Tech stocks rebound, Mohamed El-Erian talks AI, Fed, and jobs

Software suffers deeper losses than semiconductors

While semiconductor stocks like Intel and Western Digital gained 18% over the past 10 days, software giants Microsoft and Oracle dropped 12% and 14% respectively, with Atlassian plunging 34%.

Rotation trade shows lingering weakness

Despite the XLK tech ETF bouncing 1.5%, the sector remains down 2% over 10 days, suggesting software stocks are not yet out of the woods despite the recent recovery attempt.

30-Year Treasury coiling for breakout

A pennant formation in the 30-year yield shows progressively shallower dips from the 5% level, signaling potential upside breakout toward 5% or higher as traders worry about long-term fiscal sustainability.

Dollar tests critical support levels

The dollar index faces a potential drop to the 90 level after a false breakdown, a move that would boost commodities but risks losing control of long-term interest rates.

Avoid indiscriminate anti-AI rotation trades

El-Erian cautions against rotating to non-tech stocks without fundamental support, urging investors to exploit tactical opportunities in oversold AI winners rather than fleeing the sector indiscriminately.

Identify resilient AI infrastructure winners

Focus on companies with vertical and horizontal integration, strong balance sheets, and clear monetization paths like Google, which can self-finance investments without being held hostage by capital markets.

Infrastructure plays require diffusion clarity

Bets on AI 'picks and shovels' require understanding adoption timelines, as monetization depends on how quickly businesses integrate AI tools rather than just frontier model development.

Warsh Fed signals operational shift

Potential Fed Chair Kevin Warsh advocates moving from reactive data-dependence to forward-looking policy, with plans to establish balance sheet theory and reform the Fed's models and accountability structures.

Jobs data shows extreme uncertainty

Economist estimates for the upcoming jobs report range wildly from -10,000 to 135,000, reflecting confusion over the unusual decoupling of robust GDP growth from labor market weakness.

Inflation risks remain bifurcated across sectors

Critical CPI focus centers on whether goods inflation accelerates as services inflation cools, a dynamic that could complicate the Fed's policy trajectory if both measures don't align.