Hope you are all doing well. U.S. stock indexes gave up much of the ground they had gained the previous week, extending a pattern of alternating gains and losses that’s characterized early 2026. The Dow finished down 1.3% for the week, the NASDAQ declined 0.9%, and the S&P 500 slipped 0.4%. January’s modestly positive momentum didn’t extend into February for the S&P 500 and the NASDAQ, as both indexes finished in negative territory, with the former down 0.9% and the latter 3.3% lower. In contrast, the Dow eked out a 0.2% gain, extending its string of positive months to 10 in a row. With military operations underway, I have broken down this week’s update using military nicknames
Head Hunters – The nickname of the 80th Fighter Squadron, US Air Force
A joint U.S.-Israeli military operation against Iran was initiated on Saturday. It is officially called Operation Epic Fury. Head-hunting and potential regime change are apparently part of the mission. Iran’s leadership structure was targeted, and much of its leadership is dead. Historically, major geopolitical events and U.S.-involved conflicts going back as far as World War II have not had a lasting negative impact on US equity markets. During Operation Desert Storm, the market was up over 10% a year after it began. Operation Iraqi Freedom, the market was over 30% higher a year later. So we have seen stocks actually outperform in the long run. Middle East conflicts, of which there have been many, typically cause short-term market volatility. Expect to see some fear-induced selling. It will no doubt recover as the situation stabilizes. We may see spikes in energy and defense stocks. A surge in safe-haven assets like gold and short-term treasuries is also likely. Iran shares a coastline with the Strait of Hormuz, the world’s most important waterway for the global oil trade. Depending on the conflict’s length, it could cause a major supply chain disruption and a spike in oil prices. Even a potential short-term drop is not a reason to sell your stocks in what should continue to be a long-term bull market.
Magnificent Bastards – The nickname for the 2nd Battalion, 4th Marines
The renowned infantry battalion has a long history of elite combat results. Obviously, the stakes are in no way similar, but the seven U.S. mega-cap stocks known as the Magnificent Seven have developed their own history of excellent results. The Mag 7 continues to drive a disproportionate share of the overall market’s earnings growth. Those seven stocks generated average fourth-quarter earnings growth of 27.2% versus a 9.8% rate for the other 493 companies in the S&P 500. Mag 7 earnings growth has now exceeded 25% in 10 of the past 11 quarters. The final and most important Mag 7 company, Nvidia, reported earnings this past week. NVIDIA is the world’s most valuable company by market capitalization. It is valued at above $4.7 trillion and comprises 8% of the S&P 500. The company’s torrid stretch of earnings growth continued as it delivered record revenue. They beat the already elevated analyst expectations and issued strong guidance. Computing demand continues to grow exponentially. I continue to believe there is still runway for the big tech stocks. I expect tech stocks will renew their overall leadership of the market despite lagging so far this year. NVIDIA shares fell 5%, as investors bought into the false, pundit-driven narrative that AI demand is overheating. I agree with the pundits that mega-cap tech is spending liberally on chips, data centers, and power capacity. Total AI spending could reach roughly $700 billion this year. That’s double last year’s levels. Where I disagree is when they say that the step up in spending won’t continue to produce a return on investment. AI infrastructure demand remains strong. The major tech companies all feel it will remain strong. Spending heavily now makes sense. You have AI driving earnings growth by over 25% per quarter consistently. Furthermore, we are in a relatively lax regulatory environment. Nobody is calling CEOs to hearings or talking about breaking up the tech companies. So now is the time for big tech to spend on things like data centers and widen even further their competitive advantage.
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