WEEKLY MARKET SUMMARY

Global Equities: Uncertainty over the potential impact of artificial intelligence across a variety of industries weighed on stocks during weekly trading, with the S&P 500 ending the session down -0.4%. The Nasdaq Composite also ended in the red, down -1.0%, while the Dow Jones Industrial Average slipped -1.3%. US small cap stocks slipped -1.2% despite lower interest rates, which are generally considered a tailwind for smaller companies. Foreign stocks fared better, with developed markets up 0.5% and emerging markets gaining 0.4% during the week.

Fixed Income: The 10-Year Treasury Yield continued to ease, breaking below 4% for the first time in 2026 and ending the week at 3.95%. The move lower in yields pulled the average 30-year fixed rate mortgage below 6% for the first time since 2022, a welcome sign for potential homebuyers who have been sidelined by high borrowing costs. Concerns over the high proportion of tech-related debt in private credit markets weighed on the sector. Private credit trailing-twelve-month defaults reached a record 5.8% in January and there are concerns that defaults from software firms could accelerate as high as 15% due to AI disruption to their business models.

Commodities: US West Texas Intermediate Crude prices surged higher late in the week after the US-Iran negotiations wrapped up without a deal. WTI crude closed out the week at $67.29 a barrel ahead of Sunday’s OPEC+ meeting. Gold prices moved steadily higher during the week, ending just under $5,300/oz.

WEEKLY ECONOMIC SUMMARY

Consumer Confidence Rises: The February Consumer Confidence Index ticked up from 89.0 to 91.2, surpassing expectations and reflecting consumers’ optimism over the future but also frustration with the current economic situation. Respondents’ views on the jobs market showed a notable improvement, with 28% describing jobs as “plentiful”, a +7.4% differential over those saying jobs are difficult to get. The top concern was, unsurprisingly, inflation and affordability, although forward-looking inflation expectations fell to 3.4%, the lowest since early 2025.

Producer Price Inflation Runs Hot: Odds of a March rate cut fell to near-zero after the Producer Price Index (PPI) inflation report showed wholesale inflation rose 0.5% in January to an annual rate of 2.9%. Core PPI (ex-food and energy) was even hotter at 0.8%, accelerating to an annual rate of 3.6%, which was the highest in ten months. Economists approximate a three-to-six-month lag before PPI inflation shows up in consumer prices, so the report gives some ammo to the inflation hawks at the Fed in their argument for a prolonged pause in any 2026 rate cuts.

Earnings Update: The world’s most valuable company, $4.3 trillion Nvidia (NVDA), reported earnings during the week and once again blew past lofty expectations, growing revenue 73% year-over-year to $68.1 billion during the quarter. The earnings report was stellar across the board, with a bottom-line beat of $1.62 EPS vs $1.53 estimates, and bullish guidance projecting $78 billion in the next quarter vs the expected $72.6 billion. The guidance was even more impressive considering it excludes all China revenue due to uncertain US export restrictions. Surprisingly, the stock sold off sharply post-earnings, attributable to a mix of “sell the news” and the AI trade falling out of favor recently.

CHART OF THE DAY

The Chart of the Day shows the underlying sector exposure within the Private Credit, Investment Grade Bond, and High Yield Bond markets. Private credit markets have been in the news recently over concerns of a potential uptick in defaults, which stems from the possibility that AI will disrupt existing business models. The default concerns have, thus far, been largely contained to private credit and not spilled over to corporate bond markets. The reason private credit is in the crosshairs is the materially larger exposure to technology, specifically software companies which could be rendered obsolete as AI refines its ability to code sophisticated software. In addition to this concentration risk, the relatively more opaque information on private credit holdings has also contributed to the recent investor fears. Since the assets of software companies are largely intellectual property and not tangible goods that can be liquidated, the estimated recovery rates from defaults are also lower than sectors like industrials and energy, which make up a large portion of high yield bond debt.

Data Sources: Cliffwater, Bloomberg, S&P Global. Chart and commentary by VestGen Investment Management.