Weekly Recap:

by Michael Reinking, CFA & Eric Criscuolo

Published on 2/13/26

First, we need to congratulate the Seattle Seahawks for their cakewalk win over the Patriots in Super Bowl 60. Glad to see they stuck with the running game this time. Second, Happy Friday the 13th! Fitting for the all the slashing that happened across equities this week. Third, tomorrow is Valentine’s Day.  We can’t make predictions here but we’re fairly confident the flower market is the next bubble. Especially if you’re shopping in Grand Central Terminal tonight (Don't).   

Last Monday Punxsutawney Phil saw his shadow and added 6 more weeks of winter to our lives. If you’re a fan of Game of Thrones, you know that “Winter is Coming” is the big narrative theme in that story. In our world it’s been painfully obvious that winter has been here for a while.  The main part of that narrative was the White Walkers, the all-powerful ice zombie army that threatened to destroy all of humanity. Can you see where we’re going here? Last week, Winter became a SAAS-pocalypse, and AI products took the place of the White Walkers. Already under sustained pressure from displacement fears, a rollout of new services from Anthropic triggered a step-up in selling pressure across software platforms. The action moved from financial services and legal software to eventually engulf the entire group. That bled into other areas like private credit names that had exposure to software company loans. The IGV software ETF fell about 10% for the week.

Despite the weakness in tech and momentum names last week, the great rotation underneath continued. Friday saw a sharp bounce and multiple indices hit new all-time highs. That includes the Dow Jones Industrial Average which broke above 50,000 for the first time in history. We have hats to prove it. Despite the SAAS-pocolypse the S&P 500 was about flat. The rotation was readily apparent when looking at other indexes: the equal-weight, Mid and Small cap indexes rose 2% to 4%. The Friday rally got the S&P 500 back above its 50-day moving average. Equity losses were largely contained to the big tech sectors and the software-exposed names. 

So that set the stage for this week. With end of football season and pitchers and catchers reporting for Spring Training, it felt like Winter maybe was coming to an end despite the groundhog’s prognostication. Things started well in the markets too, with the S&P trading higher, software continuing its Friday bounce and small caps leading on Monday.

It was a false spring, however. The rolling wave of AI (excuse the mixed metaphor) didn’t recede out to sea but continued inland, slamming into new industry groups. Financial brokers and wealth advisor stocks got hit on potentially competitive AI product offerings from Altruist. Financial data analytics companies, already stumbling from the earlier blows, got hit again with some disappointing earnings adding to the downside. Real Estate firms with significant data businesses also came under pressure. Trucking and logistics companies got whacked, especially those with software/broker businesses. It wasn’t discriminate. If a new AI for a specific vertical hit the wires, the selling was rapid and broad in that industry. The S&P 500 has been unable to crack 7000 on multiple tries, and on Thursday it broke below its 50-day again and closed at its lows, hovering just above the 100 day. However on Friday a brief move below the 100d was quickly bought and the index pushed back above the line.

Despite the ugly narrative above, the index is only off 1% for the week and 2% below its all-time closing high. That’s with the biggest of the big not only notably absent from the leaderboard, but actively weighing on the overall index. The FANG+ index fell again this week and is down 10% YTD. Meanwhile the rest of the market has picked up a big part of the slack. The equal-weight was up modestly. Small and Mid-caps were down but outperformed. Value beat Growth again.

Defensive sectors and dividend payers paced the market. Utilities ripped and led the pack as the XLU gained 7%. Excluding the pandemic, it was the best weekly performance in the past 10 years.

Materials and Real Estate were the other big winners this week. Chemicals and packaging names continue to be very strong for Materials. Real Estate was interesting. Most of the sector saw strong gains. Data center operators traded well with Equinix rising 13% on strong earnings and Digital Realty up 4%. Earnings also boosted Iron Mountain, up 13%. However, AI crashed into names with data businesses (CBRE, CoStar, Zillow, Cushman, Compass).  

Tech fell 2% but software stabilized. The IGV ETF rose 0.5%. This followed weekly declines of 9%, 8%, 1% and 6% over the past four weeks. Software constituents displayed a very barbell-like performance. Earnings helped drive DataDog above the AI narrative and Oracle bounced on several news tailwinds (Open AI growth projections, broker upgrade). Data center leveraged names (semis, infra components) were strong while IT Services were under pressure. Strong results from Vertiv and Applied Materials continued to push the white hot data center demand narrative.

Financials were the worst off this week and the sector should bear more investor scrutiny going forward. The XLF has broken all three major moving averages and is testing support ~$51.  Most of the major money center and investment banks were down 5-10% this week but had been strong YTD. Regional banks were lower as well. Several headwinds are hitting the sector. The AI wave fell upon data service businesses and Insurance brokers/service providers which has been the big drag on the sector. Crypto-leveraged names- exchanged, brokers, service providers- were also under pressure but a sharp rally on Friday erased much of those losses this week. Strong reaction to Coinbase earnings also helped.  Yields bounced around this week but overall saw a Bull flattening, which likely contributed some pressure (NIM expectations).

Communication Services was also hit hard. The mega caps Alphabet and Meta were down 3-5% but media names were also slammed following a clip of a, what else, AI-generated fight between Brad Pitt and Tom Cruise on top of a building. After seeing it, Deadpool screenwriter Rhett Rheese posted "Hollywood is about to be revolutionized/decimated."  The AI was from the ByteDance platform Seedance, a company caught in the crosshairs of the China-US geopolitical tension. This pic is from the video. 

The table below is the ranked performance of each sector over the past 2 weeks, showing the consistent pressure in some areas and momentum in others. Financials, Comm Services, Tech (with a bounce in the middle) the worst performers.  Utilities. Real Estate, Materials much better. 

While earnings are still being updated by the sell-side, the vast majority of the price moves have been driven by multiple expansion or contraction rather than earnings changes. Tech and Energy are notable as EPS estimates have come down for Energy while the multiple expanded, and vice-versa for Tech.

High beta, retail favorite groups were mixed this week despite most rallying on Friday. Neoclouds were mixed to higher. Genomics names were mostly lower. Nuclear (ex-Utilities) sold off as did Quantum computers and Space names.  Other high momentum/retail favorites that have seen significant volatility cooled off, including precious metals, while Bitcoin’s swift decline stabilized after reaching $60k.

The makeup of leaders and laggards so far this year is very jumbled. Three of the four best performing sectors this year are cyclicals- Energy, Materials, and Industrials, while the fourth is Consumer Staples, a defensive play. Another sector, Financials, is a significant laggard, but most of the YTD underperformance is from non-bank groups and this week. Historically semiconductors have been a highly cyclical group but they’re driving most of the gains in Tech and offsetting the software tailspin.  The mega caps are going nowhere. Only 6 of the 20 largest stocks are in the green so far this year. In other markets, safety bids are materializing- Treasury yields falling, Yen and Swiss Franc strengthening.

There’s a swell of undercurrents across markets, if you can’t tell. Index volatility has remained reasonably contained, but we’ve highlighted quite a bit of volatility beneath the surface. Nomura released a study highlighting that while the S&P 500 is around unchanged over the last month the average stock has moved >10%, putting the dispersion in the 99th percentile over the past 30 years. This is emblematic of the great rotation but if correlations start to move up that is where things can start to get more dynamic. The cyclical sectors driving markets need to continue work. 

After last Friday’s jobs report got delayed due to the government shutdown this turned out to be a big week of economic data. At a high level it was a mixed bag but didn’t signify any major changes to the economic backdrop. The first of this week’s data was the December retail sales which came in well below estimates flat m/m, below the 0.4% estimate, while the control group which feeds into GDP fell 0.1% causing the Atlanta Fed’s GDPNow to lower Q4 growth to 3.7% from 4.2%. Sales at miscellaneous store retailers, furniture and clothing were all down just under 1%. Building materials/garden/supplies dealers and sporting goods were positive standouts for the second consecutive month.

 The next piece of major economic data was the delayed BLS Employment report. Nonfarm payrolls came in at nearly twice the estimate up 130k (vs. 70k cons.). Of course beneath the headlines were puts and takes. Over two-thirds of the private jobs added were in healthcare and social assistance.  While this group has been a consistent source of job growth (and important), it’s not a blazing signal for robust economic activity. Construction (+33k) and manufacturing (+5k) additions, however, are more bellwethers and both improved after being negative last month.  In addition, the Manufacturing Diffusion Index (% of sub-industries with gains minus % with losses) moved back above 50 (overall job growth) for the first time since February 2024.  The overall Private Diffusion index has been >50 for 3 straight months. Government jobs fell 42k (Federal -34k). The unemployment rate fell to 4.3% from 4.4% and the labor force participation rate ticked up to 62.5%. Wage growth was a little stronger than expected. The household survey was also quite strong showing the number of employed people up 528k. The report included the final benchmark revisions, which followed the preliminary revisions in September. That lowered 2025 total payroll growth from 584k to 181k.  

The other labor related data included initial/continuing claims which were both modestly ahead of estimates but continue to support the Low Hire Low Fire environment.  The Q4 Employee Cost index came in slightly below estimates which does not suggest that the labor market is a source of inflationary pressure.  

Moving to inflation, this morning’s CPI report came in a touch better than expected. On an annual basis headline moderated to 2.4% from 2.7% last month driven by a decline in oil prices and moderation of food prices. Core was inline with expectations at 2.5% down from 2.6% in December. On the goods side tariff impacted products were mixed with disinflation in autos and apparel while appliances and furniture moved higher. The shelter component moderated from 0.4% to 0.2%. There had been some concern ahead of this report following multiple years where January inflation jumped with annual price resets. Interestingly looking under the hood, it shows that auto and healthcare insurance both declined, these have been upside drivers over the last couple of years, reach out to the MAC Desk if your policies reset lower. This is a modest positive from a Fed perspective but won’t in the medium term but won’t impact policy imminently. 

It has been a busy week for the New York Fed. On Monday the Survey of Consumer Expectations was released. 1-year median inflation expectations fell 0.3%, to 3.1% and were unchanged at three and five-year ranges (3.0% for both). The mean perceived probability of losing one’s job in the next year fell 0.4%, to 14.8%, inching closer to the trailing 12-month average of 14.6%. Expected household financial situation a year from now deteriorated modestly but are off recent highs

Tuesday the Quarterly Consumer Credit Report showed that total household debt increased by 1% in Q4 2025 to $18.8T. Looking at accounts moving into the serious delinquency (90+ days) outside of the continued increase in student loans other categories remained reasonably tame.  

Yesterday the team published a report titled “Who Is Paying for the 2025 U.S. Tariffs?” The conclusion is that >90% of the tariff increase was born by the US in the first eight months but that has been declining as the year progressed as firms reorganized supply chains. 

Yields have been moving lower throughout the week outside of the uptick following the jobs report. June is the first month where the probability for a rate cut is >50% with markets now pricing in between 2-3 by year end. The ICE BofA index has been creeping higher currently ~70. The USD index pulled lower this week with most of the move happening on Monday after the election results in Japan.

Saturday is Valentine’s Day. Get your flowers now. Lets talk warmer weather too. Pitchers and catchers have already begun reporting to Spring Training and the first games will take place Friday.

Back to the markets, which will be closed on Monday for Washington’s Birthday. The big data is next Friday: preliminary Q4 GDP, December PCE and Flash PMIs. Friday is also the next potential date for the Supreme Court to issue a ruling on the tariff case. The FOMC minutes will be out on Wednesday. Other data throughout the week include Housing Starts, Home Sales, Industrial Production, Trade Balance and some Regional Fed Bank surveys. Overseas, China will be closed for the Lunar New Year, which could be interesting for commodity markets.

Earnings will continue. Medtronic, Palo Alto Networks, Toll Brothers, Moody’s, some major retailers and Con Edison will be among the reporters. Have a great weekend. Play Ball!

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