The Overnight Report: AI & Tariffs Sink Equities

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This story features STEADFAST GROUP LIMITED, and other companies.
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US markets sold off on ongoing AI disruption fears and heightened global uncertainty concerns over the ever changing US tariff landscape.

After a negative day yesterday, ASX200 futures are positive, with gold and silver prices rallying strongly overnight.

Good Morning,

Despite a positive start on Monday, by the close of trade the Australian market had fallen -55 points or -0.6% to 9,026 with eight of eleven sectors in the red.

Technology stocks continued to fall with the sector down -4.6%, while materials advanced 1.5% on strength in gold miners.

Meanwhile, the February results season rolls on locally and this morning AUB Group ((AUB)) has lifted FY26 guidance, whereas CEO Jeff Howard has been dumped ahead of the merged company Southern Cross Media’s ((SXL)) result release.

City Chic ((CCX)) has decided not to pay out an interim dividend, while US tariffs have had a negative impact on Nanosonic’s ((NAN)) margins. And those are just a few snippets of today’s fresh updates.

FNArena’s corporate results monitor: https://fnarena.com/index.php/reporting_season/

What happened overnight, NAB Markets Today extract

After risk assets in APAC markets got off to a shaky start on Monday, a mixed European equity market landscape (modest pluses and minuses) has given way to across-the-board US equity market weakness.

Friday’s SCOTUS ruling invalidating all of the reciprocal and fentanyl related tariffs enacted by the Trump administration since April may have gone some way to restoring investors’ faith in the separation of powers underpinning the US constitution, and to adherence to the rule of law (including rules-based trade policy). 

Yet renewed uncertainty about what the future (global) trade policy landscape will look like has carried Monday’s markets. This is the case even though the boundaries within which future US government trade policy evolves have closed in markedly. 

Hence POTUS’ latest claims that “any country that wants to play games with the ridiculous supreme court decision, especially those that have “Ripped Off” the U.S.A. for years, and even decades, will be met with a much higher tariff, and worse, than that which they just recently agreed to” (sic) rings hollower today than it did before Friday.

Following Friday’s ruling and President Trump’s subsequent imposition of a new 15% baseline tariff, the EU has paused ratification of its US trade deal. 

China’s Ministry of Commerce spokesperson meanwhile stated China will closely monitor US developments regarding alternative measures, such as trade investigations to maintain tariffs on trading partners and will firmly safeguard its own interests. 

A team of Indian negotiators postponed a scheduled visit to Washington to finalise the interim trade deal they had agreed on.

Outside of the tariff-related brouhaha, Fed Governor Chris Waller, recently passed over for the Fed chair job and a consistent advocate for lower Fed rates, made clear in a speech and Q&A overnight that his support, or otherwise, for a March Fed rate cut hinged solely on the February labour market report, making it a ‘coin flip’.

He said the January jobs report was a welcome surprise but is just one month and he continues to believe the labour market is ‘weak and fragile’ and has a demand, not supply problem. 

He says CEOs are telling him significant job cuts are coming from AI and that firms are starting to shed labour after over-hiring. For Waller, inflation is clearly not the issue, saying in underlying terms it is running close to 2%. Friday’s SCOTUS ruling is unlikely to impact Fed policy Waller says, which for him is all about the labour market.

ECB President Lagarde accepting the Paul Volcker lifetime achievement award said “we have to assess whether we are in that good place that I’m characterising now” implying “that we have to be agile and determine whether something needs to be done”. She reiterated what she said late last week that her baseline is to complete her mission at the ECB.

Light data flow offshore Monday. The IFO Feb German Business Climate improved a little further than the consensus, to 88.6 from 87.6 and 88.3 forecast, back close to 2.5-year highs.

The Current Assessment improved to 86.7 from 85.7 and 86.2 forecast, Expectations up to 90.5 from 89.6 and 90.0 expected.

US data December factory orders fell -0.7% m/m, worse than the consensus estimate of -0.6%, but after a 2.7% gain in Nov. Dec. final durable goods orders unchanged at -1.4% m/m, up 1% ex-transport. Capex (non-defense capital goods ex-aircraft) up 1% vs 0.9% prelim. The Chicago Fed Jan Nat’l Activity survey was 0.18 vs -0.08 forecast and after -0.04 in December, while the Dallas Fed manufacturing activity lifted to 0.2 from -1.2 against a -0.5 consensus.

In equities, a very mixed sectoral picture in the US, with six of the S&P500 sub-sectors in the red and six in the green, Financials fell -3.2% and consumer dictionaries down -2.7%, the latter now facing the threat of another round of tariff related price increases, leads the way down, while consumer staples and healthcare rose. 

Cybersecurity and software stocks including IBM remained under selling pressures over AI-fears. Nvidia is due to report 4Q2025 earnings on Wednesday (EST) and short sellers hold a notional short potion equal to 265m shares out of around 24.5bn shares, CNBC reported.

“NVDA has the highest short exposure in the entire SPX in terms of dollars at risk,” S3 said, noting that the top 10 short positions in the S&P 500 total a notional $240 billion, or close to a quarter of the $1.1 trillion that’s short in the entire index.

Then VIX index is up 1.9 points to 21. European stocks finished mixed but the GermanDAX (-1%) dragged the Eurostoxx600 down -0.5%. 

In bonds, Treasury yields are lower across the curve, with 10s pressuring year-to date lows at 4.02%, down -6bps on Friday’s close, with 5s down -7bps and 2s down -4bps. Supply considerations following Friday’s the SCOTUS ruling is not today’s concern.

Earlier Monday, European 1-year benchmarks ended -2 to -4bps lower, while Aussie 10year futures show a yield decline of -3bps since the Sydney close.

In FX, movement across G10 currencies is light with the DXY USD index down -0.16% thanks to JPY (0.34%) and CHF (0.18%) gains reflective of Monday’s risk-off mood. AUD, NZD, and NOK and currently vying for Monday’s wooden spoon, each down -0.3%.

In commodities, gold gained almost 3.5% to $US5,256 (a new February high) and silver rose 7.45%.

All industrial metals are weaker except iron ore (0.5%) with the LMEX index -0.43% led by fall of -0.8% for copper and zinc.

Oil benchmarks are -0.3 to -0.4% lower, with no fresh developments on the US-Iran front in the past 12 hours, best we can tell.

Steady with moderate volatility, Chris Galipeau, Franklin Templeton extract

We are constructive on US equites and have established a target range of 7,000 to 7,400 for the S&P 500 Index, as expected earnings-per-share growth of 8%-13% y/y should drive stock prices higher.

As you may have read in our previous updates, we have been on the “broader market” train since January of 2025.

Our operating thesis from that research is playing out largely as we expected. 

Consider this: from December 31, 2024 through the close of February 19, 2026, the Russell1000 Value Index was up 23.42%, the Russell2000 Index was up 21.28%, the S&P 500 Index was up 18.32%, the S&P Equal Weight Index (which we see as the best proxy for the average stock) was up 18.13%, the Magnificent Seven (Mag 7) basket (the stocks of Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla) was up 16.77%, the S&P MidCap 400 was up 16.71%, and the Russell 1000 Growth Index was up 12.93%.

Would you have guessed that large cap growth is the laggard over the last 14 months? That, my friends, is broad participation, and that is bullish.

Regarding year-to-date (YTD) performance, I offer this: Through the close of February 19, the S&P Equal Weight Index (again, the average stock) was up 6.04%. Within the S&P500, 343 stocks, or 68% of the index, have positive YTD gains.

On a percentage basis, 41% of S&P500 stocks were up more than 10% YTD.

Yet the Mag 7 names are down -6.51% YTD. (These statistics are courtesy of Lukasz Kalwak of Franklin Templeton Institute). Speaking of the Mag 7, Nvidia reports earnings February 25, which will be important to watch.

We think there are a few drivers of this broad participation in market gains.

First, earnings power is broader at the index and sector levels than it has been in five years .

Second, based on our conversations with financial intermediaries, investors appear to be heavily concentrated in large-cap growth names. 

Third, many investors appear to be underexposed to the broad tape, specifically to mid- and small-cap space, based on what I generally hear in our interaction with intermediaries.

We reiterate our bullish stance on emerging market (EM) equities. This call is not currency driven; remember, we are expecting the dollar to be flat in 2026.

Rather, this call is driven by earnings power: Our research suggests EMs have the strongest forward, two-year cumulative earnings power on the planet. We would ask the question, “Do you have appropriate exposure to EMs?”

AI disruption is happening. The software sector has been ground zero, but the volatility has spread to the financial, real estate and logistics industries in the last few days.

We think it will continue to spread.

Here is the issue: Long-standing business models are being tested. Software is a good example where, for years, you could count on subscription-based models to generate consistent cash flow streams.

As a result, higher multiples were awarded to the space. Now, it’s possible AI could disrupt that scenario and, as a result, terminal values are being questioned.

This will take time to play out, and the key is separating the winning business models from those in the crosshairs of disruption.

This is not the AI bubble bursting; this is AI disruption.

Read our Institute view here: “Quick Thoughts: At the knee of the curve of disruption”.

Do your homework. Stocks have followed earnings over time. 

We reiterate our belief that it is time for a diversified equity playbook that includes large-, mid-, and small-cap exposure in the United States with a balance of growth and value.

The same can be said for your ex-US equity exposure; we believe it’s a good time to consider exposure to emerging markets and developed international markets.

Our conclusion: We think it is prudent to reduce concentration and spread exposures.

Corporate news in Australia

-Eucalyptus is being acquired by Hims & Hers for $1.6bn 

-Crown Coaches has been sold to Ventura Group for $20m

-Steadfast Group ((SDF)) fends off buyout interest for IQumulate premium funding business

-IFM investors pulls out of Benson Radiology deal worth $400m

-Malabar’s Maxwell Mine is tipped as potential $1bn coal sale

-Bain Capital nears deal to acquire Perpetual’s ((PPT)) wealth unit, retaining the brand name

-Keyton likely to be acquired by Aware Super and Lendlease asset sales

-Olivier Goudet buys 6% of Treasury Wine Estates ((TWE))

-Koala Furniture may scale back its $100m IPO amid market uncertainty

-Mobile Tyre Shop has sought $6m from investors via a pre-IPO capital raising, valuing the company at around $50m

On the calendar today:

-ABACUS GROUP ((ABG)) earnings report

-ACROW LIMITED ((ACF)) earnings report

-AGL ENERGY LIMITED ((AGL)) ex-div 24.00c (100%)

-AMA GROUP LIMITED ((AMA)) earnings report

-AMCOR PLC ((AMC)) ex-div 93.00c

-ARB CORPORATION LIMITED ((ARB)) 1H26 Earnings

-AUB GROUP LIMITED ((AUB)) 1H26 Earnings

-CITY CHIC COLLECTIVE LIMITED ((CCX)) 1H26 Earnings

-CAMPLIFY HOLDINGS LIMITED ((CHL)) 1H26 earnings report

-CTI LOGISTICS LIMITED ((CLX)) 1H26 earnings report

-COUNT LIMITED ((CUP)) 1H26 Earnings

-CLINUVEL PHARMACEUTICALS LIMITED ((CUV)) 1H26 earnings report

-CEDAR WOODS PROPERTIES LIMITED ((CWP)) 1H26 Earnings

-DALRYMPLE BAY INFRASTRUCTURE LIMITED ((DBI)) FY25 Earnings

-EUREKA GROUP HOLDINGS LIMITED ((EGH)) earnings report

-EVT LIMITED ((EVT)) 1H26 Earnings

-HMC CAPITAL LIMITED ((HMC)) 1H26 Earnings

-HIPAGES GROUP HOLDINGS LIMITED ((HPG)) 1H26 earnings report

-INTEGRAL DIAGNOSTICS LIMITED ((IDX)) 1H26 Earnings

-INGENIA COMMUNITIES GROUP ((INA)) 1H26 Earnings

-JANISON EDUCATION GROUP LIMITED ((JAN)) 1H26 earnings report

-KELSIAN GROUP LIMITED ((KLS)) 1H26 Earnings

-LARK DISTILLING CO. LIMITED ((LRK)) 1H26 earnings report

-MERCURY NZ LIMITED ((MCY)) earnings report

-MAAS GROUP HOLDINGS LIMITED ((MGH)) earnings report

-MONADELPHOUS GROUP LIMITED ((MND)) 1H26 Earnings

-NANOSONICS LIMITED ((NAN)) 1H26 Earnings

-NINE ENTERTAINMENT CO. HOLDINGS LIMITED ((NEC)) 1H26 Earnings

-NOUMI LIMITED ((NOU)) 1H26 Earnings

-NEXTDC LIMITED ((NXT)) 1H26 Earnings

-PROPEL FUNERAL PARTNERS LIMITED ((PFP)) 1H26 Earnings

-PLAYSIDE STUDIOS LIMITED ((PLY)) 1H26 earnings report

-PERSEUS MINING LIMITED ((PRU)) earnings report

-REGAL PARTNERS LIMITED ((RPL)) FY25 Earnings

-SCENTRE GROUP ((SCG)) FY25 Earnings

-SKS TECHNOLOGIES GROUP LIMITED ((SKS)) 1H26 earnings report

-SOUTHERN CROSS MEDIA GROUP LIMITED ((SXL)) earnings report

-SYRAH RESOURCES LIMITED ((SYR)) earnings report

-TYRO PAYMENTS LIMITED ((TYR)) earnings report

-VIVA ENERGY GROUP LIMITED ((VEA)) FY25 Earnings

-VULCAN STEEL LIMITED ((VSL)) 1H26 Earnings

-VYSARN LIMITED ((VYS)) 1H26 earnings report

-WOODSIDE ENERGY GROUP LIMITED ((WDS)) FY25 Earnings

-WAGNERS HOLDING CO. LIMITED ((WGN)) earnings report

FNArena’s four-weekly calendar: https://fnarena.com/index.php/financial-news/calendar/

The Australian share market over the past thirty days…

For more detail go to FNArena’s Australian Broker Call Report, which is updated each morning, Mon-Fri.

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