Intro
This post makes no forecasts. It attempts to do something more modest, and arguably more useful: to organize the week’s most consequential developments in financial markets into a coherent narrative, and to leave space for the reader to draw his or her own conclusions. Markets rarely reward those who are certain. They tend to reward those who are right about what matters.
The week of February 23–27 was one of those weeks that reminded investors how many crosscurrents are capable of moving prices simultaneously. Tariff policy, the Federal judiciary, artificial intelligence economics, corporate earnings, and the behavior of gold as a reserve of value — all arrived at the table at once.
I. THE TARIFF ARCHITECTURE SHIFTS — AGAIN
The most structurally significant development of the week had nothing to do with earnings and everything to do with the rule of law. The U.S. Supreme Court struck down the administration’s broad use of the International Emergency Economic Powers Act (IEEPA) as a mechanism for imposing reciprocal tariffs across virtually the entire globe. The Court ruled that the president had exceeded statutory authority — a decision with implications that extend well beyond any individual trade relationship.
The administration’s response was immediate. Within hours of the ruling, a 10% tariff was reimposed under Section 122 of the Trade Act of 1974 — a narrower legal authority — and took effect Tuesday. The President simultaneously announced his intention to raise a separate worldwide tariff to 15%, citing what he described as decades of inequitable trade arrangements. By Tuesday evening, a State of the Union address was being delivered to a joint session of Congress, with the tariff agenda prominently defended.
The European Commission issued a statement calling the situation ‘not conducive to delivering fair, balanced, and mutually beneficial transatlantic trade,’ referencing the joint U.S.-EU statement of August 2025.
What changed this week was not the existence of tariffs — it was the legal framework beneath them. The Court’s ruling narrows the administration’s room to maneuver via executive declaration, requiring trade actions to find footing in established statutory authority. Whether this produces greater stability or simply a different form of unpredictability is an open question.
Markets on Monday opened lower across all three major averages as investors absorbed the twin forces of fresh tariff announcements and the legal transition underway. The Dow declined roughly 400 points; the S&P 500 and Nasdaq both shed between 0.3% and 0.5%. Tariff uncertainty has become a persistent condition, and one that is proving difficult to price.
II. NVIDIA AND THE “PROVE IT” PROBLEM
Few events in the quarter were more anticipated than Nvidia’s fourth-quarter earnings, and few reactions were more instructive about the current psychology of the market. The company delivered a beat on both earnings and revenue. The stock fell more than 5% on Thursday — its worst single-day decline since April — and continued lower into Friday.
There is a useful way to think about what happened. When expectations are high and priced in, a beat is not a positive surprise. It is a confirmation of what was already assumed. The market’s response to Nvidia’s report was not irrational. It was, arguably, the rational consequence of a stock that had traveled an extraordinary distance in anticipation of results that were, however impressive in absolute terms, not meaningfully above what had been expected.
“The market is very much in ‘prove it’ mode, and Nvidia just didn’t quite ‘prove it’ with these earnings.” — Tom Graff, CIO, Facet
Nvidia CEO Jensen Huang offered an interesting counterpoint in his CNBC interview. Asked about the sharp decline in software stocks — the iShares Expanded Tech-Software ETF (IGV) has lost more than 10% in February alone — Huang said he believed the markets had misread the AI dynamic. He argued that software companies like ServiceNow are not threatened by AI but enhanced by it, and that fine-tuned agents built on proprietary platforms will be the dominant form of enterprise AI deployment. The market has not yet converged on this view.
The ripple was broad. Broadcom, Oracle, Microsoft, Lam Research, Applied Materials, and Western Digital all declined meaningfully in sympathy. The question now circulating is whether the extraordinary capital investment flowing into AI infrastructure can be justified by the returns it will ultimately generate — or whether we are watching the early stages of over-investment in a technology cycle that will prove uneven in its rewards.
III. THE ROTATION: VALUE’S STRONGEST START IN MEMORY
One of the more notable structural observations of 2026 is the performance divergence between value and growth. By the close of trading this week, value had registered what J.P. Morgan Asset Management described as its strongest start against growth in recorded history. Of the seven mega-cap technology and consumer companies that dominated 2023, 2024, and much of 2025, only one remained in positive territory year-to-date.
The sectors leading this rotation are instructive. Small caps, energy, industrials, and materials have all contributed to the move. Part of this reflects genuine economic optimism — growth is expected to accelerate in 2026. Part of it reflects something more structural: commodities are running, gold is elevated by fiscal deficit concerns and questions about the independence of monetary policy institutions, and the infrastructure required for AI deployment — copper, rare earths, data center construction — is pulling industrial names higher.
Manufacturing PMI registered at 51.2; Services PMI at 52.3. Expansion continues. The question is whether it is durable or cyclically front-loaded.
A question worth sitting with: rotations driven by macroeconomic optimism and commodity momentum have a history of overextending. When economic expectations normalize, these sectors tend to give back gains that were built on assumptions of sustained acceleration. That does not make the current move wrong. It does make it worth monitoring carefully.
IV. INDIVIDUAL NAMES OF NOTE
Dell Technologies reported results that the market received enthusiastically. Shares surged roughly 16% after the company forecast that revenue from its AI-optimized server division would double in fiscal 2027. Dell also announced a 20% dividend increase and $10 billion in additional share repurchases — a combination that signals management confidence and creates near-term capital return visibility. This stands in notable contrast to the narrative of indiscriminate AI infrastructure spending; Dell appears to be converting AI demand into tangible near-term cash flows.
Netflix rose approximately 9% after withdrawing from bidding on Warner Bros. Discovery’s studio assets. The market interpreted the withdrawal as capital discipline — an acknowledgment that the economics of content acquisition at elevated prices are difficult to justify. Separately, Paramount raised its all-cash bid for WBD to $31 per share, and WBD CEO David Zaslav expressed enthusiasm for the combination. The media consolidation narrative continues to play out, with content libraries and distribution scale as the underlying logic.
CoreWeave, the AI cloud infrastructure company, sank sharply after missing profit expectations — a meaningful data point for those watching whether the AI buildout is generating returns in line with the capital being deployed. Palantir, which has retreated 33% from its highs, attracted upgraded ratings from both Rosenblatt and UBS, with analysts pointing to the stock’s valuation reset as an attractive entry into what they view as a durable AI software franchise.
V. GOLD, INFLATION, AND THE BOND MARKET
Gold traded at approximately $5,167 per ounce by Thursday’s close. The move in gold this year has multiple explanations, and it is worth separating them. Concerns about U.S. fiscal deficits and the long-term independence of the Federal Reserve have pushed institutional capital toward gold as a store of value outside the dollar system. Separately, the AI infrastructure buildout requires significant quantities of copper and other industrial metals, lifting commodity indices broadly. Gold is benefiting from both a macro concern narrative and a coincident commodity cycle.
On the inflation front, the January Producer Price Index data released Friday offered a mixed signal. The headline number came in below expectations, but the core gauge — which strips out food and energy — surprised to the upside. For a Federal Reserve that has been waiting for confidence that inflation is durably declining, an unexpected move in core PPI is not irrelevant. Equity markets responded by moving lower Friday, with defensive investors pivoting toward longer-duration Treasuries despite the sticky inflation signal — a tension that will likely persist.
The VIX closed Thursday at 18.63, up nearly 4% on the session — elevated but not at crisis levels. A market that is uncertain, but not yet afraid.
VI. GEOPOLITICAL NOTES
U.S.-Iran nuclear discussions convened in Geneva this week. The talks concluded without a formal agreement, but both parties agreed to resume negotiations in Vienna. The conversations are centered on the familiar axes of sanctions relief and nuclear program limitations. Oil prices responded to the geopolitical backdrop: WTI crude traded near $65 per barrel, Brent near $70. The market’s reaction to Iran-related headlines has been modest relative to earlier cycles, suggesting either habituation or an assessment that the tail risks remain contained for now.
The trade in goods deficit for December was released during the period, showing a 32.6% expansion to $70.3 billion. The deficit was shaped in part by the familiar dynamic of elevated imports preceding anticipated tariff actions. For the full year 2025, the goods and services deficit was approximately flat with 2024, a somewhat counterintuitive outcome given the volume of trade policy activity over the period.
CLOSING THOUGHT
Markets this week were asked to process a Supreme Court ruling on executive tariff authority, the most-anticipated earnings report of the quarter, a State of the Union address, geopolitical uncertainty in the Middle East, and a series of individual corporate stories ranging from AI server demand to media consolidation. That is not unusual for 2026. The density of consequential information arriving simultaneously has become a defining feature of this environment.
What this memo does not contain is a recommendation. Each of the developments above creates questions more than it resolves them. The legal framework for tariffs has changed — but the policy direction has not. Nvidia beat — and the stock fell. Gold is at all-time highs — but so is the case for holding equities in an expanding economy. These are not contradictions to be resolved quickly. They are conditions to be understood carefully.
The investor’s task is not to predict what will happen next. It is to understand what is already priced in, and to distinguish between risk that is compensated and risk that is not.
More to follow as the picture develops.
DISCLOSURE:
This material is provided for informational and educational purposes only and does not constitute investment advice, a recommendation, or an offer or solicitation to buy or sell any security or investment strategy. The views expressed are those of the author as of the date of publication and are subject to change without notice. The author is a financial professional and may hold positions in, or manage client accounts that hold positions in, the securities discussed. Such holdings are subject to change at any time without notice. While the author strives to present information in a fair and balanced manner, no representation is made that this commentary is free from bias, and readers should be aware of potential conflicts of interest. The information presented is derived from publicly available sources believed to be reliable, but accuracy and completeness are not guaranteed. Past performance is not indicative of future results. All investing involves risk, including the possible loss of principal. This commentary does not take into account the investment objectives, financial situation, or particular needs of any specific person. No advisor-client relationship is created by the receipt or review of this material. Readers should consult with a qualified financial, legal, or tax professional before making any investment decisions. The views expressed do not take into account the specific financial situation, risk tolerance, or investment objectives of any individual reader. Reading this material does not create an advisor-client relationship. Investors should conduct their own research or consult with a qualified financial professional before making investment decisions.
-John McKay, CFA
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