Danske Bank’s Danske Research Team observes that equities traded mostly lower, with defensives outperforming cyclicals and the SOX declining for a fifth session amid an ongoing AI-related rotation and mixed US bank earnings. However, several indices remain close to all-time highs, which the team interprets as sector rotation rather than broad deleveraging, given a resilient macro backdrop and strong earnings.

Rotation not deleveraging signal

“Equities traded mostly lower yesterday, although the tone in Europe and the US was more constructive than in the preceding Asian session.”

“Once again, more S&P 500 constituents advanced than declined, underscoring the distinction between index performance and underlying breadth.”

“The SOX fell for a fifth consecutive session, while defensives outperformed cyclicals for a sixth session. Weakness centred on the ongoing AI rotation, particularly memory, and a mixed opening round of US bank earnings.”

“Yet several indices remain close to all-time highs despite almost a week of defensive leadership. As we emphasised throughout Q3, against a backdrop of resilient macro and strong earnings, these moves look more like rotation across sectors than broad deleveraging or a decisive shift towards risk aversion. A deterioration in the macro backdrop would warrant a different interpretation, but that is not what we are seeing.”

“Asian equities are recovering modestly this morning, with European and US equity futures also pointing higher.”