Not long ago, new plugins in Anthropic's AI systems sent US equities tumbling. Investors hunted for losers and found them among software makers. Now, at the tail end of February, the company is rolling out fresh developments — not as replacements for existing systems, but as complements. The S&P 500 welcomed the news and bounced.

Dynamics of US stock indices

And the former losers led the rebound. Software stocks — the names the market had most savaged recently — rose faster than the rest. Investors suddenly realized they had gone too far. AI is an assistant, not a competitor.

That shift in market mindset cast other headlines in a new light. News that Meta Platforms would buy $100bn of AI chips from Advanced Micro Devices helped accelerate the S&P rally, as did a Bloomberg-surprising uptick in US consumer confidence.

The rotation between the US and other markets is no longer being read purely as capital flight and a straightforward negative for the S&P 500. Diversification has long been necessary. Keeping eggs in multiple baskets is not always defensive — sometimes it is offensive, because you don't know which basket will fire. Will US exceptionalism return? Or will non-US equities keep outpacing US issuers?

Forward P/E ratio for European stocks

Investors rotated so aggressively after "Freedom Day" that a new problem emerged — cheap stocks outside the US are increasingly hard to find. SocGen estimates the share of European stocks trading at forward P/E of 8 or less fell from 15% to 3%, and in Japan from 8% to 2%. In Japan, the share of firms with forward P/E above 33 now stands at 13%.

Foreign markets are getting pricier even as US tech stocks look cheaper. That could slow the rotation and the flow of capital out of the United States into Europe and Japan. The US equity market keeps changing — perhaps it is time to re-examine yesterday's losers: the software makers?

Technically, the S&P 500 has experienced a roller coaster ride on the daily chart. Consolidation within the previously noted 6,800–7,000 trading range continues. Without a breakout, it is hard to determine the next directional move for the broad index. For traders itching to act, an aggressive buy order on a breakout above the pivot level of 6,910 is a playable idea — and the moving averages just below that level underscore the significance of the resistance level.