February 22, 2026

My Thoughts on
the Market

Weekly Edition

How did the markets do?

• Stocks bounced back nicely after last week's AI jitters, with the S&P 500 gaining 0.95% and the Nasdaq up 1.42% in a shortened holiday week.
• Bonds held steady and inched down just 0.08% as Treasury yields ticked higher.
• Despite several surprising headlines this week, volatility remained manageable.

What headlines moved the markets?

• The Supreme Court struck down key Trump tariffs on Friday.
  • President Trump responded vociferously, claiming that several of the Supreme Court Justices were corrupted by foreign influences and defiantly stated that he will find other methods to implement tariffs.
  • He announced that new 10% (and later on Saturday revised up to 15%) tariffs will apply worldwide for the next 150 days while his staff draft new tariff rules pursuant to other trade laws not restricted by the IEEPA ruling.
• 2025 Q4 GDP growth disappointed at just 1.4% versus expectations of 2.8%.
  • Although this is a concerning metric, much of this was due to the government shutdown last fall, not underlying economic weakness.
  • Contrary to the popular belief of a weakening economy, or perhaps in spite of it, consumer spending and business investment has remained steady.
• Minutes from the recent Fed meeting showed that officials are split on future rate cuts.
  • The Fed seems optimistic about AI boosting productivity without additional inflation, but they're also worried about concentration risk in tech stocks.
  • Some Fed Governors even mused about the potential for raising rates if inflation due to tariffs remains above the 2% target.

Quote of the week
“The biggest poison for the economies of Europe and the US is this constant uncertainty about tariffs. And this uncertainty must end.” - German Chancellor Friedrich Merz in response to the 15% worldwide tariffs announced on Saturday, 2/21.

• Businesses hate uncertainty, and they also hate taxes. Unfortunately the ever evolving tariff situation is a combination of both.
  • The average tariff rate in 2025 began at 2.7% and jumped to nearly 12% by late 2025, resulting in a $194.8B tax increase paid by companies and consumers.
  • Neither of the stated tariff policy goals, reducing the trade deficit and increasing domestic manufacturing, were accomplished in 2025. Fear of supply chain disruption caused companies to increase imports and stockpile goods, meanwhile domestic manufacturing employment actually fell 0.8%.
• Companies initially absorbed about 80% of tariff costs in 2025 rather than raising prices. However JPMorgan predicts that businesses will have to shift policies and pass through 80% of costs to consumers by the end of 2026.
  • Major retailers like Walmart, Target, Best Buy, and Macy's have given conservative 2026 guidance and warned of potential price increases as they are scrambling to manage procurement uncertainty.
  • Yale economists found that 61-80% of tariff costs are being passed directly to consumers through higher prices, with core goods and durable goods prices increasing by 2.5% and 3.1% respectively.
• Friday’s Supreme Court ruling that struck down many of President Trump’s IEEPA tariffs provides some relief, but the damage is already done. Companies have spent billions restructuring supply chains in the past 10 months and many price increases are already baked in for 2026.
  • Further uncertainty is expected to roil the markets as President Trump has announced that he intends to subvert Congress and the Supreme Court ruling by implementing tariffs via methods other than IEEPA.
  • If, as Article 1, Section 8 of the Constitution states, Congress has the power of the purse, why not pursue tariffs through traditional legislation? Because tariffs (taxes) are very unpopular, especially among conservative voters, and many Congressmen/women do not want to risk upsetting their voter base during a hotly contested mid-term election year.

Personal Finance: Mutual Funds vs Separately Managed Accounts (SMAs)
Disclaimer: This is general educational information and not intended as financial advice.

• What are Separately Managed Accounts (SMAs) and how do they differ from mutual funds?
  • Mutual Funds are like buying a slice of a big pie that thousands of other investors also own. You pool your money with everyone else, and a professional manager buys and sells stocks for the entire group.
  • SMAs are like having your own personal pie. The manager buys individual stocks directly in your account and you actually own those specific shares.
• Advantages of SMAs:
  • Greater control and efficiency of taxes; SMAs let you harvest tax losses throughout the year on individual stocks and reduce your total capital gains.
    • In a mutual fund, you cannot control when or if gains/losses are realized, which can lead to unexpected tax bills at year end.
  • Customization and flexibility of investments; your portfolio manager can build a strategy around your personal preferences (e.g. not investing in tobacco companies or arms manufacturing). You also can direct your portfolio manager to avoid investing in a specific stock, which is useful if you have a large holding of a company from employer stock plans such as ESOP or RSU plans.
    • You have no influence over whether or not a mutual fund manager invests in a company. If you already have a large position in a company and the mutual fund decides to buy more, well too bad!
• Advantages of mutual funds:
  • Generally lower costs than SMAs; typically mutual funds (and ETFs) expenses range between 0.05 - 0.85%, with most costing less than 1%. Also most mutual funds have lower minimum investment requirements than SMAs, making them more accessible to smaller investors.
    • SMAs generally charge between 0.5% - 1.25%, plus trading fees, and require minimum investments of at least $250k (can be much higher). In return however, SMAs often include additional financial services to add value beyond just portfolio management.
  • Simpler approach to building a diversified portfolio; a single fund, such as the SPY, can hold over 500+ stocks. Investors need only invest in a handful of funds to create a diversified portfolio. Mutual funds were invented to allow smaller investors access to a properly diversified portfolio without having to invest in hundreds of stocks individually.

Conclusion

• Don't let the tariff drama distract you from the bigger picture. The economy is still growing and corporate earnings remain solid.
• Tariffs have been essentially a massive tax on American businesses and consumers. While the Supreme Court ruling helps, the economic impact will likely persist well into 2026 as businesses continue adapting to the changing trade landscape.
• When are SMAs a better option for investors?
  • You're in a high tax bracket and tax efficiency is crucial.
  • You have strong preferences about what you want to own or avoid.
  • You already have some concentrated positions that need balancing.
  • You want additional financial services such as tax and estate planning.
• When are mutual funds a better option for investors?
  • You have a small portfolio and cost is your primary concern.
  • You are managing the investments on your own and want maximum diversification with minimum complexity.
  • You're investing in tax-advantaged accounts (401k/IRA/Roth, etc.) where tax efficiency doesn't matter.
  • You are a younger investor and don’t need financial planning or other value-added services.

Have a nice week ahead!

Kevin