Economic Update 2-23-2026

Economic data for the short week included fourth quarter U.S. GDP growth coming in slower than expectations, stronger personal income and spending as well as industrial production, while several housing metrics were mixed, but remained generally in a weak state overall relative to history.

Equities saw gains globally, with international stocks outperforming U.S. for the week. Bonds were little-changed in the U.S. and mixed abroad with a stronger U.S. dollar. Commodities saw continued gains across the board, especially in energy with intensified U.S.-Iran tensions.

U.S. stocks ended the week higher on a shortened week, with mixed economic data, rising tensions between the U.S. and Iran, and Friday’s judicial news regarding U.S. tariffs. By sector, returns were led by gains in communications (Alphabet/Google and Meta), industrials, and financials, with gains upwards of 2%. On the lagging side were more defensive areas such as consumer staples (mostly Walmart), health care, and consumer staples, as well as materials. Real estate ticked up slightly, even with interest rates up a bit for the week.

The sharp market focus on companies exposed to AI disruption (both positively and negatively) remains intact for the time being. Software-as-a-service firms have taken the brunt of the damage most recently, with fears of AI agent abilities being increasingly able to re-create their specialized functions over time. This may not be immediate, as in affecting cash flows for the next few years, but when assessing the fair value of such companies, the long-term going-concern ‘terminal’ valuation (representing the bulk of a firm’s present value in a dividend discount model) is what’s most in question. On the other hand, hardware, including semiconductors and even memory, has seen a resurgence of interest due to high demand for raw computing needs.

By Friday, markets ticked up upon the U.S. Supreme Court striking down, in a 6-3 vote, the more sweeping tariffs imposed under the 1977 International Emergency Economic Powers Act (IEEPA), noting that the conditions didn’t qualify under that statute. As Chief Justice John Roberts put it, “IEEPA does not authorize the President to impose tariffs,” particularly of “unlimited amount, duration, and scope.” Per the Yale Budget Lab, the overall effective tariff rate is expected to fall from roughly 17% down to around 9%. This outcome was largely expected to some degree, with justices on the court appearing skeptical of pro-tariff arguments. However, outstanding questions remain on the topics of: (1) potential tariff refunds (either whole or in part, either of which would be quite messy), as well as (2) whether the administration would attempt an end-around using other tariff rules on issues of trade fairness to attempt to reimpose at least some tariffs. The latter becomes a bit trickier in a mid-term election year, with tariffs being perceived as at least a partial driver of unaffordability that has been a key political hot button this year, and one the administration has been looking to ease wherever possible through other policies. In the immediate aftermath Fri., the President imposed a 10% ‘global tariff’ under Section 122 of the Trade Act of 1974, which allows tariffs of up to 15% for up to 150 days to address trade deficits (extensions beyond that would require Congressional approval). Then on Sat. morning, he raised the rate to the maximum 15%, although some carve-outs were already acknowledged, making this a complicated puzzle again.

Foreign stocks outperformed U.S. for the week, despite the headwind of the U.S. dollar rising by about a percent, more so against the Japanese yen than the euro. In developed markets, Europe and the U.K. saw gains upwards of a few percent, which offset a drop in Japan, which was held down by weaker-than-expected GDP growth and fiscal expansion concerns with the current prime minister having won the recent election. Emerging markets also saw gains on net of just under a percent, due to sharp gains in South Korea offsetting a decline in China (at least in U.S. ETF terms, as local markets were closed for the Lunar New Year holiday). There continues to be the positive news of international earnings recovery, and interest from investors in diversification outside of the U.S. ‘Mag 7,’ especially with concerns over capex spending and AI disruptions broadening out in a variety of directions. The strong 2025 returns for the MSCI EAFE and MSCI EM indexes were a bit of a wake-up call for many investors.

Bonds were little-changed for the week, along with minimal change in U.S. Treasury interest rates for the week. With a higher coupon, corporate credit, including high yield, outperformed government slightly. Foreign bonds showed more volatility, along with the stronger U.S. dollar for the week, with unhedged local bonds seeing declines and USD-hedged bonds gains.

Commodities rose across the board, with gains in all key segments, led by a stronger rise in energy, led by crude oil prices rising 6% last week to $66/barrel. This was again due to rising tensions with Iran during nuclear talks, as the U.S. military has built up assets in the region, although high global supplies have continued to put a damper on these geopolitical effects, with the complication of a rising inventory sanctioned crude oil stranded at sea, so to speak, mostly from sanctioned countries. In turn, this makes the regional supply dynamic more complicated.

Sources:  LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research.  Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends.  Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.  All information and opinions expressed are subject to change without notice.  Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.