Good morning investors,
Markets fell on Monday as the trade hangover from Friday's Supreme Court ruling continued to make its confusion and sting felt. The S&P 500 dropped 1.0%, the Dow fell 1.7%, and the Nasdaq declined 1.1%. US Customs and Border Protection confirmed it stopped collecting the struck down IEEPA tariffs while Europe said that "a deal is a deal" and demanded clarity on the new Section 122 tariffs before ratifying the EU-US trade agreement. Adding to the selling pressure was the AI scare trade striking again, this time hitting cybersecurity stocks after Anthropic introduced Claude Code Security.
We suddenly find ourselves looking at a picture where you have every reason to be bearish, and it starts to feel like there is no positive sentiment anywhere. You catch yourself thinking about crashes. But then you look at the S&P 500 and realize we are just over 2% from record highs. We have had numerous sectors ripped apart by the AI trade, a sell off in the Magnificent Seven, stories about AI taking everyone's jobs, tariff volatility, a crypto sell off with liquidations, and yet the market still holds up.
Opening Bell
Futures are higher this morning as traders attempt to stabilize after Monday's rough session. Dow ($DIA ( ▼ 0.03% )) futures are up 140 points or 0.3%, boosted by a 4% advance in Home Depot after the company posted better than expected results. S&P 500 ($SPY ( ▼ 0.23% )) futures are rising 0.2%, while Nasdaq 100 ($QQQ ( ▼ 0.65% )) futures are gaining 0.3%.
Monday saw the Dow close lower by more than 800 points, dragged down by a roughly 13% loss in IBM shares after Anthropic announced its Claude Code tool could be used to modernize COBOL programming language. The S&P 500 shed about 1% and slipped into the red for the year.
A global 10% US tariff took effect this morning, though Bloomberg reports the White House is moving forward with a formal increase to 15%. Traders will also keep an eye on an event hosted by Anthropic today, where the company is expected to make new product announcements and demonstrate Claude's latest features. Anticipation of further disruption announcements contributed to declines in the software space on Monday.
Today brings Consumer Confidence data, the Case-Shiller home price index, and wholesale inventory figures. Home Depot headlines the earnings calendar and should provide insight into the state of the consumer. We also hear from Alibaba, Constellation Energy, MercadoLibre, Bank of Nova Scotia, American Tower, EOG Resources, Realty Income, Keurig Dr Pepper, NRG Energy, Workday, HP, and GoDaddy. Tomorrow brings the main event: Nvidia reports after the close.
Home Depot: Frozen Housing Market Persists
Home Depot reported fourth quarter results this morning that beat expectations on both earnings and revenue despite a roughly 4% sales decline. The company posted adjusted EPS of $2.72 versus $2.54 expected, with revenue of $38.20 billion slightly ahead of the $38.12 billion consensus. Comparable sales rose 0.4%, better than expectations of flat performance.
CFO Richard McPhail painted a picture of a consumer environment that remains challenging. The US has been in a frozen housing environment for three years without meaningful thaw. Added pressure over the past year has come from increasing consumer uncertainty and a gradual decline in consumer confidence. Customers have told the company they are concerned about housing affordability and job losses.
There may be some light ahead. The average rate on a 30-year fixed mortgage fell to 5.99% on Monday, matching its lowest level since 2022. Home Depot's biggest selling season, springtime, lies ahead. The company is gaining market share even as the sector lags, and pro sales were stronger than do it yourself during the quarter.
On tariffs, McPhail said Home Depot is still analyzing the Supreme Court ruling and latest proposed tariffs. More than half of what the company sells comes from the US, and it has diversified imports so no single country outside America represents more than 10% of purchases. The stock is up about 2% in premarket trading.
Cybersecurity: AI Creates Short-Term Pain, Long-Term Opportunity
CrowdStrike dropped about 10% on Monday, with Zscaler and Cloudflare falling by similar margins after Anthropic introduced Claude Code Security, a tool that uses AI to scan software code, identify vulnerabilities, and recommend fixes. The iShares Cybersecurity ETF fell about 5%, and the Global X Cybersecurity ETF touched its lowest level since November 2023.
Cybersecurity is in a situation where it must adapt to an environment involving more sophisticated AI driven cyber attacks that are quicker, spread faster, and expose weaknesses in systems more rapidly. The irony is that the same AI capabilities creating fear about disruption are actually increasing the need for advanced cybersecurity solutions.
I think the need for cybersecurity is only increasing here. Companies face growing digital risks as they integrate artificial intelligence across operations. AI adoption may expand cybersecurity spending over time as enterprises require more advanced protection tools. CrowdStrike and Palo Alto are buys at these levels. The indiscriminate selling has created entry points in best in class operators whose services become more valuable, not less, as AI proliferates.
AMD Lands Massive Meta Deal
A week after Meta committed to using millions of Nvidia processors, the social media company inked another mammoth chip deal, this time with AMD. The multiyear agreement involves deploying up to 6 gigawatts of AMD's GPUs for AI data centers and includes AI optimized CPUs. Early shipments of MI450 GPUs in AMD's Helios rack-scale servers begin later this year.
This is a critical development for AMD, which trails Nvidia's roughly 90% market share in AI chips. The deal is estimated to be worth tens of billions of dollars over at least four years. A key differentiator is that the first deployment involves customized GPUs, something there is no indication Nvidia is doing. This customization capability is a good way for AMD to win some of these deals.
Meta is in a unique position to control the full stack and use whatever compute they want. This is punctuation on the fact that we are compute constrained and deals will be done across the board. AMD's Helios represents the first large scale competition to Nvidia's Grace Blackwell systems.
The AI Narrative Flip
Artificial intelligence went from Wall Street's favorite theme to the latest systemic risk. Two months ago, AI momentum was so robust that skeptics compared it to the dot-com bubble. That view has flipped. In the eyes of the market, the technology is improving so rapidly that it is set to render entire industries obsolete. Consensus has swung from historic bubble to existential anti-bubble effectively overnight.
Monday offered a snapshot of this shift. A viral report from Citrini Research laying out a bear case for an AI dominated economy catalyzed a sell off in legacy software and payment stocks including ServiceNow, DoorDash, Mastercard, Visa, and Apollo. Investors are leaning into fears that AI agents and autonomous tools will disintermediate platforms, compress margins, and automate high-fee services.
Unlike the sell offs in the second half of 2025, this jolt stems from the promise of the technology, not its failure. More investors are positioning for a SaaSpocalypse outcome where AI replaces software, destroys seat based pricing models, and eliminates white-collar work.
But markets rarely move in straight lines. AI adoption could take longer than expected. Regulators could intervene. Incumbents could figure out how to integrate AI without becoming obsolete. History suggests technological revolutions tend to be iterative rather than instantaneous. While the internet bubble did pop, it reshaped the global economy and catalyzed innovation. The same may prove true with AI.
In all likelihood, the latest sell off is an overreaction, an equal and opposite response to last year's concerns that AI was a bubble. The only certainty is that the pendulum will swing again.
Tariff Uncertainty Returns
As challenging as a high tariff trade regime was for American businesses last year, Wall Street settled on the belief that as long as we roughly knew where rates would end up, businesses could adapt. One off trade deals and foreign governments agreeing to play ball boosted optimism. The story became that tariffs themselves were not so bad; it was the utter unpredictability that hurt.
But last week's Supreme Court decision and subsequent Trump make up tariffs under a different law have dragged us back into 2025's fray. Now all sorts of unresolved questions have invited uncertainty back to the table.
Trump's 15% global tariff under Section 122 of the Trade Act of 1974 adds a new layer of uncertainty. Remember the negotiating timelines and tariff countdowns? We have those again. These tariffs can stay in place for 150 days before Congress has to step in. Mark your calendars. The big question is what happens after this window, and if policy stays on this path, we may very well be back at the Supreme Court later this year.
Nvidia Preview
Ahead of Wednesday's results, Nvidia sits in an interesting position. While up 47% in the past year, the most important stock of the decade is only up 7% in the past six months. Its price to earnings ratio of 24 is far below its five year average and close to its lowest in that period. Analysts expect revenue growth of 68% from a year ago to $66 billion.
The results will be a key bellwether on the state of the AI trade. The company needs to reassure investors that its artificial intelligence investment strategy remains intact amid the broader tech sell off. With Meta signing massive deals with both Nvidia and AMD, demand clearly remains robust. The question is whether the market is willing to pay for it.
Final Thought
In spite of all the gloom, there are opportunities in the market. Small caps are breaking out against the Nasdaq for the first time in nine years. International stocks are performing well with breakouts in some emerging markets like Brazil. The diversified portfolio approach I have been advocating continues to work.
The next move could be down, and that is something I have said I thought would happen at some point this year. There could be some form of capitulation with markets declining 10-20%. But I still expect it to be a good year overall. Lower growth than the last three years, but you cannot expect the market to give you 20% forever. This is proof positive of why most investors need a diversified portfolio.
I do not expect tech to instantly reassert leadership, but there comes a point where the market has beaten these names down enough that a sharp bounce becomes inevitable. Tech could fall a little further, but it is starting to look attractive. I still favor international and small cap exposure as my primary positioning, but I have started adding specific names in tech at these levels. Use the volatility around Nvidia earnings tomorrow to continue building positions in the themes that are working while selectively accumulating quality tech at these reset valuations.
As always, feel free to reach out with questions about positioning for these evolving market dynamics.
Best regards,
Dan Sheehan [email protected]
Subscribe: https://substack.com/@dansheehan3
This newsletter is for informational purposes only and should not be considered as investment advice. Please consult with your financial advisor about your specific situation.