MAG 7 lags broader market decline

Q1 2026 was defined by a sharp reversal in mega-cap leadership. While the S&P 500 declined 4.63% and the Nasdaq 100 fell 5.98%, the weakness was far more pronounced within the largest technology names that had driven markets higher in prior years. Microsoft was the biggest laggard, falling 23.28% during the quarter, followed by Tesla (-17.34%), Meta (-13.25%), Amazon (-9.77%), and Alphabet (-8.52%), while Apple (-6.56%) and Nvidia (-6.48%) held up somewhat better but still underperformed broader markets. In contrast, the Dow declined 3.58%, and the Russell 2000 actually gained 0.58%, highlighting a notable shift away from large-cap growth and toward smaller-cap and more cyclical parts of the market. The result was a meaningful unwind of concentration, as the stocks that had dominated index performance in recent years became a material drag on returns.

• The last few years have seen the MAG 7 dominate overall market returns
• This dynamic reversed sharply in Q1
• There was also a wide dispersion in sector performance
• Energy stocks gained almost 38% while software companies declined over 24%
• This kind of price action could be healthy or a sign of a near-term top
• If the underlying economy remains strong and the fundamentals of businesses reflect this, the market should consolidate before heading higher
• If, however, the economy slows, this kind of market action could signal the beginning of a longer decline in indices
• It will be important to pay close attention to earnings over the next few quarters

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Countries react to energy shortages

South Korea has proposed a 26.2 trillion won, or roughly $17.3 billion, supplementary budget to cushion the energy shock and has also discussed possible driving curbs if crude rises further; Malaysia is sending government employees to work from home to reduce energy use; and a broader Reuters roundup showed Japan capping gasoline prices with about ¥800 billion in reserve funds, Indonesia expanding fuel and electricity subsidies while limiting sales, the Philippines activating a ₱20 billion emergency fuel fund, Thailand preparing tax cuts and subsidies, Vietnam suspending fuel taxes, and India cutting fuel excise duties. In Europe, Reuters reported that the Czech Republic is capping fuel-retailer margins, cutting diesel excise taxes, and releasing 100,000 tons of crude from reserves, while Romania is cutting diesel excise taxes as well. AP also reported that Haiti has moved to austerity measures, including freezing government vehicle purchases and restricting fuel use and official travel. In plain English, governments are already acting as if this is not a temporary price spike but a real energy-security problem.

• Many countries, particularly in Asia, import the vast majority of their energy
• The longer the Strait of Hormuz is closed, the more acute their energy deficit gets
• Temporary measures can help ease the pain, but don’t solve the structural problem
• As this continues, expect to see companies in these countries not be able to fulfill orders
• This creates the risk that supply chain issues create shortages in goods
• This would create inflationary pressures similar to what we experienced during COVID and the beginning of the Russian/Ukraine war
• The longer this goes on, the higher the chance of a stagflationary environment

OpenAI’s giant funding round

OpenAI closed a massive new funding round on March 31, raising $122 billion of committed capital at an $852 billion post-money valuation. OpenAI said the round will fund the “next phase of AI,” while an earlier company update said the financing package included $50 billion from Amazon, $30 billion from NVIDIA, and $30 billion from SoftBank, with additional financial investors expected to join. Reuters called it a record-setting raise and noted that OpenAI is now refocusing its product roadmap around core tools such as ChatGPT, Codex, enterprise products, and a broader “superapp” strategy, rather than spreading resources across too many moonshots.

• Geopolitical conflict notwithstanding, the demand for AI infrastructure remains insatiable
• OpenAI had the lead with consumers out of the gate
• Anthropic showed that going after enterprise customers was potentially the longer-term better strategy
• OpenAI seems to be rebooting and cutting non-core projects like the video generation tool Sora
• As with any new technology, it is hard to predict the eventual winners and losers
• We are always reminded that Google was by far not the first search engine

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