Weekly Newsletter: February 9, 2026
What a year last week was! Starting with Bitcoin, everyone’s darling last year, as it hit $120k per “coin”. Just last week, it fell from roughly $78k to $63.5k before rebounding to just under $70. Not to be outdone, the precious metals complex was just as rough, with silver having already peaked the week prior above $100/oz. It started the week at $72, rose to $79 before falling to under $67, and before Friday’s rally back to $70. The wild markets outside of stocks did little to the major averages, as they finished little changed. Even interest rates yawned. But the averages masked some large swings under the surface as tech earnings, while good, saw even larger capital expenditures than expected. Investors are beginning to wonder when companies may begin to see profits from these expenditures. Software companies are suffering a similar fate with regard to AI spending. Will the software companies, rather than benefit from AI, be ultimately hurt by AI? There were plenty of stocks that saw 5-10% moves in BOTH directions last week as investors struggled to understand the implications of the spending and ultimately the impact on corporate bottom lines. Back at the economy, reports were put on hold for a week as the temporary government shutdown once again messed with the normal economic reporting cycle. As the earnings reports begin to wind down, the economic reports ramp up. Employment, retail sales, and inflation data are all released next week. It could be another volatile week for the markets.
The analysis coming into this year was for a generally volatile first three quarters into the election and a decent rally to end the year. So far, the markets have not disappointed. The first quarter earnings reports were to provide some guidance on both economic activity and the impact of tariffs. Thus far, earnings are coming in better than historical rates of “beats”. What has been different this quarter has been the response to those “better than expected” earnings. The average stock has actually declined on its earnings day, well below historical trends. Tariffs were addressed a bit, but the earnings calls were not centered on them. Some economic data did hit the markets, but did little to change sentiment about overall economic strength. Global manufacturing, as well as that in the US, saw their respective surveys move into “expansion” levels. Some slowdown in retail sales is expected as the weather across the US was not conducive to heading out to stores or dining out.
The bond market has generally ignored all the various goings on in other asset classes, whether gold, silver, or the dollar. That said, there seems to be a slight shift in the tenor of the bond market. Over the last few weeks, the bond momentum model has been pointing to higher rates after being bullish on bonds over the past year. A few things may be at play as commodity prices and long-term yields have been gradually rising. One other big change is the Fed’s balance sheet, as it is at its highest level in four months. Why is that important? The Fed is buying bonds, putting cash into investors’ hands. Fed Chair Powell indicated at the last press conference that they would do so to keep interest rates under control and liquidity in the financial system. However, looking at overall financial conditions, they are very easy, meaning there are no signs of stress in the financial system. Without expressly cutting rates, the expansion of the balance sheet is providing fuel for the financial markets.
The shift from growth to value has been going on since Halloween and has picked up speed over the last two weeks. A nearly 7% difference between the two favoring value has rarely been seen historically. The few instances were around the financial crisis and near the peak of the internet bubble. Large-cap growth and value are essentially equal over the past year. Moving the starting point to the most recent market bottom in 2023, growth has held the upper hand by a large amount. It would not be surprising to see value close that gap over the next year or two if questions about profitability on AI actually come to pass. Still flying below the radar have been small stocks, still very cheap relative to their large-cap brethren, but have also matched their performance over the past year. Since Thanksgiving, small stocks have nearly tripled the return on the SP500. A diversified portfolio has done very well over the past year and is likely to continue to do so as investors begin looking at areas outside of AI and related companies that may be selling at compelling long-term valuations.
A reprise from last week. The economic calendar moves front and center with employment, retail sales, and inflation data all set to be released. Additional earnings will be announced as the season winds down.
The opinions expressed in the Investment Newsletter are those of the author and are based upon information that is believed to be accurate and reliable but are opinions and do not constitute a guarantee of present or future financial market conditions.