Sector Rotation
Chart of the Week:
U.S. IEEPA Tariffs Voided – Effective Rates Fall, Policy Uncertainty Rises
According to The Budget Lab, the effective U.S. tariff rate was 16% before the IEEPA ruling. After the decision, it fell to 9.1%. Trump then invoked Section 122, lifting the rate to an estimated 13.7%. As Section 122 tariffs may face legal challenges and expire after 150 days, the effective rate could drop back to 9.1%. For importers, uncertainty remains—such as whether to delay shipments until potential expiry—while some exporters (e.g., the EU) have paused trade talks.
Major Recap 1:
Tech Giants Deliver Positive Updates; Tech Stocks Stabilize
U.S. tech, semiconductor, and software stocks rebounded this week. Anthropic announced new partners for its Claude Cowork platform, easing AI-related concerns.
Major Recap 2:
Limited Impact from Tariffs on U.S. Revenue; BOJ’s New Member Leans Dovish
This week, the overturning of IEEPA tariffs heightened policy uncertainty. Trump raised global tariffs to 10% under Section 122 and warned of additional levies on countries revisiting trade agreements, adding to uncertainty. However, as tariffs account for only about 4% of U.S. government revenue, the impact on Treasury prices has been limited.
What’s Trending:
U.S. Government Shutdown Weighs on Growth; AI Not the Sole Driver
U.S. Q4 GDP grew at an annualized 1.4%, down from 4.4% in Q3 and below the 3% forecast. Slower goods consumption contributed, but the main drag came from government spending and investment, which fell 5.1% after rising 2.2% in Q3, subtracting 0.9 percentage points from GDP due to the shutdown.
In Focus 1:
Rotation in Leadership – Last Year’s Tech and Communication Winners Lag This Year
Over the past year, technology and communication services led the market, but both sectors have underperformed this year. Rising capital expenditure and elevated valuations are key reasons. Consumer discretionary and financials have also lagged, while energy, materials, and even consumer staples are among the top performers year to date.
In Focus 2:
Narrowing Earnings Gap Suggests Sector Rotation Not Purely Defensive
Value stocks, typically traditional sectors, tend to feature lower valuations (P/E, P/B), lower beta, and more mature, stable businesses.
