Tech Rout Continues Amid February Seasonality

Equities markets suffered more losses, but rallied on Friday for the 2nd consecutive week. Last week the rout in tech stocks continued as hedge funds, institutional funds,

and algorithmic traders worked out of extended positions and rotated to other names. Short interest on tech stocks reached a multi-year high, indicating that tech shorts are a crowded trade. Seasonality suggests that the back half of February is typically a down period. The S&P 500 Index was down more than 2% in February of 2025, while the index is down 1.5% so far this February.

All last week, economists had been wringing their hands expecting a bad inflation number. Yet, on Friday morning, the Consumer Price Index for January came in at +0.2%, less than the expected +0.3% and the year-over-year reading fell from +2.7% last

month to +2.4%. While this number should be cheered, instead there are those that think this means a rate cut in the first half of 2026 is now off the table. For the last couple of months, the futures for the next rate cut have been pointing to June and that hasn't changed much. Lower inflation means a tailwind for consumers, rate cut or no rate cut. Redbook Sales continue to be well above average. We'll see if that trend continues.

At the end of 2024, the common question among investors was, "Why should I own anything other than the S&P 500 Index?" High concentration among the Mag 7

convinced investors that exposure to the S&P 500 was all they needed. Mag 7 names are down nearly 9% since the December 26th peak last year. Meanwhile, the rotation among sectors is evident. Energy, Basic Materials, Industrials, Consumer Staples are leading the market year-to-date, while Technology and Consumer Discretionary stocks are lower. When concentrations in sectors break down, it's better to have a diversified approach to investing instead of following the herd.

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