Market Matters – Churn Continues Under the Surface

Equity markets remain directionless at the index level but highly rotational beneath the surface.

While the S&P 500 has been fairly flat over the last rolling quarter, leadership has shifted sharply toward value, equal‑weight, and small/mid‑caps, while large‑cap growth and global software have materially lagged. The move reflects a repricing of duration and competitive moats rather than a classic rates‑driven rotation.

AI is reshaping market perceptions of scarcity, competitive advantage, and capital intensity.

Investors are reassessing the durability of software moats as AI lowers barriers to building digital capabilities, while hyperscalers face rising capex burdens. This has driven a forceful derating across software and adjacent service sectors as markets grapple with a “genuine ‘known unknown’” around future earnings visibility.

Earnings remain solid, but markets are questioning the distribution and defensibility of future profits.

With ~75% of the S&P 500 reported, blended Q4 EPS growth is running above 13% YoY and revenues near 9%. Despite this, mega‑cap growth is being challenged on return‑on‑capital discipline, with investors no longer rewarding scale of capex alone.

Macro data reinforced a late‑cycle but resilient US backdrop.

Payrolls rose 130k and unemployment fell to 4.3%, though revisions highlighted slowing hiring momentum. Softer‑than‑feared CPI (core at 2.5% YoY, the lowest since 2021) eased yields and supported risk sentiment, while improving real wages bolstered the consumer outlook.

Regional dynamics remain supportive outside the US growth complex.

Japan outperformed on pro‑growth political signals and ongoing governance reform momentum, while UK gilts strengthened as political noise failed to destabilise markets. Near‑term focus shifts to global PMIs, UK CPI, Japan GDP/inflation, FOMC minutes, and the upcoming Nvidia earnings catalyst.