US Stock Market | Earnings fail to lift stocks amid AI woes

Core Insights - Companies in the S&P 500 experienced a 13% growth in earnings during the fourth quarter, exceeding expectations by nearly six percentage points, and expressed optimism for the upcoming year [1][8] - Despite strong earnings, the S&P 500 index fell by 1.7% over a six-week period, marking one of the worst performances during earnings seasons in the last decade [2][8] Earnings Performance - The number of firms in the Russell 3000 Index that raised guidance was four times greater than those that cut it, a ratio not seen since post-recession periods or after the 2018 tax reform [1][8] - The strong earnings season contrasts sharply with the stock market's performance, indicating a disconnect between corporate success and market reactions [5][9] Market Sentiment and Trends - The initial monolithic AI trade has shifted to a more selective approach, termed the "scare trade," which involves rapid repricing of industries perceived as vulnerable to AI applications [3][5] - Concerns regarding a potential US invasion of Iran and its impact on the global energy market have led investors to seek safer investments [3][8] Sector Analysis - While sectors like industrials and energy have seen higher multiples due to greater certainty and solid results, they do not carry as significant a weighting in the overall market [6][9] - Uncertainty surrounding AI and private credit has dampened the multiples investors are willing to pay for sectors such as software and fintech [5][9] Investor Concerns - A bearish report from Citrini Research and warnings from Nassim Taleb intensified fears regarding AI disruption, leading to significant sell-offs, including IBM's worst decline in over 25 years [7][9] - Investors are increasingly worried about the future impacts of AI on capital expenditures and potential disruptions to software companies [7][9] - Tariff uncertainties have also affected market sentiment, with the US Supreme Court's decision to strike down previous tariffs initially causing optimism, which was later tempered by new import levy proposals [7][9]