US Stock Weekly Report

2026-02-23

• Macroeconomic Landscape: The U.S. market observed a Presidents' Day holiday on Monday, February 16. Mid-week, the January FOMC Meeting minutes were released, indicating the Federal Reserve held rates steady at 3.5%-3.75%, citing "solid" economic expansion and "stabilization" in the labor market, despite some governors favoring a rate cut. Fed staff highlighted "notable" financial stability risks, primarily due to elevated equity prices and high leverage. On Friday, the advance estimate for Q4 2025 US GDP showed a weaker-than-expected 1.4% annual rate increase, a notable deceleration from Q3's 4.4%, partly attributed to a government shutdown. December PCE data for Q4 2025 revealed a slight increase in the overall price index to 2.9%, while core PCE, excluding food and energy, decreased to 2.7%. Durable goods, housing, and industrial production data were stronger than anticipated. The Supreme Court's dismissal of a key element of President Trump's tariff program provided some relief regarding policy uncertainty.

• Market Performance Overview: U.S. equity markets experienced mixed performance during the holiday-shortened week. The S&P 500 gained 1.1% and the Nasdaq Composite rose 1.5%, exhibiting signs of stabilization after recent weakness in the technology sector. The Dow Jones Industrial Average posted a more modest gain of 0.3%. Early in the week, a rotation from technology into cyclical sectors was observed. Communication Services, Information Technology, Industrials, Financials, Consumer Discretionary, and Energy sectors showed gains, while Utilities, Health Care, and Consumer Staples declined.

• Key Events Analysis: The Presidents' Day holiday on Monday limited early trading activity. On Wednesday, the release of the January FOMC minutes reinforced the Fed's data-dependent stance on monetary policy. Friday was significant with the release of the Q4 2025 GDP advance estimate and December PCE data. Corporate earnings season is drawing to a close, with approximately 72.5% of S&P 500 companies surpassing expectations, although some major retailers like Walmart issued cautious guidance. Motorola Solutions (MSI) reported strong Q4 2025 earnings.

• Flows & Sentiment: The University of Michigan consumer sentiment index for February marginally increased to 56.6 but remained below expectations and significantly lower than the previous year, with high prices continuing to be a primary consumer concern. Investor sentiment saw some improvement following the Supreme Court's tariff ruling. In fixed income, core bonds traded lower as Treasury yields edged higher. Sentiment divergence persisted across wealth levels, with stockholders displaying more optimism than non-stockholders.

• Overall Assessment: The week offered a complex view of the U.S. economy, marked by resilient but decelerating growth, indicated by Q4 GDP figures, alongside persistent inflationary pressures from PCE data. Equity markets stabilized and recorded gains, particularly in the technology sector after earlier downturns. The easing of tariff-related policy uncertainty provided some positive impetus, yet underlying macroeconomic concerns and wealth-based disparities in consumer sentiment suggest a nuanced market environment.

• Upcoming Events: The forthcoming week includes the release of the Producer Price Index (PPI) on February 27, and initial jobless claims on February 27. Federal Reserve officials, including Bostic and Logan, are scheduled to deliver remarks. The Employment Situation report is anticipated in early March.

• Market Logic Projection: Continued market volatility is expected as investors assess incoming economic data and evolving policy responses. Inflation could potentially accelerate in mid-year, driven by fiscal stimulus and the pass-through of tariff costs. The Federal Reserve is likely to maintain its current policy stance through the first half of 2026, awaiting clearer economic indicators before making decisive rate adjustments.

• Strategy & Allocation Recommendations: A market-weight allocation to equities is advised. Investors may consider a barbell strategy, combining growth opportunities in technology and AI with the stability of high-quality value stocks. Non-tech sectors, specifically finance, health, and industrials, are demonstrating robust earnings growth.

• Risk Alerts: Key risks include potential inflation acceleration stemming from delayed tariff pass-through and fiscal stimulus, and the possibility of fewer Fed rate cuts than market expectations due to a divided Federal Reserve. Geopolitical tensions continue to pose a threat to market stability. Concerns regarding AI overvaluation and its potential to trigger market corrections if enthusiasm wanes also persist. Additionally, consumer sentiment, hampered by elevated prices, could impact spending.