Market Broadening in an Age of Uncertainty
As 2026 carries on the 2025 pattern of narrative shifts, this month has most assuredly had its share. The "AI will take over the world" theme — which started with a software rout —continued with wealth management and some REITs getting caught up in the disruption story.
Global politics also continue tomove markets with the incursion into Iran moving equity and energy markets inopposite directions, at least at the onset. The unclear outcome and timing ofthis military action makes prognosticating on its depth and breadth impossible.There are near-term and longer-term ramifications and the longer this takes tosettle and what that looks like are uncertain at this time. The near-termimplications of a lack of traffic through the Strait of Hormuz, whetherofficially closed or avoided for safety reasons, can be seen in the jump in oilprices. The drop in output for LNG from Qatar also has higher priceconsequences for the energy complex.
While we do believe there will be quite a bit of disruption ahead, the tricky part is discerning both where and to what extent. At the moment, investors are rotating away from some of the growth names that have dominated in recent years — especially, but not limited to, the software side — and towards more attractive valuations, dividend yields, and what might be considered "less disruptable" sectors such as energy, consumer staples, and materials.
Adding to the pressure, the memory shortage and resulting price increases are also hurting companies that might otherwise look investable — Cisco's earnings reaction being a case in point,but far from an isolated one.
With the mega caps on a mega spending spree, concern about cash flow utilization and a more asset-heavy model has investors somewhat less inclined to pile in during the capex cycle —which seems to be both lengthening and widening into what can only be described as a spending frenzy.
The broadening of the market can be read two ways: investors gravitating toward sectors long relegated to "value" like consumer staples, and/or a rotation out of higher-valuation stocks as the AI juggernaut comes for — or is rumored to come for — a new vertical seemingly every day. Both are likely to happen simultaneously.
The question for investors is whether this continues or whether we've seen the nadir of sentiment in the sectors currently under scrutiny. We tend to think this is less of an "or" question and more of an "and" question. There will continue to be ongoing debate over which companies hold a moat and how impenetrable that moat actually is.
On a near-term view, the most attractive factor exiting February was low volatility, which says something about the exhaustion investors feel a mere two months into the year. Some end-of-month inflation data didn't look great, and combined with softer Q4 GDP numbers, the picture was unsettling. There are mitigating factors worth noting on both fronts: the GDP drag had a government shutdown component, and the PPI numbers may be partially distorted by import-related tariff pass-through that could prove temporary. Notably, core PPI ex-food, energy, and trade came in in-line — though there are clear signs that higher costs are beginning to flowthrough at the wholesale level.
As for the macro backdrop goingforward: the government shutdown-level disruption is unlikely to repeat in itscurrent form, and the Supreme Court striking down IEEPA does offer somepotential tariff relief — though the administration moved quickly to pursuealternative authorities to reimpose duties, so any relief may be moreprocedural than substantive.
The information in this commentary has been obtained from sources believed to be reliable, but its accuracy and completeness are not guaranteed. The opinions, estimates and projections constitute the judgment of Alpine Saxon Woods and are subject to change without notice. This commentary is for information purposes only and is not intended as an offer, recommendationor solicitation for the sale of any financial product or service or as a determination that any investment strategy is suitable for a specific investor.Investors should seek financial advice regarding the suitability of any investment strategy based on the investor’s objectives, financial situation andparticular needs. The investments or investment strategies discussed herein may not be suitable for every investor. There is no assurance that any investmentstrategy will be successful.
