February 1, 2026

My Thoughts on
the Market

Weekly Edition

How did the markets do?

• Stocks had a choppy week, with the S&P 500 ending slightly lower after hitting a new all-time high but failing to hold onto it.
• Bonds performed better than stocks as Treasury yields eased slightly following the Fed's decision to keep rates steady.
• Overall both markets showed some volatility around the Fed meeting but generally stayed fairly calm this week.

What headlines moved the markets?

• As expected, the Fed held interest rates steady at their January meeting.
  • I'm watching for signs of when the Fed might resume rate cuts, but their patient approach is actually a good thing for long-term stability.
  • This reinforces why we maintain diversified portfolios rather than trying to time Fed moves because Fed policy is opaque by design.
• Treasury bonds stabilized after the prior week’s “Sell America” trade due to backlash over President Trump’s comments on Greenland. US Treasury bonds are still considered the least risky asset available, even though international sentiment towards the US is waning.
  • While bond investors welcomed this news, I'm keeping an eye on longer-term inflation trends from tariffs and the weakening of the US Dollar.
• Earnings season continued with mixed results across major tech companies.
  • Some companies are showing strong fundamentals while others are facing significant skepticism from higher costs related to spending on AI.
  • Case in point, Microsoft fell over -10% this week despite announcing positive earnings results on Wednesday.

Quote of the week
“The Microsoft Cloud surpassed $50 billion in revenue for the first time, up 26% year over year, reflecting the strength of our platform and accelerating demand” - Microsoft CEO Satya Nadella.

• Counterintuitively, even though Microsoft showed significant earnings growth in their Cloud platform, shares sold off heavily due to investors souring on AI spending without a clear timeline for a return on investment.
  • Microsoft shares fell -12.25% on Thursday shortly after the markets opened the morning following their earnings call.
• We have seen the luster fade on several large tech companies in the past several months as investors are becoming increasingly skeptical of AI’s ability to deliver profits after spending hundreds of billions of dollars on development.
  • Oracle, Microsoft, Palantir - all three companies’ share prices are down double digits so far this year after having phenomenal runups in 2025.
  • Meanwhile, OpenAI, widely seen as one of the leaders in AI development, has yet to achieve profitability and recently announced another $100B round of fund raising, with Amazon committing to invest $50B of it.
  • As I’ve mentioned before, the AI bubble likely won’t “burst” overnight, but rather it will slowly deflate as expectations come back in-line with reality.

Notes from Company Earnings Calls this past week

Banks and tech companies announced 2025 Q4 earnings over the past couple of weeks - below are some notes and observations:

• Consumer spending is still strong and retail bank deposits have increased in the past quarter, meaning that folks are earning more relative to their spending.
• Consumer credit has eroded slightly, but banks also wrote off less “bad loans” in the past quarter.
• Commercial real estate lending is finally rising after sliding downward for the past eleven months. This is a positive indicator for commercial real estate.
• Despite the broader negative sentiment towards the US, international consumers are still spending consistently in US retail stores.
• Consumer discretionary expenses such as luxury goods, travel, entertainment, and going out to restaurants increased last quarter
• Unemployment has not risen above the 5% (the minimum threshold to be concerning to the Fed) which is good, however wage growth has been stagnant as well and the Fed is watching that metric closely.

Conclusion

• The positive indicators among consumer spending, credit, and unemployment led the Fed to hold rates steady rather than cutting this month. The Fed typically cuts rates in order to stimulate the economy, and this month they decided that the recent economic data looks positive enough that another cut is unnecessary.
• The AI business is becoming very dependent on raising money and hoping for good news to keep it afloat. It doesn’t take much of a bad quarter for share valuations to fall precipitously. OpenAI has lost its lead to Google’s Gemini and may go the way of Netscape from the 2000s Tech Bubble era. Just because a company is first-to-market, does not mean that it will remain the dominant force.
• Although the political noise can be deafening at times, the US consumer has remained resilient and companies have so far been able to navigate through the maelstrom. Don’t assume that every negative headline will have a detrimental impact on the economy, company earnings results are showing that things are in better shape than expected at the moment. Also it’s important to keep in mind that markets are forward looking and quarterly earnings calls look backwards - what we are seeing in the rearview mirror may not necessarily be what is on the road ahead. Prices move in anticipation of what is expected to happen and are reconciled with reality after the event occurs. And as we all know, expectations and reality are rarely in congruence.
  

Have a nice weekend!

Kevin