Market Crosscurrents: Rotation, Breadth, and Risk

Markets have grown more volatile and uneven in recent weeks. The US dollar and Japanese yen have firmed up together. Volatility has picked up. Rotation has become more visible. That backdrop keeps the focus on the key indicators and on what is changing under the surface.

With the lens pulled back, the US stock market is still in a long bull market. It stays above the rising 200-week moving average over time. February has delivered a more mixed tape.

The S&P 500 is down about 1.5% this month. The second half of February can be tricky.

The S&P 500 hit a new high in early 2026. It has traded within a range since then. However, it has slipped below the 50-day moving average. It is also below the exponentially smoothed 40-day average. Traders often use that average as a key reference.

Under the surface, the old leadership has turned choppier. The NASDAQ 100 made a high at the end of October and has moved back and forth since then, struggling to clear and hold new highs.

The market broke down from a wedge. It then bounced under falling short-term moving averages. It stayed near a prior low. The 200-day moving average is worth watching. The NASDAQ Composite has shown a similar picture.

In contrast, the equal weight S&P has looked better. It has stayed above the 8-day, 40-day, and 50-day moving averages.

It kept moving higher. This points to stronger performance for the average stock over the last few months. That matters because so many investors concentrate in the cap weighted S&P 500, while many of the largest growth stocks have faced a tougher stretch.

Outside the US, markets have delivered stronger performance. The TSX has kept moving higher despite tariffs and saber rattling. It has traded above the major moving averages.

Developed markets outside the US, described as all world ex US, have moved higher and have run up about 3% in February at the time of the discussion, which has outpaced the US early in the year.

The Eurozone started the year with two good months, and Eurozone relative performance versus the S&P 500 has made a meaningful turn. Japan has also shown strength, running up about 6% in February in yen terms while the yen appreciated versus the US dollar.

Investors have also seen strength across Taiwan, South Korea, Shanghai, Mexico, and emerging markets. The emerging markets ETF EM has run up 2.7% in February, which reinforces that rotation continues inside the market.

Global equities have performed well overall, but cap weighted US benchmarks like the S&P 500 show a less favorable picture, especially for the biggest companies.

Earnings revisions outside the US have improved materially, with a larger share of companies seeing estimates revised higher. Market breadth has expanded in many places, and the percent of stocks in uptrends has moved higher across multiple universes, even as the US picture has stayed mixed.

In the US, the percent of stocks above the 50 day moving average has come down, the percent with positive weekly momentum has moved down, and new highs versus new lows has also declined.

At the same time, the market has produced an unusual divergence, with many 52 week highs and many 52 week lows occurring together. That highlights sector to sector differences and increases the importance of selectivity.

The NASDAQ 100 has shown meaningful breadth deterioration, with the percent of constituents in uptrends down to about 37%. The index made a high in October, retested in early 2026, sold off, broke a prior low, bounced weakly, and then moved down again, with 2440 noted as a level to watch.

Portfolio positioning and opportunity continue to follow participation and breadth. Over the last two years, the Barometer Global now International Equity Fund, focused outside the US, has run up about 71.5% versus the index up 57 and versus the equal weight S&P up 36.

Yields came down in February after rising for years off the 2020 bottom, so rates remain worth watching. The long end of the US bond market, referenced through TLT, has started to look like it wants to bottom, and a small long position went on in a macro portfolio after years of avoiding the area.

The US dollar has looked vulnerable on technicals after it broke below moving averages and recent support. That setup can encourage flows back into local markets when non US currencies strengthen and local markets perform better.

Commodities still sit within a long-term bull market framework, but February has looked like a breather. Commodity indexes have moved down about 5% in February at the time of the discussion.

Gold and silver have likely entered their first correction of the bull market, and the discussion flagged pullbacks of 25% to 35% as possible in that context. Copper and steel have corrected in February, and crude oil has stayed rangebound even as equities pushed to new highs.

Commodities continue to outperform bonds on a relative basis, but the market still needs to respect corrections.

Leadership continues to show clear pockets of strength. Financials have led on a long-term basis, and banks have continued to perform well, even as insurance stocks, especially property and casualty, have weakened while some life insurers have performed well.

Regional banks have provided an example through TCBI. Broker dealers and capital markets banks have faced a tougher couple of weeks after earnings.

Industrials have continued to attract inflows, with the equal weight industrial basket referenced via EIS, and strength has shown up across power equipment and grid suppliers.

Aerospace and defense spending has continued to ramp, and RTX has printed a relative strength new high and a new 52 week high. Transports have supported expectations for the US economy, and heavy equipment has also held strong.

Energy has led so far this year, with XEG breaking out in 2026 while oil prices have stayed rangebound, and investor multiples have expanded, especially for long life assets. Energy still holds a small weight in the S&P 500, but energy has held a much larger index weight in past cycles, and multiple expansion can last a long time.

On the defensive side, large cap technology has remained an area of caution. Relative strength has waned and price has traded below the 40 day moving average.

Software has taken a major hit, with IGV falling materially and key support levels coming into view.

The market has also shown a pickup in long-term Treasury bonds, consumer staples, and utilities. This signals that some participants have moved toward defensive sectors.

Credit spreads have widened slightly, and volatility has risen a bit. Still, the discussion kept both in bull market territory. That keeps dry powder available, keeps stops active across positions, and stays focused on investing outside North America. It also keeps us ready to get more defensive if breadth and groups break down.