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Why Asset Ownership Is No Longer Optional

March 2026~12 min read

The post-pandemic economy did not recover evenly. It split. Those who owned assets — equities, real estate, businesses — watched their net worth accelerate. Those who depended primarily on labor income fell further behind, not in absolute terms, but relative to the asset-owning class. This is the K-shaped economy: two trajectories diverging from the same event, and the variable that determines which path you’re on is not income. It is ownership.

I

What the K-Shape Actually Means

The letter K describes what a standard economic recovery does not: instead of a broad-based rebound where most participants return to their prior trajectory, the economy splits into two distinct paths. The upper arm rises — asset prices recover, equity portfolios expand, real estate appreciates. The lower arm declines or stagnates — wage growth lags inflation, job quality deteriorates, debt burdens persist. The shape is not symmetrical and it does not self-correct. Once the paths diverge, the mechanisms that produce divergence continue operating.

The COVID-19 recession made the K-shape visible in a way that previous cycles had obscured. The S&P 500 recovered its pre-pandemic highs within five months — one of the fastest recoveries on record. U.S. home prices rose over 40% between 2020 and 2023. Meanwhile, inflation — itself partly a consequence of the monetary response — eroded real wages for the bottom half of earners for three consecutive years. The headline unemployment number recovered. The underlying wealth distribution did not.

What makes the K-shape structurally significant is that it is not primarily a product of income inequality. Two households with identical salaries — one owning assets and one renting and holding cash — will end up in dramatically different financial positions after a decade of the conditions described above. The variable that determines divergence is not what you earn. It is what you own.

The K-shape is not primarily a story about income inequality. It is a story about ownership. Two people earning the same salary will end up in entirely different financial positions over a decade if one owns assets and the other does not.

II

How Monetary Policy Became a Wealth Transfer

To understand the K-shape, you have to understand what modern monetary policy actually does to asset prices — because the relationship is direct, mechanical, and largely independent of broader economic conditions.

When the Federal Reserve lowers interest rates or purchases assets through quantitative easing, it does several things simultaneously. It reduces the yield on cash and bonds, making equities more attractive on a relative basis. It lowers the discount rate used to value future corporate cash flows, which mechanically increases the present value of stocks. It reduces mortgage rates, which increases housing affordability and drives up home prices. And it reduces the cost of borrowing for businesses, enabling share buybacks and expansion that further support equity prices.

The transmission mechanism for all of this is asset ownership. If you own equities, your portfolio appreciates. If you own real estate, your equity grows. If you own a business, your valuation expands. If you hold cash or depend on wage income, the policy does relatively little for you in terms of wealth accumulation — and the inflation that often follows erodes your purchasing power in real terms.

Between 2008 and 2022, the Federal Reserve held interest rates near zero for the better part of a decade, with significant rounds of quantitative easing and a massive balance sheet expansion following the pandemic. The S&P 500 rose approximately 600% over that period. Median household net worth increased, but the gains were distributed almost entirely to the top two wealth quintiles — those who entered the period with the most assets to appreciate.

S&P 500

Rose approximately 600% from 2009 to 2022. The primary beneficiaries were equity holders.

U.S. Housing

Median home prices rose over 40% between Q1 2020 and Q4 2022 — the fastest appreciation in modern history.

Real Wages

Inflation-adjusted wages for the bottom quartile declined in 2021, 2022, and 2023 despite record low unemployment.

Wealth Share

The top 10% of households own approximately 67% of all U.S. wealth. The bottom 50% own roughly 3%.

Central bank policy does not distribute its benefits equally. It distributes them to whoever owns the assets that policy makes more valuable. This is not a political statement. It is a description of the mechanism.

III

Labor Income Alone Cannot Build Wealth

This is the central structural problem that the K-shaped economy makes impossible to ignore: in an environment where asset prices are appreciating faster than wages — which has been true for most of the past 40 years — labor income alone is insufficient to close the wealth gap. You can earn well and still fall behind in relative terms if your earnings are not being converted into ownership.

Consider the arithmetic. The S&P 500 has compounded at approximately 10% annually over the past century. Real wage growth has averaged roughly 1–2% annually over the same period. A household that saves 20% of a $150,000 salary — an aggressive savings rate by most standards — and holds that savings in cash will accumulate roughly $30,000 per year in nominal terms. A household with $500,000 in invested assets will accumulate $50,000 in a median market year without working an additional hour. At $1,000,000 in assets, that figure approaches $100,000. The crossover point — where asset returns begin to exceed labor income — arrives faster than most people expect, and once crossed, the dynamics shift permanently.

The wage-to-wealth conversion problem is compounded by inflation. A salary that doesn’t grow faster than inflation is a salary that is declining in real purchasing power. Meanwhile, real assets — equities, real estate, commodities — have historically served as inflation hedges, maintaining or growing their value in purchasing power terms during inflationary periods. Cash does not. A savings account earning 1% during a 4% inflation environment is generating a guaranteed real loss.

None of this is an argument against earning more or building a career. It is an argument that the career exists to fund the asset base — and that treating labor income as the end goal rather than the means to build ownership is the most consequential financial mistake a high earner can make.

You can earn well and still fall behind. In an economy where asset prices compound faster than wages, labor income is the means — not the destination. The destination is ownership.

IV

The Four Assets That Drive Divergence

Not all assets are equal in their wealth-building properties, their accessibility, or their relationship to the K-shaped dynamic. The four that matter most — and that account for the bulk of wealth divergence in the data — are equities, real estate, business ownership, and human capital that converts to ownership. Each operates differently and serves a distinct role in a complete strategy.

Equities are the most accessible and the most liquid. Through low-cost index funds, a young professional can own a fractional share of the earnings of the largest companies in the world for the cost of a monthly subscription service. The compounding mechanism is straightforward and well-documented. The behavioral challenge — staying invested through volatility — is the primary obstacle, not access. The difference between a 40-year equity investor and a 30-year equity investor is not 25% more time — it is often 100% or more in terminal portfolio value, due to the exponential nature of compounding.

Real estate provides a different set of advantages: leverage, inflation protection, and a tangible asset that generates income. A primary residence purchased with a 30-year fixed mortgage is, among other things, a leveraged long position on local real estate financed at a fixed nominal rate — meaning inflation works in the borrower’s favor by reducing the real cost of debt over time. Investment property extends this further by generating cash flow that can compound independently of the underlying appreciation.

Business ownership — whether founding a company, acquiring one, or accumulating meaningful equity in a private enterprise — represents the highest-risk, highest-potential-return category. Most of the ultra-wealthy did not get there through salary or even through index funds. They got there through concentrated ownership of businesses that scaled. This path is not accessible to everyone, but for professionals with relevant expertise and appetite for concentrated risk, it remains the most powerful wealth-creation mechanism available.

Human capital — the skills, credentials, and relationships that determine earning capacity — is itself an asset, though an intangible one. Its value lies not in the income it generates today but in its conversion rate into financial assets over time. A professional who treats their earnings as a resource to be deployed into ownership is building compounding wealth. One who treats them as income to be consumed is not.

Equities

~10% annualized over 100 years. $10,000 invested at 25 becomes ~$452,000 by 65 without adding a dollar.

Real Estate

~4–5% annual appreciation historically, with leverage amplifying effective returns and rental income adding additional compounding.

Business

Median return on a successfully scaled private business far exceeds public market returns — at the cost of concentration and illiquidity.

Cash

The purchasing power of $1 in 1990 equals approximately $0.44 today. Holding cash is not neutral — it is a slow, guaranteed loss in real terms.

V

The Psychological Barriers to Ownership

The case for asset ownership is not new. The data supporting it is not obscure. And yet most people with the income to act on it delay, underinvest, or never start at all. The barriers are not primarily informational — they are psychological, structural, and in some cases, culturally reinforced.

Loss aversion is the most documented. The pain of a financial loss registers approximately twice as powerfully as the pleasure of an equivalent gain. In practical terms, this means that watching a portfolio drop 20% feels catastrophic enough to trigger selling — even when the rational move is to hold or buy more. Investors who sold during the March 2020 COVID crash locked in losses at the bottom of the fastest bear market in history, just before one of the fastest recoveries on record. The behavioral error was not in owning equities. It was in being positioned in a way that made panic-selling feel rational under pressure.

Present bias — the tendency to overweight immediate costs relative to future benefits — is equally corrosive. Investing $500 this month produces a tangible, immediate reduction in available spending. The compounded value of that $500 in 30 years is abstract and distant. The brain is not wired to weight these equally, which is why automation is not merely a convenience — it is a cognitive override that removes the decision from the domain where present bias operates.

There is also a cultural dimension worth acknowledging. In most professional environments, spending is visible and socially legible. Wealth accumulation through ownership is private and unremarkable. The behaviors that build the asset side of the balance sheet are, almost by definition, the opposite of conspicuous — and that social invisibility makes them harder to sustain without a deliberate framework.

The barriers to asset ownership are not primarily informational. The case is well-made and the data is accessible. The barriers are psychological — and understanding them is the first step to building systems that work around them.

VI

A Framework for Building the Asset Side

The framework I’d suggest is not complicated, but it requires sequencing, consistency, and a clear-eyed view of what each tool is for. The goal is to systematically convert labor income into owned assets across a career — building the upper arm of the K rather than remaining on the lower one.

The starting point is always the same: capture all available tax advantages before investing in taxable accounts. The employer 401(k) match is a guaranteed 50–100% return on the matched portion — nothing in the market competes with it. The HSA, used as an investment vehicle rather than a spending account, provides triple tax advantages unavailable anywhere else in the tax code. The Backdoor Roth IRA creates a pool of permanently tax-free capital that compounds without future tax drag. These are administrative decisions, not investment decisions, and they have outsized impact relative to their complexity.

Once tax-advantaged capacity is maximized, a taxable brokerage account becomes the primary vehicle for accumulation beyond retirement accounts. For most investors, a low-cost, diversified equity index strategy — total market or S&P 500 exposure through ETFs — is the appropriate default. The evidence against active management is overwhelming: after fees, the majority of actively managed funds underperform their benchmark over any 10-year period. Low cost and broad diversification are not settling for average — they are the rational response to that evidence.

Real estate enters the picture differently for different people, but the primary residence deserves explicit strategic attention. Where the financial analysis points toward ownership, the leverage and inflation-hedge properties of a fixed-rate mortgage make it one of the most powerful wealth-building instruments available. The key variable is not whether to own, but how much house to buy: over-leveraging into a property that strains cash flow removes flexibility and can prevent other wealth-building activity for years.

Step 1

401(k) to full employer match — guaranteed return, compounding from day one.

Step 2

Max the HSA — triple tax advantage; invest the balance, pay medical costs out of pocket.

Step 3

Backdoor Roth IRA — $7,000/year of permanently tax-free compounding, available at any income level.

Step 4

Remaining 401(k) capacity — up to $23,000 annually in pre-tax or Roth deferrals.

Step 5

Taxable brokerage — broad equity index exposure; the primary vehicle for wealth beyond retirement accounts.

Step 6

Real estate and alternatives — once liquidity needs are met and tax-advantaged capacity is exhausted.

VII

The Compounding Gap Is Already Open

The most important thing to understand about the K-shaped economy is that it is not a future risk to prepare for — it is a present condition to respond to. The divergence is already underway. The gap between asset owners and non-owners has been widening for decades, and the monetary and fiscal policy environment of the past 15 years has accelerated it substantially.

Every year of delay in beginning to own assets is a year of compounding that does not happen — and in an environment where asset prices are appreciating faster than wages, delay is not neutral. It is a choice to remain on the lower arm of the K while the upper arm extends further away. The gap between a 25-year-old who begins building an asset base and a 35-year-old who starts the same process is not recoverable at any contribution rate, because the lost years of compounding cannot be replaced with additional capital — only with more time, which has already passed.

The counterintuitive implication is that the urgency of ownership increases, not decreases, with income. High earners who delay building an asset base are not merely leaving money on the table — they are allowing the window of maximum leverage to close. The combination of time, compounding, and tax-advantaged infrastructure available to a 27-year-old high earner is a set of conditions that will never be more favorable.

The K-shaped economy does not require a particular political view. It does not require agreement on its causes or its remedies at the policy level. It requires only a clear-eyed recognition that the rules of the game have changed — and that ownership, not income, is now the primary determinant of long-term financial trajectory. The families and individuals who internalize that shift earliest will accumulate the most time on the right side of it.

The urgency of ownership increases with income, not decreases. The window of maximum leverage — time, compounding, and tax infrastructure — is open right now. It will not be more favorable than this.

The K-shaped economy is not a trend that will reverse on its own. The mechanisms that produce divergence — asset price appreciation driven by monetary policy, the compounding advantage of early ownership, the inflation drag on cash and wages — are structural features of the current environment, not temporary distortions.

The response is not complex. It is consistent, early, systematic ownership of assets that compound — and a clear understanding that labor income is the raw material for that ownership, not the destination. If any of the areas above are conversations worth having, I’m happy to work through them.

— John McKay, CFA

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. 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. 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 financial decisions.

In This Article

The early years of building a family are busy — and financial planning is typically the first thing to get deferred. This post covers seven decisions that young families most commonly overlook, and why the cost of waiting on each one is higher than it appears.

• Starting to invest
• Investing for your children
• Education planning: 529s & Trump Accounts
• Delaying retirement savings
• HSA & end-of-life healthcare costs
• Life insurance: protection vs. product
• Trusts aren’t just for the wealthy

This post makes no promises about returns or outcomes. It attempts something more practical: to organize the financial decisions that carry the most long-term weight for young families into a coherent framework, and to make the case that the gap between acting early and waiting — across all of these areas — is measurable in real dollars.

For most young families, financial complexity arrives faster than financial literacy. The mortgage, the childcare costs, the career still developing — all of it creates a reasonable-sounding basis for deferring the harder planning decisions. The problem is that the tools that benefit young families most are also the ones that require time to work. Every year of delay is a year of compounding that doesn’t happen, and most of it cannot be recovered later.

I. THE CASE FOR STARTING NOW

There is a persistent belief that investing is something you do once the rest of your financial life is in order — once the debt is manageable, the emergency fund is full, the schedule feels less overwhelming. The math does not support that sequence. A family that begins investing $400 per month at 25, assuming a 7% average annual return, builds nearly twice the portfolio by 65 as one that starts the same contribution at 35. Not because they invested more total dollars — because time compounded what they had.

The goal in year one is not optimization. It is participation. A low-cost index fund strategy — broad exposure through ETFs tracking the total U.S. market or S&P 500 — gives most young families a sensible starting point without requiring significant capital or market expertise. Automation matters more than amount: a recurring transfer scheduled on payday removes the decision friction that causes most people to delay indefinitely.

You cannot recover the years you didn’t invest. You can always adjust the amount. Start small, start automated, and let time do the work.

The families who build meaningful wealth are not, as a rule, the ones who made the best individual investment decisions. They are the ones who started earliest and stayed consistent through the periods when it felt least intuitive to do so.

II. INVESTING FOR YOUR CHILDREN — AND THE TOOLS NOW AVAILABLE

Most parents understand that investing early matters for themselves. Fewer apply that same logic to their children. A child with an invested account opened at birth has 18 years of compounding before they make a single financial decision. That runway is one of the most meaningful things a parent can provide — and the vehicle landscape for doing it has recently expanded in ways worth understanding in detail.

The 529 plan remains the most widely used tool. Contributions grow tax-deferred and are withdrawn tax-free for qualified education expenses, including tuition, room and board, books, and — through SECURE 2.0 — student loan repayment up to $10,000 per beneficiary. Many states offer a deduction or credit on state income taxes for contributions, meaning the tax benefit begins immediately. The superfunding provision allows a contributor to front-load five years of the annual gift exclusion — up to $90,000 per child — in a single deposit without gift tax consequences. And beginning in 2024, up to $35,000 in unused 529 funds can roll into a Roth IRA in the beneficiary’s name after a 15-year holding period, removing the largest historical objection to the account.

The Coverdell ESA (governed under IRC Section 530) accepts up to $2,000 per year per child in after-tax contributions, with tax-free growth and tax-free withdrawals for qualified expenses that include K–12 private school tuition — a flexibility the 529 does not fully replicate. UGMA/UTMA custodial accounts go further: no contribution limits, no restrictions on how funds are eventually used, and no penalties. The money becomes the child’s outright at legal adulthood, usable for anything.

Most recently, the One Big Beautiful Bill Act established a new vehicle: the Trump Account. These are tax-deferred investment accounts for any U.S. child under 18 with a Social Security number. After-tax contributions of up to $5,000 per year are allowed, and employers may contribute up to $2,500 annually on a pre-tax basis. Funds must be invested in low-cost U.S. stock index funds during the growth period, and the account converts to a traditional IRA at age 18. For children born between January 1, 2025, and December 31, 2028, the federal government seeds each account with a one-time $1,000 contribution — and a growing number of major employers and philanthropists are pledging to match or supplement that amount. The accounts launch July 5, 2026, accessible via IRS Form 4547 or trumpaccounts.gov.

Two things worth noting about the Trump Account: unlike a 529, withdrawals are not tax-free — they’ll be taxed as ordinary income under traditional IRA rules once the child is an adult. And investments are restricted to domestic stock index funds during the growth period, which limits diversification. It complements the 529 rather than replacing it, particularly for families prioritizing tax-free education withdrawals.

With a strategy: A parent opens a 529 at birth and contributes consistently, files for a Trump Account to claim the $1,000 federal seed, and opens a UGMA as a general-purpose vehicle. Each account serves a different window of the child’s financial life: tax-free education funding, long-term IRA compounding, and unrestricted capital at adulthood.

Without a strategy: The same family waits until high school to open a 529. Fourteen years of compounding have not occurred. The federal Trump Account window for the seed contribution has closed. College is funded primarily out of current income and loans.

III. THE HSA — AND WHAT HEALTHCARE ACTUALLY COSTS AT THE END OF LIFE

No account in the U.S. tax code offers what the Health Savings Account offers. Contributions go in pre-tax. The balance grows tax-free. Withdrawals for qualified medical expenses are tax-free. That triple advantage is unique — and for young families, almost entirely misunderstood.

The conventional use of the HSA is transactional: contribute, pay a medical bill, deplete the balance, repeat. That approach is fine as a short-term reimbursement tool. As a long-term strategy, it wastes the account’s most powerful feature. For a young family in reasonable health with the budget flexibility to cover near-term medical expenses out of pocket, the HSA functions as a second retirement account. Contribute the annual maximum, invest the balance in low-cost index funds, and leave it untouched. Every dollar compounds tax-free for decades.

The reason this matters is where healthcare costs actually land across a life. The average American will spend between $300,000 and $400,000 on healthcare after age 65 — and that figure excludes long-term care, which can run $5,000 to $10,000 per month in a residential facility. Medicare covers far less than most people expect. Out-of-pocket prescription costs, supplemental premiums, dental and vision expenses, and eventual custodial care represent a genuine and underplanned financial exposure for most families. The HSA, built systematically over a working career, can absorb a meaningful portion of those costs entirely tax-free.

Healthcare is the largest unplanned financial exposure most families face in retirement. The HSA, used as an investment vehicle rather than a spending account, is the most tax-efficient tool available to address it.

The 2024 contribution limit is $4,150 for individual coverage and $8,300 for family coverage. At a 7% average annual return, $8,300 invested annually for 30 years approaches $800,000 — all of it available for qualified healthcare expenses without federal income tax. That’s not a planning exercise in abstraction. It’s a direct response to one of the most concrete and quantifiable risks young families face in the second half of their lives.

One practical note: The IRS imposes no deadline on HSA reimbursements. You can pay qualified medical expenses out of pocket today, keep the receipts, and reimburse yourself from the HSA years or even decades later — tax-free. This “receipt banking” strategy allows the HSA balance to compound for as long as possible while still preserving the option to access it without restriction.

IV. DELAYING RETIREMENT SAVINGS — THE MATH IS UNFORGIVING

This may be the single most expensive mistake young families make. The reasoning is genuinely understandable — childcare is costly, the mortgage is new, retirement feels decades away. But delaying even five years of contributions in your 30s can cost six figures by retirement, and unlike most financial mistakes, those years cannot be corrected later. The compounding that didn’t happen cannot be recreated at a higher contribution rate.

The employer match compounds the mistake. A typical 3–4% match left unclaimed because contributions are paused is not a deferral — it is a permanent loss. It is, in the most literal sense, turning down a raise.

With a strategy: A 29-year-old with a tight household budget contributes 4% of salary to their 401(k) — just enough to capture the full employer match — and increases contributions by 1% per year, timed to salary increases. By 40, they’re contributing 14% without ever experiencing a reduction in take-home pay.

Without a strategy: The same person pauses contributions for two years during a financially pressured period with a new child, intending to restart when things stabilize. The employer match goes unclaimed. The compounding clock stops. The gap created is permanent.

The floor is non-negotiable: contribute at least enough to capture the full employer match, regardless of what else is competing for the budget. From there, increase the contribution rate by 1% annually. Over a decade, this produces meaningful progress without requiring a meaningful sacrifice in any given year.

V. THE TAX-ADVANTAGED ECOSYSTEM — SEQUENCING MATTERS

Most people know the 401(k) exists. Far fewer understand the full range of tools available, or why the order in which they’re used matters. The difference between an optimized sequencing strategy and the default can amount to tens of thousands of dollars over a career — not from investment decisions, but from administrative ones.

The Roth IRA is chronically underutilized by young families for the wrong reasons. Most in their 20s and 30s qualify, and contributions made during lower-earning years are made at the lowest tax cost of a career — locking in tax-free retirement assets at the cheapest possible moment. The $7,000 annual limit (2024) is modest, but 30 years of compounding on after-tax contributions that will never be taxed again is a structural advantage that matters significantly over time.

A sensible sequencing framework for most young families: 401(k) contributions to the full employer match first, then max the HSA, then max the Roth IRA, then return to the 401(k) with any remaining capacity. This order isn’t universal — individual tax situations vary — but it reflects the core logic: capture free money first, then the most tax-efficient growth, then continued deferral.

VI. LIFE INSURANCE — PROTECTION VS. PRODUCT

There is something the financial services industry does not advertise clearly: life insurance, when sold as an investment vehicle, is almost always a poor deal. The returns are weak relative to alternatives, the fees are layered and frequently opaque, and the flexibility cannot compete with what you’d build by investing in the market through the accounts we’ve already covered. That critique applies specifically to the product being missold — whole life and universal life policies marketed as wealth-building vehicles — not to life insurance as a category.

As protection against a family financial catastrophe, life insurance is a genuinely valuable tool. If a primary earner dies and dependents are left without their income, the financial consequences are severe. A properly sized term policy addresses that risk directly, simply, and affordably. The problem is not the product in its purest form. The problem is how it is frequently sold.

Life insurance as protection is a sound decision. Life insurance sold as an investment vehicle is rarely a good deal — and the person selling it has every financial incentive to blur that line.

This is a textbook principal-agent problem. The person advising you on coverage is compensated based on what they sell — and policies with investment components carry substantially higher commissions than term. Their financial interest and yours diverge precisely at the moment they appear aligned. Policies are routinely oversized, overpriced, and bundled with riders that sound compelling in a meeting but rarely deliver proportionate value.

The recommendation I’d make is straightforward: get your life insurance guidance from a fee-only financial advisor who does not sell insurance products. When there is no commission on the table, you get an independent assessment of what you actually need — not what generates the largest premium. For most young families, that assessment points to a simple term life policy: 10–12 times annual income, held for 20–30 years. A healthy 30-year-old can secure $1 million in term coverage for well under $50 per month. The cost is low precisely because the product is uncomplicated.

One question worth asking before any insurance conversation: “Are you compensated in any way by the policy I purchase?” If the answer is yes, seek a second opinion from an advisor with no commission at stake. The right coverage at the right price — nothing more — is the goal.

VII. TRUSTS — NOT JUST FOR THE WEALTHY

The most common misconception about trusts is that they are instruments for inherited estates and multigenerational wealth. That perception is both widespread and incorrect — and it costs ordinary families real money and real complications every year.

A trust is a legal structure that holds assets on behalf of named beneficiaries under rules you define. You don’t need a seven-figure net worth to benefit from one. You need a home, a retirement account, minor children — or simply a preference that your family not spend months in probate court after you’re gone.

Probate is the court-supervised process through which an estate is distributed without a trust in place. It is public record. It is slow — often 12 to 18 months in complex or contested cases. And it can consume 3–9% of estate value in legal and administrative fees before a single asset reaches the people you intended to receive it. A properly structured trust bypasses it entirely: assets transfer immediately, privately, and on the terms you established while your judgment was intact.

For families with minor children, trusts accomplish something a will cannot: they control when and how children receive assets. A will can name a guardian. It cannot determine whether an 18-year-old inherits a lump sum with the maturity to manage it. A trust can. You can specify distributions at 25, 30, and 35. You can earmark funds for education, a first home, or a business. You write the rules while your thinking is clear and your options are still open.

With a structure: A family with a $400,000 home, brokerage accounts, and two minor children establishes a Revocable Living Trust. At death, assets transfer immediately without court involvement. Their children receive distributions under conditions their parents set — at 25, 30, and 35, with funds earmarked for education and a first home purchase.

Without a structure: The same family leaves everything to pass through probate. The process takes 14 months, costs a meaningful share of the estate in fees, and their children — now technically adults — receive an undifferentiated inheritance at 18 with no conditions on its use.

The most common starting point for young families is a Revocable Living Trust. You retain full control during your lifetime and can amend it at any time. It becomes irrevocable at death. Paired with a pour-over will — which captures any assets not yet titled in the trust — it forms a clean and comprehensive estate structure. The one-time cost to establish it, typically $1,500 to $3,000 depending on complexity, is modest relative to the probate costs, family conflict, and delays it prevents. This is not a document for the end of your life. It is a document for right now, while you have assets that matter to the people you love.

The step most families miss: A trust is only as useful as the assets titled inside it. Many families establish a trust and then fail to retitle their home, brokerage accounts, and property in the trust’s name — leaving those assets exposed to probate anyway. Creating the document is step one. Funding it is step two, and it’s equally important.

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None of this requires a finance degree or a seven-figure net worth to act on. It requires awareness, a framework, and the willingness to begin before circumstances feel perfectly aligned — because they rarely do. The families who build lasting financial health are the ones who start early and surround themselves with advisors whose interests are genuinely aligned with their own.

If any of the areas above are conversations worth having, I’m happy to work through them. These are not abstract planning concepts — they are decisions with measurable consequences, and most of them are best made earlier than feels necessary.

— John McKay, CFA

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 financial decisions. Reading this material does not create an advisor-client relationship.

Intro

This post makes no promises about stock prices. It attempts something more practical: to organize the most consequential features of equity compensation into a coherent framework, and to make the case that the difference between a thoughtful strategy and the absence of one can be measured in real dollars and real taxes.

For millions of employees, equity compensation has quietly become one of the most significant components of total pay — and one of the least understood. RSUs vest on calendars that don’t align with tax deadlines. Options expire. ESPP enrollment windows open and close with little fanfare. The gap between what these benefits offer and what most employees actually capture is, in many cases, substantial.

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I. THE LANDSCAPE: KNOW WHAT YOU HOLD

Equity compensation covers several distinct instruments — Restricted Stock Units (RSUs), Incentive Stock Options (ISOs), Non-Qualified Stock Options (NQSOs), and Employee Stock Purchase Plans (ESPPs). Each carries different tax treatment, different decision points, and different risks. Conflating them is the first mistake, and it tends to be an expensive one.

RSUs vest over time and are taxed as ordinary income at vesting — the decision isn’t at grant, it’s what you do with the shares once they arrive. Stock options give you the right to buy shares at a fixed price; the value is in the spread. The tax treatment between ISOs and NQSOs diverges sharply, with real consequences for high earners subject to the Alternative Minimum Tax. Both expire — a deadline many employees encounter too late.

With a strategy: An employee granted ISOs maps their AMT exposure at various exercise scenarios with their advisor and calendars the expiration date. When a favorable window opens three years later, they act with intention.

Without a strategy: The same employee exercises a large ISO block in a high-income year without modeling the AMT consequence. The tax bill arrives the following April. The liquidity to pay it does not.

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II. THE ESPP: THE MOST UNDERUTILIZED BENEFIT IN CORPORATE AMERICA

A qualified ESPP allows employees to contribute up to 15% of their salary over a six-month offering period, then purchase company stock at a 15% discount off the lower of the price at the start or end of the period — a feature called the lookback provision. In a flat market, that’s a 15% return before the stock moves an inch. In a rising market, the lookback amplifies it further. These are not projections — they are mechanical features of the plan.

Failing to participate at the maximum allowable level is one of the most common planning oversights in the benefits space. But participation is only the first decision. What you do with the shares — and when — determines whether you capture the full tax advantage the plan offers.

With a strategy: An employee contributes the full 15% over a period in which the stock rises 20%. The lookback provision anchors the purchase price to the start of the period, producing an effective return of roughly 41% on dollars contributed. Their advisor maps the required holding period for long-term capital gains treatment, and they plan accordingly.

Without a strategy: A colleague skips enrollment, citing cash flow concerns — unaware that contributions can be withdrawn before the period closes. They leave a near-guaranteed return on the table that is difficult to replicate anywhere else in their financial picture.

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III. THE IMPORTANCE OF A PROPER STRATEGY

Equity compensation decisions don’t occur in isolation. They intersect with income levels, tax filing status, existing portfolio concentration, liquidity needs, and long-term goals. Two employees at the same company, on the same grant schedule, can face meaningfully different outcomes based entirely on how well those decisions are coordinated with the rest of their financial picture.

The key insight: equity compensation decisions are tax events first and investment decisions second. The order matters. An ESPP participant who sells immediately after purchase captures the discount but forfeits favorable long-term capital gains treatment. An employee holding concentrated RSUs through a prolonged downturn, waiting on a recovery that doesn’t come, has taken on investment risk without ever intending to.

With a strategy: A senior engineer with $180,000 in annual RSU vesting works with an advisor who maps each vesting event against projected total income. In a year when a bonus is also expected, they defer one tranche until January — shifting income into the next tax year. The adjustment costs nothing beyond the discipline to plan it.

Without a strategy: A peer on the same grant schedule sells every lot the day it vests, every year. Over four years, they routinely push into the next marginal bracket on vesting income alone. The cumulative additional tax paid runs to five figures — not from bad market timing, but from timing that simply wasn’t considered.

IV. THE COST OF NO STRATEGY

The absence of a strategy is not a neutral position. It is a choice, with consequences that compound quietly and rarely surface until a triggering event — a job change, a tax bill, a market decline — forces a reckoning.

Concentration risk is the most underappreciated consequence. An employee receiving RSUs year after year and holding each tranche may unknowingly build a portfolio where a single company represents the majority of their investable assets — the same company that already determines their income. Tax inefficiency follows; the spread between ordinary income and long-term capital gains rates can represent tens of thousands of dollars on the same transaction. Inaction at key decision points is the third failure mode. The Section 83(b) election — which allows early-stage employees to recognize income at grant rather than at vesting — must be filed within 30 days. Options expire. These windows don’t reopen.

With a strategy: A product manager joins a pre-IPO startup and files an 83(b) election within days of receiving restricted stock priced at $0.10 per share. When the company goes public two years later at $22, the full appreciation is taxed at long-term capital gains rates — roughly 20% — rather than as ordinary income approaching 37%.

Without a strategy: A colleague misses the 30-day window. Each tranche vests over four years as the company’s value climbs, triggering a taxable event at ordinary income rates every time. The tax bill at IPO is far larger than it needed to be, and there is no path back.

V. WHY THESE DECISIONS WARRANT PROFESSIONAL GUIDANCE

The case for working with a financial advisor on equity compensation isn’t just about complexity — it’s about coordination. These decisions sit at the intersection of tax law, investment planning, and behavioral finance, three disciplines that don’t always point in the same direction.

A qualified advisor can model the tax consequences of multiple decision paths before a choice is made. They can assess whether concentrated employer stock is consistent with a household’s broader risk profile. They can align equity decisions with other planning levers — retirement contributions, charitable giving, tax-loss harvesting — in ways that produce meaningfully better outcomes than addressing each in isolation. Perhaps most importantly, they provide a counterweight to the very human tendency to hold employer stock long past the point where it makes financial sense, simply because selling feels disloyal.

With a strategy: A mid-career employee has accumulated $400,000 in company stock — nearly 60% of their investable assets. Their advisor builds a systematic plan: sell a fixed percentage at each vesting event, reinvest into a diversified portfolio, and commit to the schedule regardless of near-term price movement. When the stock drops 35% the following year, their overall financial picture is largely insulated.

Without a strategy: A colleague in an identical position holds everything, reasoning they know the company better than the market does. When the same correction arrives, 60% of their net worth moves with the stock. Plans made in a declining market are rarely the ones you would have made in advance.

VI. QUESTIONS WORTH BRINGING TO YOUR ADVISOR

These aren’t a checklist — they’re an invitation to a conversation that too few employees have had.

What types of equity compensation do I hold, and what are the tax rules governing each? What is my concentration in employer stock relative to my total investable assets — and is that intentional? Have I modeled the tax impact of my options at various price scenarios? Am I enrolled in the ESPP at the maximum allowable level? Do I have a plan for each RSU vesting event? What happens to my equity if I leave?

The gap between employees who capture the full value of their compensation and those who don’t is rarely information. It’s structure.

With a strategy: An employee who has worked through these questions arrives at every vesting event, ESPP purchase, and option expiration with a decision already made — executing a plan built when their thinking was clear and their options were still open.

Without a strategy: The same employee makes decisions reactively — selling during a downturn because a liquidity need emerged, holding at the top because optimism obscured the concentration risk, and learning the rules of their options in the same conversation where they discover those options expired last quarter.

CLOSING THOUGHT

Equity compensation is, at its best, one of the most effective wealth-building tools available to working professionals. For those who approach it with the same rigor they’d apply to any significant financial decision, it can deliver on its promise.

But ownership requires strategy. The tax code doesn’t reward passivity. Concentration is a risk whether it’s recognized as one or not. And the windows within which certain decisions must be made don’t stay open.

The employee’s task isn’t to predict what the stock will do next. It’s to understand the rules clearly enough to make the decisions within their control, at the moments when those decisions actually matter.

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. Reading this material does not create an advisor-client relationship.

-John McKay, CFA

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

The “Mixed” Results: Note cases like Coca-Cola or CBRE. They may have beaten EPS (the bottom line) through cost-cutting or efficiency, even while missing on Revenue (the top line). This often indicates a pivot toward margin preservation rather than pure growth.

Infrastructure & AI Demand: Arista (ANET) and AEP are seeing incredible synergy. AEP reported a massive 39.6% surge in commercial sales driven by data centers, while Arista is providing the networking hardware to run them.

Healthcare Divergence: CVS showed strong operational resilience, while AstraZeneca had a significant EPS miss ($1.06 vs $2.18 forecast), which might warrant a deeper look into their R&D or collaboration revenue shifts this quarter.

The Value Surge: KHC beat EPS by 9.8%, but the market reacted negatively (shares dropped ~6%) because organic net sales fell 4.2%.

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

During the first week of February, the trend of generally positive earnings reports continued with roughly 75% of S&P 500 companies beating estimates. Though this is a positive signal, markets had a mixed reaction during the week with the Dow up roughly 2.5%, the S& 500 roughly even on the week after a rally early Friday morning, and the Nasdaq falling roughly 1.7% on the week. Positive earnings could not shift the Risk-off trend that the market is showing with relation to the Tech sector.

GOOGL

Alphabet shares have fallen 3.4% on the week despite a phenomenal earnings call. Revenue and EPS both topped estimates, with significant growth in Google Cloud, and Search divisions. In updated guidance the firm announced plans for $175B- $185B in 2026, nearly double 2025’s spend, and dwarfing expectations of $120B.

AMZN

Amazon printed mixed earnings with strong revenue growth, and a slight miss on EPS along with 24% growth in AWS. Updated guidance signaled $200B in Capex spend during 2026 focused on scaling data center buildout, custom silicon development to reduce reliance on third party hardware, and continued logistics automation. While AWS is accelerating and adding more absolute dollar growth than its competitors, the sheer magnitude of the $200B spend has investors worried about when they will see a return on that capital.

PLTR

Less mature, more aggressively valued (riskier) than the established tech giants, Palantir followed phenomenal earnings last quarter with an even more impressive performance. 70% YoY revenue growth, limited Capex and positive free cash flow should all be positive signs, but aggressive valuation (as high as 282 in the last twelve months) have led to a significant pull back in the last 5 months. Growth will not be enough for PLTR moving forward, they will need to continue blowing expectations away to please the market. An interesting look into the firm can be seen below, as Heineken USA COO Laurens van der Rotte sheds light onto how Palantir has transformed their supply chain.

https://www.youtube.com/watch?v=uo6y_0DG29I

Other notable Tech prints

Other notable prints included SMCI (Develops and sells server and storage solutions), with massive YoY revenue growth at 123%YoY to $12.7B, and aggressive guidance of $40B in 2026. Semi-Conductor designer ARM also outperformed on record royalty growth fueled by datacenter developments. Chip producers AMD and Qualcommd recorded record quarters at $10.3B (AMD) and $12.3B (QCOM) but released cautious guidance over concerns over memory supply constraints.

Energy, Pharma and Insurance

The earnings reports for the energy, pharmaceutical, and insurance sectors this week were defined by a stark contrast between companies leveraging strong pricing power and those grappling with shifting regulatory landscapes or operational headwinds. In the energy sector, Bloom Energy (BE) delivered a standout performance with a 50% EPS beat on $777.7 million in revenue, while ConocoPhillips (COP) missed estimates with a $1.02 adjusted EPS as realized prices fell sharply compared to the previous year. The pharmaceutical industry saw a “metabolic gold rush” drive Eli Lilly (LLY) to a significant beat with $19.3 billion in revenue, contrasting with companies like Novartis (NVS) and Cardinal Health (CAH) that fell short of EPS expectations. Meanwhile, the insurance sector benefited from lower catastrophe losses, allowing Chubb (CB) to report record core operating income of $7.52 per share and Allstate to double its net income to $3.8 billion, even as some major players like MetLife (MET) struggled to meet revenue and earnings targets.

Earnings are simply a datapoint, but the volatility seen following what has largely been a positive quarter does give us some insight into market sentiment. With the nomination of Kevin Warsh to succeed Jerome Powell has triggered a sharp de-risking phase. Markets are adjusting to his reputation for prioritizing a smaller Fed balance sheet and a more rules-based, potentially hawkish approach to inflation. This coincides with desire for AI monetization amidst a steep hike in capex. Simply put institutions are looking for monetization, or to derisk especially around frothy valuations. As such until the market has a bit more clarity over Monetary Policy, and ROI on the continued AI Capex boom, I would expect some heightened level of volatility.

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

Despite relatively positive earnings reports this week, a looming partial government shutdown, among other things has the major indices down or flat coming into the close of trading on the week. We will dive into some of the notable prints from the week and discuss a few portfolios related topics. Whether you follow earnings on your own, or are reading here, I want to stress that in my opinion whether you invest on your own or through an advisor, these should be viewed as data points, not the whole story. Think of earnings as periodic health checks that provide context on a company’s trajectory rather than triggers for immediate action. While quarterly data points are useful, your primary focus should remain on the enduring competitive advantages and the structural growth story that initially justified your investment.

Tesla had a mixed print, with revenue falling short, and a modest earnings beat, but the story on Wednesday was in Elon’s comments. Unsurprisingly he remains steadfastly committed to investing in the future and transforming the firm regardless of short-term noise. Following an announcement that Full-Self-Driving software would move from a purchase to subscription model, Musk announced the “honorable discharge” of Tesla’s Models S and X vehicles. The production capacity that will be redirected to Optimus humanoid robot. Additionally, Musk noted that Tesla has made progress on its robotaxi initiative, as fully automated, paid rides have begun in Austin, Tx. Furthermore, Musk announced that Tesla would be building a chip foundry (where chips are made) in Texas to produce advanced chips. This is a massive undertaking but would, at least in part, protect Tesla from the geopolitical and supply chain risk posed by reliance on Taiwan based foundries. Key developments to watch will be progress on robotaxi approvals across the country, and Optimus production. 

Despite beating earnings, and revenue estimates, Microsoft saw shares fall by 12%, extending a brutal three-months (down 22% over that period). The stark reaction is driven by soft-guidance in Azure, the firms cloud computing division, seen as a proxy for AI demand from the firm’s client-base. Management expects growth in the division to continue around the current 38% in the current quarter, which disappointed the street given extensive capital spending in the past few years. CEO Satya Nadela was candid in his comments, noting that power supply has been a constraint on Azure, stating that the firm has GPUs sitting in inventory that simply cannot plug in yet as they wait on regional power grid connections. As such, there may be upside in the current slump, look for additional cloud compute capacity and potential behind the meter partnerships as drivers for a potential turnaround in 2026. 

Apple posted a phenomenal quarter, with record-breaking iPhone sales, revenue up 16% over last year, and more than 2.5 billion active devices worldwide. Contrary to analyst fears, Greater China revenue grew by 38% year-over-year, driven by a surge in consumers moving to iPhone 17. During his comments Tim Cook noted most users on AI-enabled devices are actively leveraging Apple Intelligence. Cook also noted that the company has acquired Israeli Firm Q.AI which specializes in “silent speech” technology that uses sensors to interpret words from tiny facial muscle movements rather than audible sound. This $2 billion deal—Apple’s second largest fever—aims to let users privately interact with Siri or communicate in loud environments by “reading” their thoughts and mouthing before they even speak. Key developments to watch moving forward will be continued AI strategy development and rising costs of memory as a potential headwind in the second half of 2026. 

Meta surged this week, after a textbook beat and raise quarter. With this, Mark Zuckerberg significantly raised 2026 Capex guidance, expecting to spend $115B-135B on AI infrastructure (up from roughly $72B). Zuckerberg emphasized this year will be the year of “personal superintelligence” with smart glasses potentially becoming as ubiquitous as smartphones. While Meta’s massive spending on AI might seem daunting, for a long-term investor, it signifies management’s commitment to securing the next major computing platform. Similarly, Apple’s temporary supply bottlenecks are a byproduct of overwhelming demand, not a lack of interest in the brand.

Beyond Big Tech, this week’s earnings painted a picture of a market still grinding higher, but with clear sector-level divergences.

Industrials and defense delivered a largely constructive set of results. Northrop Grumman, Lockheed Martin, General Dynamics, L3Harris, and Honeywell all posted modest beats, underscoring steady demand for defense, aerospace, and mission-critical systems. Caterpillar also surprised to the upside, signaling resilience in heavy equipment demand despite macro uncertainty. Boeing was the clear outlier, with a far larger-than-expected loss, reinforcing that execution and cash flow recovery remain the central issues for the name rather than end-market demand.

Financials and payments were broadly solid. Visa and Mastercard both beat expectations, confirming continued strength in consumer spending and transaction volumes, even as growth normalizes. Progressive and Aon delivered clean beats, benefiting from disciplined pricing and favorable underwriting trends. Blackstone’s results reflected improving sentiment in private markets, while MSCI was one of the few disappointments in the group, with softer earnings suggesting some pressure on asset-linked fee growth.

Energy and utilities showed selective strength. Exxon and Chevron modestly beat expectations, while Valero stood out with a strong refining-driven upside surprise. NextEra Energy delivered a small beat, consistent with steady regulated utility performance. GE Vernova, however, missed by a wide margin, highlighting near-term execution and cost challenges despite longer-term enthusiasm around electrification and grid investment.

Consumer, travel, and housing were mixed. Starbucks beat expectations, suggesting stabilization after a choppy period, while Levi Strauss and M/I Homes delivered strong upside surprises, pointing to healthier discretionary demand and housing affordability at the margin. On the other hand, American Airlines and Las Vegas Sands highlighted ongoing volatility in travel-related margins, even as demand remains intact. Whirlpool’s massive earnings beat stood out, driven by cost controls and margin recovery rather than top-line acceleration.

Healthcare, telecom, and legacy tech leaned steady but unspectacular. Stryker delivered a modest beat, reinforcing its defensive growth profile. IBM’s upside surprise pointed to improving execution across software and services, while AT&T and Verizon posted small beats consistent with slow, predictable cash-flow stories. On the other side, Texas Instruments and Corning missed, underscoring that portions of the industrial and semiconductor supply chain are still working through inventory and demand normalization. ASML’s results fit that narrative as well—solid long-term positioning and order visibility, but near-term results reflecting customers’ continued caution on capital spending as the cycle grinds toward recovery rather than snaps back.

Overall, while headline reactions were dominated by Big Tech, the broader earnings picture suggests a market that is fundamentally stable, with institutions rotating toward companies showing execution discipline and margin recovery rather than pure growth acceleration. Watch for increased volatility over the next few weeks, as the market digests another partial Government shutdown, and the administrations nomination of Kevin Warsh, to replace Jerome Powell as Fed Chairman. 

Portfolio Topics:

Tax-Loss Harvesting

We never enjoy seeing red next to any holding, but in a taxable account (outside of a 401(k), IRA, or Roth), periods like this can create an opportunity heading into the next tax season.

It’s worth reviewing your portfolio by position and by individual tax lot to identify unrealized losses, particularly in holdings that are easily replicable. In those cases, you can sell the position to realize the loss, use it to offset other gains, and then reallocate into a closely related investment to maintain market exposure.

When done thoughtfully, this kind of tax-aware positioning can be a meaningful tailwind for long-term returns. I’d encourage reviewing your portfolio with your advisor to ensure these strategies are being implemented appropriately and in a way that aligns with your broader financial situation.

The Individual 401(K)

An individual 401(k), often referred to as a solo 401(k), is one of the most underutilized planning tools available to self-employed professionals and business owners, and the real opportunity lies in how much flexibility and scale it can provide when structured correctly. Eligibility is relatively narrow—earned self-employment income and no full-time employees outside of a spouse—but for those who qualify, the planning advantages can be substantial.

What makes the individual 401(k) especially compelling is contribution potential. Participants contribute in two capacities, both as employee and employer, which allows for significantly higher annual savings than most retirement vehicles. In strong income years, this can translate into meaningful tax deferral while simultaneously accelerating long-term wealth accumulation. For many business owners, this is the first time they realize just how much more they could be saving compared to a SEP IRA or traditional IRA.

The plan’s flexibility further enhances its appeal. Contributions can be made on a pre-tax or Roth basis, or a combination of both, offering valuable control over future tax outcomes. Investment options are often broader than what’s available in off-the-shelf retirement accounts, and certain plans allow for loans if liquidity is ever needed. When coordinated with the rest of a household’s financial picture, the individual 401(k) can become a central pillar of a long-term strategy rather than just another retirement account.

For business owners, and professionals who know someone operating independently—or running a closely held business without employees—this is often a conversation worth having. The individual 401(k) isn’t right for everyone, but for those who qualify, the benefits can be significant. If this sounds like it may apply to someone you know, it’s worth reaching out to explore whether the structure and strategy make sense in their specific situation.

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.

If you are not terribly familiar with why earnings reports are important, and able to move markets the next few paragraphs will lay that out—if you are familiar feel free to skip down.

We are moving into the thick of earnings season. Quarterly reporting acts as the market’s essential reality check, bridging the gap between speculative expectations and actual financial performance.

By providing a transparent window into a company’s cash flow, margins, and debt every 90 days, these reports allow investors to continuously recalibrate their valuation models. This regular flow of data reduces “information asymmetry”—ensuring the public knows as much as the insiders—and forces a periodic validation of management’s long-term strategy.

Ultimately, these reports serve as an anchor, ensuring that stock prices remain tied to fundamental economic value rather than just sentiment.

Investors often rely on analysts, who set expectations for company performance. The base that these expectations are built off “Management Guidance” which is a company’s official forecast of future financial performance (i.e. revenue, earnings, margins).

Three of the best words to hear during earnings are “beat and raise” where the companies prior quarter outperformed, or beat, the street (analyst) expectations, and management raises their guidance, in releasing updated forecasts for better future performance.

If earnings are missed, you may want to dig deeper into any discrepancies in performance quarter over quarter, evaluate the broader sector or market to see what could have driven the change, and whether it is a short-term condition, or a shifting trend that will cause headwinds moving forward.

Metrics for valuation multiples will vary sector to sector but largely earnings per share (EPS) and revenue will broadly be the indicators that you read or hear when earnings are being reported.

THIS WEEK:

This week’s portion of the earnings cycle has been a study in the market’s prioritization of guidance over performance, as investors grapple with shifting trade policies and “Greenland-related” macro volatility.

Intel (INTC) and Netflix (NFLX) both delivered bottom-line beats for Q4, yet saw their stocks tumble 15.1% and 7.0% respectively after issuing cautious Q1 2026 outlooks.

This “guidance-first” sentiment similarly penalized 3M (MMM) and GE Aerospace (GE), which slid 8.3% and 5.4% on the week despite solid earnings beats, as the market reacted poorly to 3M’s conservative profit forecast and GE’s tepid 1% revenue growth projection. Abbott Laboratories (ABT) faced the steepest fundamental rejection, dropping 10.8% after a revenue miss in its diagnostics segment overshadowed its EPS achievement. Conversely, Prologis (PLD) emerged as the week’s rare outlier, gaining 2.9% as management’s robust 2026 Core FFO guidance provided the long-term “anchor” that sentiment-driven peers lacked.

A LOOK AHEAD:

Over the next two weeks six of the Mag7 firms will report their latest earnings, with Nvidia reporting at the end of February. As such the below will act as something of a scouting report on each of the Mag7 firms. Additionally, a rundown on Taiwan Semi-Conductor or TSMC, a major upstream partner in the AI space, who reported phenomenal earnings with a Beat and Raise quarter. This should not be interpreted as a research report but a 30,000 foot view of firm offerings, competitive advantages, and threats to market share.

The Platforms & Ecosystems

Microsoft (MSFT)

• AI Function: Leading the Agentic AI shift through Copilot and their partnership with OpenAI. They are automating the white-collar workflow, transforming Azure from a storage cloud into an AI-first intelligence engine.
• Moat: Massive enterprise distribution. Every Fortune 500 company is already a customer, making their AI upsell a natural evolution.
• Threats: High CapEx spending on data centers may weigh on margins if AI productivity gains don’t materialize as quickly as projected.

Tesla (TSLA)

• AI & Robotics: A Robotics and AI company disguised as a carmaker. Their Optimus humanoid robot and FSD (Full Self-Driving) are the core of their $1.3T+ valuation.
• Integration: Heavily vertically integrated, now designing their own AI chips (AI5/AI6) to reduce dependence on NVIDIA.
• Threats: Declining automotive margins (down to 16%) and the high “Musk Premium” which ties the stock price closely to the CEO’s public narrative. Regulatory hurdles in the robotaxi space have given Waymo (GOOGL) an early, albeit limited, battle for market share.  

Meta (META)

• AI Function: Utilizing AI for hyper-personalized ad targeting and “Smart Glasses” (Ray-Ban Meta) that act as an AR/AI interface.
• Integration: Meta is spending an estimated $91B in 2026 CapEx to build an independent AI compute stack to bypass reliance on external mobile OS platforms.
• Threats: Regulatory pressure in the EU, a slowdown in spending by major Chinese retailers TEMU and Shein, which have historically driven significant ad volume could hit growth, additionally with significant CapEx, margin compression is a risk if spend and revenue grow asymmetrically.

Apple (AAPL)

• AI Function: Edge AI. Apple is focusing on Apple Intelligence and an overhauled Siri (codenamed “Campos”) that runs on-device to protect privacy.
• Moat: An install base of 2.35B users. This gives them a “last mile” advantage—they own the interface the consumer actually uses.
• Threats: Slow innovation perception compared to AI-first peers and heavy reliance on iPhone sales in a softening China market.

Alphabet (GOOGL)

• AI Function: Deeply vertically integrated with their own TPU (Tensor Processing Units) and the Gemini model. They are a leader in autonomous vehicles via Waymo, which is now seeing expanded deployment in U.S. cities.
• Threats: Facing stiff AI competition and regulatory scrutiny that may impact its long-term competitive edge. Battling Tesla for robotaxi market share. Waymo leads in deployment at the moment but has significantly higher cost per vehicle in production.
• Moat: Data dominance. Google Search and YouTube provide the largest training sets on earth for multimodal AI.

Amazon (AMZN)

• AI & Robotics: The gold standard for Warehouse Automation. Their fleet of mobile robots and AI-driven forecasting (SCOT) has fundamentally changed the economics of logistics.
• Moat: Flywheel Effect. AWS provides the AI infrastructure (Bedrock) to others, while Amazon uses that same tech to lower its own delivery costs.
• Threats: Antitrust scrutiny and rising labor costs that force even faster (and more expensive) automation pivots.

The AI Infrastructure & Foundational Layer

NVIDIA (NVDA)

• AI & Automation: The undisputed king of the AI era, providing the “Compute” bedrock via GPUs and the CUDA software stack. They are moving rapidly into Physical AI and robotics through their Omniverse and Isaac platforms, which allow for the simulation and deployment of autonomous machines.
• Integration & Moat: Highly vertically integrated in the software-hardware stack. Their “Blackwell” and upcoming “Rubin” architectures create a cycle where software lock-in makes switching costs prohibitive for cloud providers.
• Threats: Increasing custom chip development from their own customers (AMZN, GOOGL) and potential regulatory caps on advanced chip exports.

TSMC (TSM)

• Competitive Position: The world’s forge. They hold a near-monopoly on the advanced nodes (3nm, 2nm) required for every major AI chipmaker.
• Recent Outperformance: TSMC recently delivered a monster Q4 2025 report on Jan 15, 2026, with $33.7B in revenue (beating guidance) and a massive gross margin of 62%.
• Key Advantage: Unmatched scale and Process Leadership. They are the ultimate “picks and shovels” play—when NVDA or AAPL wins, TSM wins by default.
• Threats: Geopolitical concentration in Taiwan and the extreme capital intensity required to build new fabs ($52B–$56B planned for 2026).

THE ENERGY ISSUE

As the Artificial Intelligence market continues to mature, the most critical bottleneck to monitor isn’t the availability of high-performance GPUs, but rather the availability of power. AI workloads—particularly the massive training clusters for LLMs—require energy profiles that are far more volatile and intense than traditional IT. We are seeing a structural shift where a single high-density AI data center can demand upwards of 100 MW to 300 MW, roughly equivalent to powering a small city.

This power crunch is creating a significant temporal mismatch between the tech and utility sectors. While a state-of-the-art AI facility can be planned and built in under two years, the high-voltage transmission lines needed to feed it often take 15 to 30 years to permit and construct. In the U.S. alone, nearly 2 TW of clean energy is currently trapped in interconnection queues. Without coordinated reform, this energy deficit risks deflating the AI valuation bubble as computing supply remains physically constrained by a grid that was never designed for this level of sustained, high-density industrial load.

Short-to-Medium Term Solutions (1–3 Years)

In the immediate term, hyperscalers like Microsoft, Amazon, and Google are pivoting toward behind-the-meter (BtM) and bridging strategies to bypass grid delays.

• On-Site Generation: Tech firms are deploying dedicated natural gas plants and fuel cells directly at data center sites to ensure 24/7 reliability while waiting for grid hookups.
• Operational Efficiency: The rapid adoption of liquid cooling is no longer optional; it is a necessity for racks exceeding 30–40 kW to maintain hardware longevity and reduce thermal energy waste.
• Grid Modernization: Deployment of advanced software tools could unlock up to 175 GW of existing transmission capacity without building new lines, providing a critical buffer for the 2026–2028 timeframe.

Long-Term Strategic Solutions (5–10 Years)

To sustain growth through 2035, the industry is betting on a fundamental restructuring of energy generation and storage.

• Small Modular Reactors (SMRs): Because AI clusters require continuous, “firm” baseload power, companies are aggressively exploring factory-built SMRs. These 5 MW to 300 MW reactors can be installed directly on AI campuses, scaling in modular increments as compute demand increases.
• Next-Gen Geothermal: Leveraging technology from the shale revolution, next-generation geothermal could supply up to 40 GW of clean, 24/7 power by 2035, offering a carbon-free alternative to traditional baseload sources.
• Innovative Energy Storage: The development of structural battery composites—materials that function as both load-bearing building components and energy storage—may revolutionize how data center infrastructure manages power density over the next decade.

WRAPPING UP:

A few things to keep in mind—earnings are important, and informative, but in my opinion, they are a datapoint amongst a set that should be weighed in all investment decision making processes. If you are investing for the long-term look at them as a progress report, not the whole story. If you have any interest in the power solutions listed above we will likely go into a deeper dive on what those would look like in the coming months, there are also a wealth of videos by energy experts explaining in basic terms that make complex solutions very digestible, I highly recommend exploring the topic as it has the potential to be a major market factor over the medium to long term. Finally, AI will be a common theme here, as it is a cornerstone of the current market environment, I encourage anyone who has not to experiment with Chat-GPT, Google Gemini, Anthropic’s Claude, and any other number of LLM platforms, the more comfortable you are utilizing the technology moving forward the more valuable you will be if, and more likely when, it is adopted in your profession in some form, or fashion.

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