.  Defensive US large cap sectors outperformed, but not defensive investment styles.

The Nasdaq Comp has outperformed the S&P 500 in each of the last 2 weeks (combined +1.1 points) after underperforming through February (combined -2.9 points).

Thursday's US Initial Claims for Unemployment Insurance report reflects a continuation of the “low fire” American labor market environment.  The headline number was 213,000, with a 4-week average of 212,000.  Both are well below the 2022 – present averages.

The VIX closed at 27.2 yesterday, right on its 1 standard deviation level.  During the 1990 – 1991 oil price spike/Mideast geopolitical tensions, it hit 34 – 35 (2 standard deviations) 4 times, and the third instance was the low for the S&P 500.

2/2 ...since the market rewards scale in this industry and that ends up pushing successful companies into the top 1,000 names by capitalization.  It is correspondingly overweight the “physical world”, where disruption makes its presence felt much more slowly. $IWM

1/2 The Russell 2000 index reflects a version of the US stock market that diverges noticeably from what has become the most important driver of long-term shareholder value. It is structurally & profoundly short Tech...