Market overview
The MSCI All Country World Index (MSCI ACWI) finished last week largely where it started. The positive start to the year made by global equity markets therefore remains intact. Nothing to see here then? Not at all. For like a swan gliding effortlessly on the surface, the steady-as-she-goes appearance masks some big moves underneath the surface.
Look no further than the flipflopping of the markets’ leaders and laggards. The year so far has seen the once high-flying Magnificent 7 and their AI machines (and growth names in general) cede their previously undisputed crown as leaders. Worse they have become the laggards. In their place, value stocks have donned the leadership mantle. Nowhere is this more evident than in the US where growth stocks shed 2.0% over the course of the week, bringing the year-to-date (YTD) loss to -3.4%. By contrast, US value boasted a 2.2% weekly gain (+6.8% YTD).
Concerns over the hundreds of billions being spent on AI-data centres and infrastructure, a spill-over from autumn 2025, continue to weigh on sentiment—Magnificent 7 member Amazon was left nursing a 5.6% loss after unveiling a US$200bn capital expenditure programme for the year. AI-concerns though are not the preserve of free-spending hyperscalers. Anthropic’s launch of open-source plug-ins for Claude Code, its AI-coding tool, turned attention onto the business models of data and software providers, specifically how plug-ins could breach hitherto impenetrable business moats. Cue across-the-board share price weakness among software and data-centric companies.
And cue positive share price performances among more cyclical and defensive sectors, such as consumer staples, materials and energy. Lacking the growth rates of tech as well as any meaningful exposure to AI, these old-world sectors have largely found themselves shunned, as evidenced by the relatively cheap valuations they trade on. That could well be changing as it appears a lack of AI exposure is now being viewed as something of a virtue. There were signs of sector rotation and increased breadth across global stock markets towards the end of last year. 2026 has, so far, seen an acceleration of this process.
The same can be seen at the national level with non-US equity markets leading the way. European and UK stock indices boast YTD gains that are significantly higher than US counterparts. To the list can be added Japan—the main Japanese benchmark finished the week 3.7% higher (YTD +8.5%). And this was before the weekend’s election result which saw Prime Minister Sanae Takaichi and her governing Liberal Democratic Party win a supermajority in the lower house of parliament. The “Takaichi trade”, which is based on expansive fiscal policy and was the driving force behind Japanese stocks’ push higher towards the end of 2025, is very much back on—the main Japanese index finished up 4% on the Monday following the election result.
Not all markets are happy with the prospect of a step-up in Japanese fiscal spending. The yield on 10-year Japanese government bonds edged up to 2.29%, within sight of the multi-decade highs set as recently last month.
So much for markets just swanning around.
Weekly market moves and economic news:
The MSCI All Country World Index (MSCI ACWI) ended the week off 0.1% (+2.9% YTD).
United States:
A -0.1% move by the main stock index (YTD 1.3%) masked a volatile week for US equities with technology stocks in retreat due to AI concerns and small-cap and value names building on their already sizeable YTD gains—US small caps added 2.2% last week bringing the YTD gain to 7.7%. US Treasuries had a mildly positive week with the yield on the 10-year Treasury three basis points lower at 4.21% (up four basis points YTD); and the 2-year Treasury yield finishing down two basis points at 3.50% (up basis points YTD).
A mixed set of economic releases may have played its part in the stable performance of US Treasuries. On the soft side, the Labor Department’s Job Openings and Labour Turnover Summary showed US job openings in December were the lowest they’ve been since September 2020; while the latest weekly initial US jobless claims number came in at 231,000, comfortably above the previous week’s 209,000. This week’s monthly jobs report, released Wednesday, will be keenly viewed. On the positive side, the US manufacturing sector expanded at its highest level since 2022 after the ISM purchasing managers’ index (PMI) came in at 52.6 in January, up 4.7 on December’s reading. 50 denotes the line between expansion and contraction.
United Kingdom:
Large caps were the standout performers in London. The UK’s top-tier index finished the week up 1.4% (+4.5% YTD), while mid-caps edged -0.2% lower (+3.5% YTD). The yield on the 10-year UK gilt was largely unchanged, down one basis point at 4.51% (up 4bps YTD), a reassuring outcome given heightened speculation over the future of Prime Minister Sir Keir Starmer— the worry being a more left-leaning Labour government would abandon the chancellor’s fiscal rules and further loosen the public purse strings. Perhaps these concerns were offset by how close the Bank of England’s decision was to keep interest rates at 3.75%. Four out of the nine policymakers voted in favour of a cut in what had been seen as a foregone conclusion for a hold. Could rates be lowered as soon as the next meeting in March?
Political uncertainty and the prospect of a rate cut weighed on sterling with the pound ending the week at US$1.36, down from US$1.37.
Europe ex UK:
European stock markets had a positive week with the MSCI Europe ex-UK Index rising 0.8% (+3.7% YTD). At the national level, Germany’s main market gained 0.7% (+0.9% YTD); France’s fared better with a 1.8% gain (+1.5% YTD); Italy’s finished up 0.8% (+2.4% YTD); while Switzerland topped the lot with a rise of 2.4% (+1.8% YTD). The euro was little changed against the US dollar, finishing the week at US$1.19. As was the yield on the 10-year German Bund, unmoved at 2.84% (down one basis point YTD).
Bund prices were perhaps supported by the latest inflation data showing annual consumer price growth in the eurozone slowed to 1.7% in January down from December’s 1.9% reading. Furthermore, the European Central Bank (ECB) left interest rates unchanged at 2.0% for the fifth meeting in a row. “We are in a broadly balanced situation at the moment,” said ECB president Christine Lagarde. Central bank speak for ‘nothing to see here!’
