Normalizing Valuations: The Tech-Heavy Nasdaq’s Uphill Climb
Prospero.ai 2/17/26 Trading Letter
Market/Macro Update
After an initial dip of nearly 1% sparked by a discouraging retail sales report—which showed consumers are starting to feel the pinch—major indexes staged a powerful mid-morning rebound. This turnaround was fueled by a sharp "flight to quality" as Treasury yields tumbled to their lowest levels since November, convincing investors that a slowing consumer will force the Federal Reserve into a more patient or even accommodative stance later this year. The title reflects this ongoing transition where the "S&P 493" is finally outperforming the Magnificent 7, which have lost their "halo" as investors rotate into cash-flow-rich cyclicals.
Global macro stability is also providing a tailwind; markets are beginning to price in a "de-escalation premium" as U.S.-Iran nuclear talks resume in Geneva, while the Bank of Japan (BOJ) provided relief by signaling it may wait until April to raise rates further, easing fears of an immediate disruption to global liquidity. Despite the tech-heavy Nasdaq still facing an “uphill climb” due to AI disruption fears—highlighted by the recent release of Anthropic's knowledge-based AI tools—the broadening of market participation suggests the bull market is strengthening beyond its narrow leadership.
