Markets are still being driven by a tug-of-war between strong fundamentals and rising macro risk, but the tone has become noticeably more cautious over the past 24 hours, said an industry expert. 

The latest developments in the Middle East have pushed oil higher again, reintroducing some of the “war trades” that had faded in recent weeks, remarked Daniela Hathorn, the senior market analyst at Capital.com. 

That has started to filter through more clearly into broader markets. Bond yields have continued to move higher, reflecting fears that elevated energy prices could keep inflation sticky and force central banks to remain restrictive for longer. 

The latest CPI and PPI readings in the US reinforced that narrative, with inflation appearing more embedded than markets had hoped. This has pushed back expectations for rate cuts and created a more difficult backdrop for risk assets, particularly growth stocks.

Against that backdrop, there are signs that Big Tech has begun to underperform slightly at the margins. 

While the Nasdaq remains near highs and the broader AI trade is still intact, recent sessions have seen some profit-taking in semiconductors and mega-cap tech as yields rise and positioning looks increasingly stretched, stated Hathorn.

The market is not abandoning the earnings and AI story but the combination of higher oil, higher yields and extremely strong positioning is making it harder for the sector to continue its near-vertical ascent without pauses or pullbacks, she added.-TradeArabia News Service