Another difficult week for Wall Street, even with a positive CPI. AI capex is back in focus, and the market at the moment sees only the expenses and not the returns, punishing stocks. Earnings continue to make further progress, reaching 13.2% for 4Q25. All eyes on the Fed Minutes, even though there will likely be no action until June, with an update on GDP and the Fed’s favourite measure of inflation on Friday. The biggest tail risks are the US Economy falling into a recession (20% chance in 2026), resurging inflation, revenues/earnings not matching forecasts, the Fed not delivering on its easing cycle, a surge in long bond yields coupled with a USD crash, followed by damages done by tariffs/government policies, adverse geopolitical outcomes, and valuations (very high multiples).

Major market events 16th – 20th February 2026

Economic data highlights of the week

Mon: JP GDP (4Q25), JP Industrial Production (12/25), CH GDP (4Q25), EU Industrial Production (12/25), CA CPI (1/26)

Tue: SK, BR, SG, CN, HK – Holiday, DE CPI (1/26), US ADP Employment Change Weekly

Wed: SK, BR, SG, CN, HK – Holiday, UK CPI (1/26), US Industrial Production (1/26), US Atlanta Fed GDPNow (4Q25), US FOMC Meeting Minutes

Thu: CN, HK – Holiday, US Philly Fed Manufacturing Index (2/26), US Initial Jobless Claims, US Fed’s Balance Sheet

Fri: CN – Holiday, EU ECB President Lagarde Speaks, UK Retail Sales (1/26), DE PPI (1/26), FR Manufacturing PMI (2/26), DE Manufacturing PMI (2/26), EU Manufacturing PMI (2/26), UK Manufacturing PMI (2/26), UK Services PMI (2/26), US Core PCE Price Index (12/25), US GDP (4Q25), US Manufacturing PMI (2/26), US Services PMI (2/26)

Performance Review

Source: Google

InflectionPoint reports:

* Trouble in AI, and even more trouble in crypto. Yet another troubled week in a very volatile February, with the market sceptical about the returns of very strong investments – seeing is believing, or I will acknowledge returns when I see them). The volatility continues, and the fallout of Bitcoin and other crypto assets certainly does not help. This was despite a surprisingly positive CPI at 2.4% which should have driven more confidence that rate cuts are coming (in June), but the progression from Powell to Warsh does not help, and the markets want to hear from the new Chair before embedding further cuts in rates. It is difficult to say what will happen at this point. Earnings are good and continue to grow, rates will only come to help from June onwards, and notwithstanding positive signs from the US Economy, most indexes (excluding the Dow) are down on a YTD basis, while Europe thrives (it does seem to have a penchant for rising in the first six months of the year), and Japan soars. The problem with technology is that (increasing) capex is here to stay. The more you spend, the more the market punishes you, particularly if the rate of growth of your cloud business is inferior to the rate of growth of your spending. But even other stocks which are relatively outside of the AI big league, like Apple, got severely punished last week. There is really nowhere to hide, apart from the relative safety of the Dow, which anyway was down last week; and at the moment, technology and the Nasdaq are out of favour. Of course, due to high valuations, market pundits shoot first and ask questions later. It is now crystal clear now that the AI capex trend won’t go bust in 2026, and is looking increasingly likely that it will continue to last for 3-5 more years. Apart from all the rumours on OpenAI, which remains private and unprofitable (and the market does not like that), investors want companies which are spending to build their AI features to show a clear path to significant returns from their lofty investments. All companies that are seen as spending without immediate returns (obviously Oracle, but joined by a range of AI and cybersecurity plays), were punished. I have been saying that the market, near term, cannot count on more support from the Fed, and therefore earnings and guidance are of paramount importance. The USD has a relatively stable week trading above 1.18 versus the EUR, and a breach of 1.19 proved temporary. The main effect of the benign CPI was to lower yields on the 10-year Treasury, which have fallen to 4.05%. It is widely expected that the US Central Bank will continue to be on hold until the June meeting, which will be the first headed by Warsh, even though it had two dissenters (Waller and Miran) who would have wanted to cut rates in January. The economic forecasts continue to be good, and if there is no recession, rate cuts are equities’ best friend. It is still very important that the independence of the Fed is preserved, as a guarantee of the US’s own credibility. Recent examples of rates being set by the government (such as in the UK in the 1990s) didn’t produce a great outcome. Returning to the economy, the most important data to watch will change: less inflation (with the latest CPI figures better than expected), and more jobs. The overall feeling is that earnings throughout the year were much, much better than investors thought, and the fear of the slowdown didn’t quite materialise – so far. I believe it is impossible for the market to go materially higher without counting on a strong support from its largest sector, and I can’t quite fathom what is needed for investors to change their minds. I am still bullish, but on high alert. Hence, I’m still keeping equities to buy (with the famous 3% weekly stop), keeping US bonds to hold, and European bonds to buy (with the notable exception of France). Valuations matter: Japan has really impressed with its performance under new PM Sanae Takaichi, and it would be well worth considering to include the Asian country in portfolios, but I still recommend hedging the JPY. Due to the beforementioned landslide win, I expect the Japanese Equity Markets to continue its powerful run this year, the JPY to weaken, and bonds to react to policy announcements. How the Japanese PM approaches fiscal discipline will make the difference on whether she is going to be the new Margaret Thatcher, or rather the new Liz Truss (an opinion voiced by Bloomberg columnists at the time of Takaichi’s election as leader of the LDP). Any case it goes, it’s a ‘brave new world’ for Japan, as the last 30 years of policy and deflation/low inflation are completely wiped out.

* GDP forecasts for 4Q25 are good, with the Atlanta and New York Fed finally in agreement on a positive direction. The current P/E ratio of 21.5x is above the average P/E ratio of the last 5 years at 20.0x and the 10-year average at 18.8x. As the multiple held throughout 2025, I believe that it should hold over the next 12 months, if the economy performs similarly and there are no major geopolitical displacements; it is the same assumption I had back in 1999, when the multiple was 24x. That multiple level lasted for the good part of almost two years, and despite the fall in 1H00, technology stayed strong through the summer, until the Intel preannouncement in September sealed their demise and gave way to 2 years of bear market. One of the major differences of the current cycles relative to the dot.com boom is that then many companies were thriving on expectations of future sales and no earnings, now companies, even start-ups (Palantir did raise to the challenge with a 19% quarter on quarter growth, which reminds me of the now defunct Exodus, the late queen of 40% quarter on quarter revenue growth) do have tangible revenues and earnings, so the market is on a much sounder footing now than then. Furthermore, then the Fed was hiking rates, and had reached the peak by the end of 2000, with the famous out-of-meeting jumbo cut on January 3, 2001, in response to the rapid deterioration of the economy due to the dot.com crash. Were AI to crash, we could probably expect more of the same. Anyway, this time around, i) rates are lower and ii) the Fed is a tailwind, not a headwind.

*  The Federal Reserve was on hold in January, with two dissenters, and kept the rate to 3.50-3.75%. Chairman Powell did say that the US Central Bank was now in a ‘wait and see’ mode. The positive CPI so far has not changed meaningfully future expectations of rate cuts, and it is widely expected to be on hold throughout the remaining tenure of the current Chair. There are 68.8% chances that the FOMC will cut rates again at the June 17 meeting, the first one without Powell and with Kevin Warsh in his place. President Trump reinstated his preference for low rates, sending the newly appointed Chair a message. If we look at December 2026, at the moment the estimates sees rates at 3.00-3.25%, hence with 2 more cuts during the year, though a third possible cut is seen with a 50/50 chance. Be cautious of aggressive Fed cuts, as they may signal an impending recession; non-recessionary interest rate cuts are generally welcomed by the equities market. We need (lower) yields and (higher) earnings to support some of the highest multiples since my heyday (the fated 1999-2000), but it is increasingly difficult to get these in the US. You can look forward to these in Europe, even though the European Central Bank might have finished its easing cycle in 2025. 

* Yields on US 10-year Treasuries have reached 4.05%, and were down last week, in line with European government bond yields. While in 1999 they were even higher, and the Fed was hiking, not easing, we definitely need yields to return below 4% to have a more constructive scenario, albeit gradually and not through a crash. We seem to be getting there, although I cannot yet recommend the US Debt on their public spending plans. Regarding earnings, I remain optimistic, particularly on technology (the main driver for the S&P 500). Ben Snider, who has taken up his post as Chief US Equity Strategist from legend David Kostin, has a bullish forecast of $305 per share for the S&P 500 by the end of the year, with a target price of 7,600.  At the moment, the bottom-up forecasts for 2026 are slightly ahead of his bullish target, with the consensus based around $295. Earnings for 2026 are continuing to rise to a level of $312.19 per share, while for 2027 they are seen at $361.08. In both cases, the earnings’ progression puts both of them on a higher level than just one year ago.

Source: FactSet

* The US GDP closed 3Q25 with a reading of 4.4%, according to the third and final estimate, and we will get a new update on Friday. Consensus is for a more modest 2.8% growth, which would be still positive if confirmed. The Atlanta Fed GDPNow model starts its forecast for 3Q25 in positive territory, with a current forecast of 3.7%, down from 4.2% last week, but still a very remarkable level and as usual, ahead of the Blue Chips consensus, which are have significantly risen and are presently at 2.5%. The New York Fed’s Nowcast model has a current forecast of 2.71%, up from 2.69% last week. I believe it is prudent to make an average of those two forecasts to get to the real number; it is particularly good that these are now converging. Introducing a forecast for 4Q25, with earnings expected to climb by 13.2%, compared with a forecast of 8.3% as of December 31st, and with revenues growing by 9.0% vs 7.8% as of December 31st. In 1Q26, earnings are expected to grow by 11.1% vs 12.9% as of December 31st, with revenues growing by 8.7%, vs 8.2% as of December 31st. For 2026, earnings growth is forecasted at 14.4% vs 15% as of December 31st, with revenues coming in at 7.5% vs 7.2% as of December 31st. Introducing a new forecast for 2027, earnings growth is forecasted at 13.0% vs 12.3% as of December 31st, with revenues coming in at 7.5% vs 7.3% as of December 31st. Finally, it’s worth noting that the chance of a recession in the next 12 months, as calculated from the yield curve, according to the Federal Reserve Bank of Cleveland, is presently (January 2027) 16.03%. The peak was 68.76% in April 2024, and it was the only time since 1960 in which a recession did not materialise, given such a forecast. The current level is not too far from what economists are currently predicting: a 25% chance of a recession in the next 12 months. Goldman Sachs recently lowered its forecast to just 20%. 

Source: Blue Chip Economic Indicators and Blue Chip Financial Forecasts; Federal Reserve Bank of Atlanta

Source: Federal Reserve Bank of New York, New York Fed Staff Nowcast

Source: Federal Reserve Board, Federal Reserve Bank of Cleveland, Haver Analytics

Earnings, What’s Next?

The reporting season for 4Q24 is now under way. Here’s a list of companies reporting this week.

Source: Earnings Whispers

Market Considerations

Source: Datastream, Worldscope, Goldman Sachs Global Investment Research, ISABELNET.com

Source: Goldman Sachs, ISABELNET.com

Revenue growth estimates for 2026 are forecasted to grow by 7.5% (7.2% on December 31st), and earnings growth estimates for 2026 are predicted to grow by 14.4% (15.0% on December 31st), so the future looks bright. Introducing forecasts for 2027, which sound again very positive, with revenue to grow by 7.5% (7.3% on December 31st) and earnings to grow by 13.0% (12.3% on December 31st). As mentioned, the Fed has cut its rates by 100bp in 2024, 75bp in 2025, and will continue easing. Apart from the cut from quite high levels, which will probably help make these lofty multiples seem more bearable than offering a real stimulus to the economy, it will be important to see the extent to which central banks are willing to cut rates and their timeframe.  

Two highlights this week. First, we have a chart from Goldman Sachs which focuses on a very important topic: earnings. And technology earnings have significantly beaten those from the overall market over time. While this is true, stock prices are not immune from rotations to value, which can occur multiple times per year. For long term investors which can shoulder the inevitable volatility of the markets, tech investments are indeed the best. The second chart, also from Goldman Sachs, points to weakness in the market in the second half of February, mentioned as one of the three weakest periods of the year for the S&P 500. Luckily, the first half of March is a time of strong returns, so my wish is that we can get there without too many bumps.

For equities, be careful not to fall into ‘Buffett’s trap’. He famously said that there were moments when Berkshire Hathaway’s stock was down more than 50%, and nothing was wrong with the company at the same time. Timing and risk management are key. I remain optimistic in the long term; I have faith in the new CEO, but to follow the Oracle means filling very, very big shoes. The late Angelo Abbondio, a legendary Italian investor, used to say that you can rely on fundamental analysis and on technical analysis, but the most difficult thing was to decide when to prioritise the first and when the second. In general, no stock can outperform all the time; some volatility has to be expected. Those who performed better earlier may not perform so well later.

Due to the persistent stickiness of inflation, monetary policy is again taking centre stage. Obviously, we should not overlook geopolitical scenarios in Ukraine and the Middle East: this will dominate the news for a while. Any escalation would be negative for the markets.  

I now recommend a long position in equities and a neutral position on US bonds. For EU Bonds, I advise going long (with the notable exception of France), while I still suggest putting together a portfolio that focuses on the safety of German Bunds, which are to be preferred in my view, given increased yields and reduced spreads. Are 60bps more worth swapping an AAA security for a BBB+?  

There are five main headline risks to what is otherwise a constructive view for 2026: i) revenue/earnings not matching forecasts, particularly in technology; ii) any damage to the economy and trade done from Trumponomics, tariffs, and resurging inflation; iii) any negative geopolitical outcome (which could see an expansion of the current conflicts); iv) a negative Fed shock if it does not meet the market’s expectations on easing; and v) valuations, which are nearing levels only seen once before (at least during my lifetime!). 

Japan continues to be very strong, with another leg up after the surprising results of the February, 8 elections in which PM Sanae Takaichi and her LDP conquered more than 2/3 of the seats in parliament, giving her an ample mandate to govern. She favours fiscal and monetary expansion for the economy, whose 4Q25 GDP reading came well short of expectations. The Bank of Japan is also in a very tricky position, like the Fed was not so long ago. It would need to raise rates to counter inflation, but the weak growth may prevent it to do so. That might turn in a further weakening of the JPY. Watch out the long bond yields, particularly the 30y and 40y, as they react to increased government spending. I am now very positive on the country, although I would definitely hedge the JPY. 

Portfolios

Finally, I want to introduce four portfolios that Tom and I published on Wikifolio. Tom’s a multi-asset portfolio, whereas the one I manage (with substantial input from Tom) is a global income and growth with a heavy US tilt. The third one is on Italian Equities. The fourth and latest one is on Japanese Equities. Check them out!

https://www.wikifolio.com/en/int/w/wf00inf8ig

Tom’s Multi-Asset Portfolio is up 25.5% in 2 years, with a Sharpe Ratio of 1.1.

https://www.wikifolio.com/en/int/w/wf000ipggi

Our Global Income and Growth Portfolio is up 19.8% in 2 years, with a Sharpe Ratio of 0.5. Obviously, the devaluation of the USD had a big impact as all stocks are priced in EUR.

https://www.wikifolio.com/en/int/w/wf00ipiteq

My Italian Equities Portfolio is up 58.5% in about 1 3/4 years and has outperformed the FTSE MIB Index by 1900+ bp in this timeframe, with a Sharpe Ratio of 1.6.

https://www.wikifolio.com/en/int/w/wf00ipjpeq 

My Japanese Equities Portfolio is up 15.3% in about 3 months, and has outperformed the Topix Core 30 by 500bp in this timeframe.

Consulting

Finally, I have officially become an Italian Independent Financial Consultant (Consulente Finanziario Autonomo), registered with the Italian OCF since 19 March 2024 (protocol 2425). If you are interested in my financial advice or simply for more information, please contact me at giorgio.vintani@inflectionpoint.blog

Consulting accounts usually start from EUR 100,000. Please note that you should be based in Italy to avail yourself of this service. If you are interested, please feel free to drop me an email. I am happy to send you my presentation and track record upon request.

Happy trading, and I look forward to seeing you next week!

InflectionPoint

Disclaimer

All views expressed on this site are my own and do not represent the opinions of any entity with which I have been, am now, or will be affiliated. I assume no responsibility for any errors or omissions in the content of this site, and there is no guarantee for completeness or accuracy. The content is food for thought, and it is not meant to be a solicitation to trade or invest. Readers should perform their own investment analysis and research and/or seek the advice of a licensed professional with direct knowledge of the reader’s specific risk profile characteristics.