By Mike Dolan
What’s capturing the attention of U.S. and global markets today? It seems the Federal Reserve, like many of its counterparts around the world, is likely to hit the pause button in their upcoming meeting. U.S. economic policy is entangled in a web of changes, not to mention the looming threat of increased tariffs adding to the unpredictability. Despite this confusion and the shifting tides in the market, one sentiment remains firm: the tech sector may have become too crowded for comfort. Let’s dive into today’s market highlights.
Several U.S. national security agencies have suspended initiatives aimed at combating Russian misinformation and cyber threats, potentially easing some of the pressure on Moscow, according to an exclusive report by Reuters. In a parallel development, a federal judge has thrown major roadblocks in the path of Elon Musk’s and DOGE’s efforts to dismantle the U.S. Agency for International Development, labeling their moves potentially unconstitutional.
Meanwhile, the Federal Reserve is facing challenges of its own as falling stock markets and a tightening credit environment sharpen their focus on consumer spending. On the international front, Russian President Vladimir Putin has tentatively agreed to halt attacks on Ukrainian energy resources but stopped short of endorsing a full 30-day ceasefire, despite a direct conversation with Donald Trump. Over in Asia, the Bank of Japan has opted to keep interest rates unchanged, allowing time to assess how rising U.S. tariffs could impact their economy, which relies heavily on exports.
On Wall Street, Tuesday was a rough day, particularly for tech giants, despite a contrasting surge in Europe and Hong Kong, as global investors rapidly reshuffle their portfolios. The German Bundestag endorsed a massive defense and fiscal stimulus package, expected to pass in the upper house by the weekend. However, markets worldwide paused on Wednesday, likely waiting to see if clearer guidance emerges from central banks.
Although no major shifts in policy are expected from the Federal Reserve and Chair Jerome Powell, attention will be focused on the updated economic and rate projections. At present, futures markets anticipate only two Fed rate cuts by year-end, mirroring expectations from a few months back, with the next move not likely before summer.
Investors are also eager to hear any Fed announcements regarding the balance sheet rundown, which may pause due to ongoing debt ceiling discussions in Congress. Prior to the Fed’s announcement, U.S. stock futures, Treasury yields, and the dollar remained stable.
Concerns about a looming economic downturn were somewhat eased thanks to positive U.S. industry and housing starts figures for February, which contrasted sharply with some troubling business survey data. The drop in oil prices, now around 20% lower year-on-year, provided some relief to nervous investors.
In Japan, the yen weakened following the Bank of Japan’s decision to hold steady on policy normalization, citing uncertainties surrounding a potential global trade conflict. In international politics, a much-anticipated call between President Trump and Russia’s Putin regarding Ukraine ended with only a partial ceasefire offer pertaining to Ukrainian energy infrastructure.
Elsewhere, Turkey faced market turmoil as the currency, stocks, and bonds plunged following the arrest of President Erdogan’s main political competitor on charges including corruption and aiding terrorism, which opposition groups are calling an attempted coup.
Amidst these global developments, gold prices have continued their ascent.
Today’s deep dive concerns the crowded trades keeping investors on edge—the U.S. big tech segment, in particular. While market corrections often serve as reality checks that refresh bull markets, this time, the major asset managers are hesitant to jump back into Wall Street’s tech heavyweights. Investor unease spiked over the past month amidst tariff tensions, U.S. recession fears, and a 10% retreat in the S&P 500, paired with a fiscal overhaul in Europe.
A Bank of America survey on Tuesday captured this upheaval, revealing a record one-month decline in U.S. equity exposure within the survey’s quarter-century history—a drastic 40 percentage point drop, leaving a net 23% of participants now underweight. Where is this capital headed? Across the Atlantic. Eurozone stock allocations surged 27 points, now with 39% overweight—a peak not seen in four years.
The comprehensive March survey added layers to these findings, pointing to erratic U.S. trade policies, looming global growth risks, and persistent stagflation anxieties discouraging bond investments due to interest rate and debt concerns. Crucially, even after a significant drop in value, the consensus remains that the so-called “Magnificent Seven” U.S. tech giants like Apple, Microsoft, and Amazon remain over-represented—a view unchanged for 24 consecutive months.
Of course, it’s noteworthy that the tech sector’s identification as the “most crowded trade” didn’t halt the doubling of the Mag 7 prices over two years. But while the Nasdaq composite’s forward price-to-earnings valuations remain on the high side, they’re at their lowest in five years relative to the broader S&P 500.
Nevertheless, two main challenges persist for Big Tech’s dominance. The first is the global economic disruption causing unprecedented financial stimulus in Europe and China, where stock valuations are substantially lower compared to Wall Street, offering enticing global value trade opportunities. Despite the recent market rotation, the valuation gap between Europe’s STOXX 600 and the S&P 500 persists at a massive 36% discount, and their forward price-earnings are nearly 50% below Nasdaq 100 levels.
Furthermore, even after igniting excitement in Hong Kong stocks, they’re still trading around 55% cheaper than the S&P 500.
The second reason Big Tech might be poised for further decline hinges on the Federal Reserve’s actions. Historically, Big Tech stocks have been insulated from recession worries due to their sensitivity to interest rates. These “long-duration” equities benefit significantly from decreases in equity discount rates. However, the current tariff threats may exacerbate inflation as much as they strain growth, limiting the Fed’s ability to act—effectively eliminating one of Big Tech’s potential recession defenses.
What remains undisputed is how these mega-caps have led the bull market due to the size of their index weightings, still representing nearly 30% of the S&P 500’s market capitalization. Consequently, a substantial drag in technology now carries the risk of pulling the entire market down with it.
Global asset managers have taken decisive steps reflecting their outlook, and their prudent stance suggests a murky outlook for the U.S. market in the foreseeable future.
Today’s Chart of the Day reflects this sentiment, highlighting that President Trump still plans to implement new reciprocal tariff rates by early April, despite earlier suggestions of a postponement from the Treasury Secretary. Behind the scenes, U.S. Trade officials tackle the complex task of aligning these tariffs with varying international duty rates.
Key events on today’s agenda include the Federal Reserve’s policy decision and economic projections release, remarks from European Central Bank Vice President Luis de Guindos, and corporate earnings reports from General Mills and Progressive.
Opinions belong to the author and do not mirror Reuters News’ perspective.
