Investors Rush for Broadening Trade, Hedges, Amidst Fading AI Enthusiasm: Jan. 29, 2026

A disappointing Microsoft earnings report is sending tech stocks to the basement as investors worry that substantial capital expenditures allocated for AI may fail to fulfill nosebleed expectations. It looked like a spectacular beat and raise from fellow Mag 7 counterpart Meta was going to save the day prior to the opening bell though, but violent selling started hitting Wall Street at 9:30 AM ET. Furthermore, the Fed is turning its back on market bulls as it appears that the central bank is done cutting under the Powell regime and that too is weighing on speculative spirits, especially after this morning’s unemployment claims posted declines in both the initial and continuing segments. Indeed, yesterday’s interest rate decision featured recognition of a stronger economic backdrop, which together with subdued joblessness and above target inflation increasingly narrows the path for further monetary policy accommodation, limiting the potential appreciation of cyclical and fixed-income assets while additionally curbing valuation extension possibilities. Meanwhile, heightening geopolitical tensions between Washington and Tehran are lifting crude significantly and raising the odds of firmer cost pressures in coming months if the friction doesn’t simmer down soon. Surging oil prices are blocking gains for the longer-end Treasury maturities, which are near their flatlines; however, the shorter tenors are advancing as the yield curve steepens amidst a lower profile. Despite losses occurring across the four major domestic benchmarks, sector breadth is positive, with 8 of the 11 green this morning, led by energy, communication services and real estate. But emblematic of the rush for safe havens, gold and silver reached new records just short of $5,600 and $122 per ounce overnight before declining. Copper hit an all-time high as well and overall commodity performance has been outstanding year to date.

Unemployment Claims Ease Slightly

Unemployment claims continued to signal stable labor conditions in the last two weeks, with both segments declining. Initial applications fell to 209k for the week ended on Jan. 24, above the median estimate of 205k but slightly beneath the prior period’s 210k. Continuing filings also decreased, dropping to 1.827 million for the seven-day interval culminating on Jan. 17. They were lower than the 1.860 million expected and the 1.865 million from the previous time span. Four-week moving averages remained in the safe zone, shifting from 204k and 1.875 million to 206.25k and 1.868 million.

Continued Broadening Could Offset AI Worries

Today’s robust participation in the equity space is signaling that the market can continue to catch bids during times when the AI theme is fading. As the Fed chair said yesterday at his Powell Presser, growth, productivity and employment remain solid, and that buoyant economic backdrop is supporting advances in 8 of the 11 major stock sectors, as the reacceleration trade offsets cratering tech shares. Another consideration is that cyclicals have underperformed big-tech and the Magnificent Seven for three consecutive years, so there is currently a catch-up element bolstering buy orders for the former. And despite little or no expectations for a Fed rate cut before June, elevated probabilities of monetary easing after May combined with fiscal policy dominance dynamics are likely to keep the cycle running hot, which bodes well for broadening earnings expansions across industries.

International Roundup

Japan Consumer Confidence Strengthens

Japan’s Consumer Confidence Index climbed 0.7 points from December to 37.9 in January, with all major subcomponents improving, according to the Cabinet Office. The result is the highest since May 2024, when the metric hit 38.3. The gauge also exceeded the 37.1 result anticipated by a consensus of economists.

Survey respondents’ views of their overall livelihood rose 0.9 points to 36.8 while income growth hit 42.0, a 0.7 point advancement. Views of employment and willingness to buy durable goods, furthermore, ascended 0.9 and 0.2 points to 42.4 and 30.4.

Canada’s Trade Deficit Balloons

Canada’s trade deficit jumped from $395 million in October to $2.2 billion in November, a result of declining shipments of metals and automotive products. The deficit, furthermore, was more severe than the economist consensus estimate of a $700 million shortfall.

Overall shipments to foreign buyers sank 2.8% month over month (m/m) despite growth in 8 out of 11 product sections. A steep 24.4% drop in exports of metals and non-metallic mineral products pulled down the print. When excluding metals and non-metallic mineral products, exports climbed 2.5%. Within this category unwrought gold, silver and platinum were the largest drivers of the weakness. Motor vehicles and parts, furthermore, sank 11.6% with a semiconductor shortage disrupting production. Conversely, energy products sent to foreign markets climbed 8.5% after a temporary shutdown of US refineries in the preceding month had curtailed demand.

Imports fell only 0.1%, with purchases of oil from non-domestic providers having the largest impact on the drop. Imports from America, furthermore, sank 5.4%, hitting the lowest level since February 2022. More broadly, when excluding Canda’s southern neighbor, imports were 7.8% higher than in October.

Services Exports Also Weaken

Also in November, Canada’s services exports slipped 1.5% while imports were up 0.5%.  For the month, the country’s exports and imports of services were essentially balanced after a trade surplus of $400 million in October.

Canada’s Wage Growth Accelerates but Payrolls Drop

Average weekly earnings in Canada climbed 2.45% year over year (y/y) in November, an acceleration from the 2% raise workers received in October. Payrolls, meanwhile, surrendered 26,000 workers, or 0.1%. The number of workers shrank in 10 out of 20 sectors.