Market Pressure Builds as Tech Stocks Fall Out of Favor Amid Earnings Divergence

Equity markets displayed conflicting signals today as investors grappled with mixed earnings results and a notable shift away from technology stocks. The S&P 500 Index moved marginally higher at +0.08%, while the Dow Jones Industrials gained more ground at +0.54%. However, the Nasdaq 100 slipped into negative territory, declining -0.56%. Futures markets reflected similar hesitation, with March E-mini S&P contracts up +0.08% but March E-mini Nasdaq futures down -0.60%. The divergence underscores how individual corporate performance now takes precedence over broad sector momentum, particularly as capital reallocates away from technology into other market segments.

Corporate Earnings Drive Stock Volatility Across Sectors

The earnings season is now in full swing, with approximately 150 S&P 500 companies scheduled to report results this week. Of the 195 companies that have already reported, a robust 80% have beaten earnings expectations—a positive signal for the overall market. According to Bloomberg Intelligence, Q4 earnings growth across the S&P 500 is projected to climb +8.4%, marking the tenth consecutive quarter of year-over-year expansion. However, when excluding the Magnificent Seven megacap technology stocks, Q4 earnings growth moderates to +4.6%, illustrating how dependent overall market performance has been on a narrow group of tech giants.

This earnings season has produced sharp divergences in stock performance. Super Micro Computer surged more than +15% after providing Q3 net sales guidance of at least $12.30 billion, substantially exceeding the consensus forecast of $10.25 billion. Conversely, Advanced Micro Devices plummeted more than -13% after projecting Q1 sales of $9.8 billion (plus or minus $300 million), falling short of some estimates around $10 billion. Such disparities illustrate how the market remains highly selective, rewarding companies that exceed expectations while punishing those that disappoint.

Data service and software companies have been particularly pressured, declining for a second consecutive day following artificial intelligence firm Anthropic’s announcement of an automation tool designed for legal professionals. This development has triggered broad-based weakness across the sector. Intuit dropped more than -4%, leading losers in the Dow Jones Industrials, while Salesforce declined more than -3%. Additional significant declines were registered by EPAM Systems and FactSet Research Systems, each falling more than -3%. Thomson Reuters, ServiceNow, and Adobe all retreated by more than -2%.

Other notable gainers reflected earnings strength. Sonos climbed more than +13% after reporting Q1 revenue of $545.7 million, surpassing the consensus of $535.5 million. Eli Lilly advanced more than +6% following Q4 revenue of $19.29 billion—topping the consensus of $18.01 billion—and guidance for full-year revenue between $80 billion and $83 billion, above analyst expectations of $77.71 billion. Silicon Laboratories rocketed more than +50% after announcing acquisition by Texas Instruments for $7.5 billion, or $231 per share in cash. MGM Resorts International jumped more than +12% after its BetMGM joint venture achieved $2.8 billion in net revenue for fiscal year 2025, up +33% year-over-year.

Labor Market Weakness Clouds Fed Policy Outlook

A significant brake on market momentum emerged from employment data, as the January ADP employment change rose only +22,000—falling well below expectations of +45,000. This softening in corporate hiring introduces dovish considerations for monetary policy, even as the Federal Reserve grapples with ongoing inflation concerns. The market is currently discounting just a 10% probability of a -25 basis point rate cut at the next policy meeting scheduled for March 17-18.

The weakness in employment gains stands in contrast to the resilience shown in other segments of the labor market. Initial weekly unemployment claims are expected to tick higher by 3,000 to reach 212,000 this Thursday, suggesting continued stability in the household employment landscape. Yet the divergence between strong household employment and cooling corporate hiring raises questions about the sustainability of current economic expansion.

Additionally, mortgage market activity has softened considerably. US MBA mortgage applications fell -8.9% in the week ended January 30, with purchase mortgage applications retreating -14.4% and refinancing applications declining -4.7%. The average 30-year fixed rate mortgage dipped -3 basis points to 6.21% from 6.24% in the preceding week, providing modest relief to potential homebuyers but confirming broader credit market pressures.

Treasury Markets Navigate Hawkish Fed Leadership Transition

Interest rate markets have been tugged higher by transition concerns at the Federal Reserve. Following President Trump’s late Tuesday nomination of Kevin Warsh as the next Fed Chair, Treasury markets have experienced headwinds. Warsh is perceived as more hawkish than alternative candidates and frequently emphasized inflation risks during his prior tenure as a Federal Reserve Governor from 2006 to 2011. March 10-year Treasury notes declined -3 ticks, with the 10-year yield climbing +1.4 basis points to 4.280%.

The Treasury Department announced that next week’s quarterly refunding will total $125 billion in sales of Treasury notes and Treasury bonds—precisely at market expectations. The department signaled its intent to maintain current auction sizes for nominal notes, bonds, and floating-rate notes “for at least the next several quarters,” providing continuity in its financing approach. This supply influx should contain upside momentum in Treasury prices near-term.

However, the dovish employment data released today has provided some stabilizing pressure on yields, preventing further sharp increases. The softness in January’s ADP employment report counters the more hawkish bias introduced by Mr. Warsh’s nomination, creating a temporary equilibrium in the Treasury complex.

European Markets Navigate Mixed Economic Data

Across the Atlantic, European government bond markets registered divergent moves. The 10-year German bund yield declined -2.2 basis points to 2.869%, while the 10-year UK gilt yield edged up +0.3 basis points to 4.520%. These movements reflect varying economic narratives across the Eurozone and United Kingdom.

The Eurozone economy is displaying emerging signs of moderation. January core inflation was revised downward by -0.1 percentage points to +2.2% year-over-year, representing the slowest pace of increase in four years. Similarly, the January services PMI (a measure of economic activity in the services sector) was revised lower by -0.2 points to 51.3, down from the previously reported 51.5. December producer price inflation fell -0.3% month-over-month and -2.1% year-over-year—precisely matching expectations—with the year-over-year decline marking the steepest contraction in 14 months.

European Central Bank market pricing reflects restraint in anticipation of Thursday’s policy meeting, with swaps indicating just a 1% probability that the ECB will implement a +25 basis point rate hike.

International Equity Markets Show Mixed Resilience

Overnight equity market performance across Asia and Europe reflected the global earnings and growth uncertainty. The Euro Stoxx 50 Index edged higher by +0.11%, China’s Shanghai Composite closed up +0.85%, while Japan’s Nikkei Stock 225 retreated -0.78%. These modest moves underscore how earnings divergence and policy transitions are creating a cautious investment environment globally.

The week ahead will be dominated by earnings reports, economic releases, and Congressional action on government spending. The January ISM services index is due later today and expected to dip -0.3 points to 53.5. Friday will bring the University of Michigan consumer sentiment index for January, anticipated to fall -1.4 points to 55.0. Congress also remains focused on finalizing a spending bill to avert further government funding disruptions, following the partial shutdown that ended this week when the administration funded the Department of Homeland Security through February 13 while extending funding for the remainder of government through September 30.

Market participants remain focused on earnings quality, labor market trajectory, and the implications of Federal Reserve leadership changes for monetary policy ahead.