With plenty of economic data due to be reported this week and software companies still under intense AI pressure, John Wyn-Evans, Head of Market Analysis at Rathbones, has shared his thoughts on what investors are looking at this week, including how the latest data might indicate which way central banks move in the months ahead saying :
“As we look ahead, markets are set for a data‑heavy week, with attention centred on the delayed US jobs report as well as the UK’s fourth‑quarter GDP numbers. These releases will help shape expectations around the next moves from central banks, particularly with investors increasingly confident that the Bank of England may cut rates as early as April. But against this macro backdrop, the overriding market narrative remains the intense pressure facing software and data‑provider stocks linked to AI‑driven disruption.
“Last week’s sell‑off was sparked by the release of new AI legal‑analysis tools, which reignited concerns that large language model platforms could erode the competitive moat of incumbents. The reaction was swift and indiscriminate: even highly profitable firms with strong balance sheets and deep proprietary datasets came under pressure. That shift captures just how quickly investor sentiment has reversed – from last year’s broad AI‑driven optimism to a wave of pessimism that treats the entire sector as vulnerable, regardless of fundamentals.
“This is particularly challenging for ‘long‑duration’ technology assets, where even small adjustments to long‑term growth assumptions can significantly affect valuations. Companies like Salesforce and Adobe, which continue to generate strong free cash flow, are being priced as if their business models face an existential threat, despite little evidence of near‑term erosion. The result is a sector‑wide confidence gap that may take time to rebuild.
“Meanwhile, the broader market tone remains more constructive. Earnings season continues to deliver solid results, with over three‑quarters of US companies beating profit expectations, and equity leadership continues to broaden beyond the mega‑cap names. Cyclical areas of the market are seeing fresh momentum, supported by data points such as the US manufacturing PMI returning to expansion for the first time in a year.
“The question for the week ahead is whether incoming economic data can help stabilise sentiment around technology, or whether AI‑related volatility continues to dominate trading patterns. For now, the interplay between solid macro fundamentals and sector‑specific disruption risks is shaping what remains a complex market environment.”
