Separating noise from signal in jobs and tech

This note contains an overview of our market views, what we are watching, and our portfolio strategy. Any reference to portfolio positioning relates to our Flagship Solution. Clients with bespoke discretionary or advisory portfolios should consult their Client Advisor for the latest update on your portfolio.

US | Why we remain cautious on the dollar and Treasuries?

The job report was the main story last week, and the release was much stronger than expected. But markets were wrong footed heading into this set of labour market data. Kevin Hassett, director of the US National Economic Council, had warned that markets should expect “slightly lower job numbers.” In the end, the unemployment rate unexpectedly fell back to 4.3%. Even so, markets finished the day flat as a few nuances caused investors to pare back optimism. Most of the hiring came from healthcare, so the strength wasn’t broad. Revisions also weighed on sentiment, with job gains for 2025 cut to 15,000 a month from the originally reported 49,000.

Overall, after a period of cooling, the labour market is still holding up. This weakens the case for policy rate cuts any time soon. US Federal Reserve (Fed) Chair Powell, who is on his way out, is very unlikely to change rates at his last two Fed meetings in March and April. We still expect two policy rate cuts, but not until mid or late 2026.

The bigger risk for markets lies in possibility that the Fed’s steady-for-longer stance could collide with President Trump’s push for much lower interest rates, especially under the leadership of his Fed Chair nominee, Kevin Warsh. This keeps questions about the Fed’s independence alive, and that kind of doubt tends to weigh on the dollar and Treasuries. At the same time, the Congressional Budget Office repeated its warnings about widening deficits and rising national debt.

Given that backdrop, we’re still protecting our US exposure against a softer dollar and keeping our underweight stance in Treasuries.

Markets | What explains the sector rotation?

In 2023 and 2024, information technology (IT) was the standout sector and it still ranked second in 2025. Fast-forward to early 2026 and it’s suddenly one of the laggards. So, is this the end of the road for tech and Artificial Intelligence (AI) stocks? We think the answer is no.

The rotation becomes clearer once you look beneath the surface. Pressure is concentrated in one part of IT, namely software and information services companies. Recent advances in agentic AI have spooked investors. They see an existential risk because these developments point to automation creeping into high-value work such as legal, compliance and research tasks. If an AI agent can take over part of that workflow, margins start to look less secure. The issue isn’t today’s results, which are solid. The concern is the uncertainty around future profitability.

The industry isn’t disappearing, it’s evolving. Firms now need software plus proprietary data, deep workflow integration, and native AI capabilities. We believe providers with only a superficial layer sit in the danger zone. Those with control of the data, distribution, and the critical use cases are on a stronger footing.

So why did markets react so sharply? Because once software names started to fall, normal market mechanics kicked in. Software baskets dropped, sector exchange-traded funds (ETFs) were sold, funds trimmed exposure to the software factor and stop-loss levels were triggered. The market shifted from company-level analysis to a broad, indiscriminate sell-off across other sectors. Software valuations were on the demanding side, which amplified the move. Meanwhile, other AI-linked pockets of IT, hardware, equipment, and semiconductors, have continued to perform well this year, though other sectors that could be disrupted by AI have suffered.

That’s why composure matters. We plan; we don’t flinch. We stay invested in US equities because the economy is firm, earnings are strong, especially in tech, and investment spending is still rising. These all support growth. But we also stay diversified. Instead of trying to predict monthly sector winners, we also use the S&P equal-weight index. When tech takes a hit and other sectors rise, we benefit, mitigating the impact of tech volatility. For sudden drawdowns, we hold a US equity warrant, where regulation and clients’ knowledge permit, which gains value when the market falls. Finally, while we do hold US tech, software and services account for less than 9% of the allocation in our stock portfolio, so the impact of this rotation is limited.

This week | All eyes on the minutes of the Fed and growth surveys in Europe

The minutes from the Fed’s January meeting (Wednesday) should reveal how divided policymakers are on the path for rates and whether discussions on balance-sheet reduction are becoming relevant again. On the same day, the UK releases inflation data after a razor-thin 5-4 Bank of England vote at the start of the month. A lower-than expected reading would bring forward the prospect of a Bank rate cut in March or April.

Eurozone and UK purchasing managers’ indices (Friday) will offer a clear pulse-check on how growth is holding up. The US finishes the week with economic growth for the last quarter of 2025. It should look solid at first glance. However, uncertainty is high because the 43-day federal shutdown early in the quarter likely held back spending.

Lastly, global market watchers will also focus on Japan. The more important release comes on Friday with inflation data. This is crucial as the Bank of Japan prepares to raise the policy rate further, while the government continues to spend. Japan is juggling wider deficits, rising yields, a volatile currency and still-sticky inflation. Growth needs to hold, otherwise the whole policy mix could start to wobble. We’re neutral on Japanese equities and are no longer exposed to the yen and Japanese government bonds.

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