Weekly Research Briefing: Ups and Downs

@MikeZaccardi: Stocks rise for a 10th straight month $ACWI +3% to an all-time high

@RenMacLLC: We asked Claude to rate Warsh's public comments. First, in May 2008, Warsh was concerned about inflation despite the weakness in the jobs market. Next, he never updated his priors about QE, fretting about inflation for years despite it running below target. Finally, Warsh turned dovish, somewhat abruptly in wait for it, Nov 2024. Since Trump’s election, he has been talking up growth optimism, productivity driven disinflation and rate cuts. That pitch will be much harder to make around the FOMC table than it was in the Oval Office.

The Federal Reserve entered a new holding pattern on interest rates Wednesday and signaled little urgency to resume cuts after contentious reductions at officials’ three previous meetings.

The decision to hold the benchmark federal-funds rate steady in a range between 3.5% and 3.75% was approved on a 10-2 vote.

Fed Chair Jerome Powell said recent data had painted a somewhat brighter picture than officials had at their last meeting, with stronger economic growth and tentative signs of labor-market stabilization.

The comments suggest officials are comfortable staying put for some time—until new signs of labor-market weakness emerge or inflation convincingly makes progress toward the Fed’s goal.

“We’re not trying to articulate a test for when to next cut…What we’re saying is we’re well positioned,” Powell said at a news conference.

"First, in contrast to the continued solid growth in economic activity, the labor market remains weak...zero job growth versus an average of almost 2 million for the 10 years prior to 2025. This does not remotely look like a healthy labor market...I have heard in multiple outreach meetings of planned layoffs in 2026. This indicates to me...a substantial deterioration in the labor market is a significant risk."

"Second, though inflation is elevated from tariff effects, appropriate monetary policy is to 'look through' these effects."

"With total inflation excluding tariff effects close to our target at just slightly above 2 percent and a weak labor market, the policy rate should be closer to neutral, which the median FOMC participant estimates is 3 percent, and not where we are."

@RenMacLLC: Respondent commentary was not as upbeat as we would have guessed given the strong ISM Manufacturing PMI for January. Concerns about weak sales and another round of tariffs.

@M_McDonough: Shipping from South Korea to the U.S. is slowing after tariff threats. Our real-time shipping data shows fewer container ships headed to the U.S. from Korea following Trump’s Jan. 26 threat to raise tariffs to 25% on Korean goods like autos and pharmaceuticals. Trade risk is already showing up in the real economy — worth monitoring to see if the trend continues.

The regional premium for aluminum delivered to the US market climbed above $1 a pound for the first time as US President Donald Trump’s tariffs make the metal more expensive in the domestic market.

The so-called US Midwest premium, the amount added to global benchmarks to deliver aluminum to that region, climbed to $1.005 a pound Wednesday, according to data from Fastmarkets. It’s been hitting successive peaks since reaching a record above 64 cents in early June when Trump imposed a 50% tariff on aluminum imports. The premium has more than doubled since then.

Aluminum prices in the US have been rising faster than for international counterparts for much of this past year because of tariffs.

Tariffs are the reason Caterpillar expects margins to contract in the first quarter compared to the same period last year. The company has worked to manage the costs by changing where it sources materials, as well as raising prices and cutting other expenses.

Levies on raw materials are a particular challenge to manage, given insufficient domestic steel production and aluminum mining, said Brian Mulberry, client portfolio manager at Zacks Investment Management.

“The increased supply of raw materials is a key goal of the administration, and it would significantly lower costs for many manufacturers,” said Mulberry, whose firm holds Caterpillar’s stock. “But it takes time to increase.”

February will give investors more tea leaves to read on the sectors.

For one thing, the Supreme Court may deliver its pending ruling on the legaility of Trump’s tariffs. Caterpillar and Deere & Co. are among the companies that would benefit the most from any refunds the court orders, even as levies on the metals sector aren’t included.

Roughly 40,000 U.S. home-purchase agreements were canceled in December, equal to 16.3% of homes that went under contract that month. That’s up from 14.9% a year earlier and marks the highest December rate in records dating back to 2017…

Over one in five (22.5%) pending home sales in Atlanta fell through in December—up from 19.6% in November and the highest share among the metros Redfin analyzed. Jacksonville, FL (20.6%), San Antonio (20.6%), Cleveland (20.2%) and Tampa (19.4%) rounded out the top five…

Cancellations were least common in Nassau County, NY (3.8%), San Francisco (4.2%), San Jose, CA (8.9%) and New York (10.5%).

During the cold war, when the world last squared off in existential geopolitical confrontation, the US had an exhilaratingly cool reputation. Behind the Iron Curtain, ordinary citizens were desperate for a can of Coke or a pair of Levi’s. Now, as the world descends into another geopolitical battle, American brands are discovering the price of being unpopular…

Nearly five decades later, consumer attitudes are shifting. Last September, Levi’s warned of “rising anti-Americanism as a consequence of the Trump tariffs and governmental policies”. Chris Kempczinski, McDonald’s CEO, said that “the aura around America has dimmed a bit”.

This change in attitude is showing up in consumer surveys. Last year, a poll of Germans found nearly two-thirds said they wanted to avoid US brands. A few months later, 70 per cent of Italians and 69 per cent of Swiss and Austrians declared themselves ready to stop buying US brands altogether. Earlier this year, an astounding 83 per cent of Swedes said they were no longer buying US brands.

Disney said operating-income growth in its experiences business, which includes theme parks, cruises and consumer goods, would be modest in the current quarter in part because of what it called “international visitation headwinds at our domestic parks.”

Johnston declined to detail the reasons for the slowdown, which is occurring as the Trump administration’s diplomatic tensions with allies and policies including tariffs and enhanced visa vetting have raised concerns about foreign tourism. The finance chief said the company is shifting more of its marketing efforts for California’s Disneyland and Florida’s Walt Disney World to domestic visitors in response.

@bespokeinvest: Polaris $PII: "I do think that there's a lot going on in our country right now, and I think that just has people kind of standing back and waiting, if they don't absolutely have to make a purchase, they're not going to make it." – Michael Speetzen, CEO

33% of S&P 500 companies, representing 47% of market cap have reported 4Q 2025 results so far, with another 130 companies in the S&P 500 (24% of market cap) reporting this week. S&P 500 EPS growth is tracking +11% year/year compared with consensus forecasts for +7% growth at the start of the earnings season (see Exhibit 1). Importantly, the outlook for S&P 500 EPS growth in 2026 remains solid. Of the 50 companies offering 2026 EPS guidance, 54% of firms have guided above consensus compared with the historical average of 40%.

Dow is cutting 4,500 employees as part of a cost-saving program that will lean on artificial intelligence to increase productivity and bolster shareholder returns.

The cuts, which will result in $1.1 billion to $1.5 billion in one-time charges, came as the chemicals company said its quarterly loss widened because of lower revenue and higher costs.

Dow said it is embarking on a program dubbed Transform to Outperform, which would employ artificial intelligence and automation to reduce expenditure and catalyze growth and productivity, yielding an additional $2 billion in operating earnings before interest, depreciation and amortization.

Chairman and CEO Jim Fitterling said the program “represents a comprehensive and radical simplification of our operating model.”

Bank of America (BAC): "We have 18,000 people on the company's payroll who code - using the AI techniques, we've taken 30% out of the coding technique - the coding part of the stream of introducing a new product or service or change, that saves us about 2,000 people... And I use an example, our audit team has built a capability they think a series of prompts around doing audits and stuff to allow them to shape the head count back down that they had to grow during the regulatory onslaught over the last few years."

Meta Platforms (META): "Since the beginning of 2025, we've seen a 30% increase in output per engineer with the majority of that growth coming from the adoption of agentic coding, which saw a big jump in Q4. We're seeing even stronger gains with power users of AI coding tools, whose output has increased 80% year-over-year. We expect this growth to accelerate through the next half."

ServiceNow (NOW): “AI is also driving significant cost efficiencies that have resulted in full-year profitability beats on top of our recently raised guidance... We expect an operating margin of 32%, up 100 basis points year-over-year driven by OpEx savings enabled by AI efficiencies.”

Paychex (PAYX): "We are excited to share that our first agentic AI pilots were a success this quarter. They autonomously handled thousands of payroll calls and emails with nearly 100% accuracy, decreasing payroll processing time and enabling our service teams to focus on higher value strategic advisory support."

$MSFT CFO: "Commercial remaining performance obligations...increased to $625B, up 110% Y/Y, with a weighted average duration of ~2.5 years. Roughly 25% will be recognized in revenue in the next 12 months, up 39% Y/Y. The remaining portion recognized beyond the next 12 months increased 156% Y/Y. ~45% of our commercial RPO balance is from OpenAI. The significant remaining balance grew 28% Y/Y and reflects ongoing broad customer demand across the portfolio."

Oracle Corp. plans to raise $45 billion to $50 billion this year through a combination of debt and equity sales to build additional cloud infrastructure capacity, reflecting the scale of financing needed to feed AI’s growth.

Oracle is raising money to build additional capacity to meet the contracted demand from the company’s largest cloud customers, including Advanced Micro Devices Inc., Meta Platforms Inc., Nvidia Corp., OpenAI, TikTok Inc. and xAI Corp., the company said in a statement Sunday.

Nvidia’s plan to invest up to $100 billion in OpenAI to help it train and run its latest artificial-intelligence models has stalled after some inside the chip giant expressed doubts about the deal, people familiar with the matter said.

The companies unveiled the giant agreement last September at Nvidia’s Santa Clara, Calif., headquarters. They announced a memorandum of understanding for Nvidia to build at least 10 gigawatts of computing power for OpenAI, and the chip maker also agreed to invest up to $100 billion to help OpenAI pay for it. As part of the deal, OpenAI agreed to lease the chips from Nvidia.

At the time, the ChatGPT-maker expected the deal negotiations to be completed in the coming weeks, people familiar with the plans said. But the talks haven’t progressed beyond the early stages, some of the people said.

Which model is best? GPT 5.2, Claude 4.5 family, Gemini 3, or Grok 4.1?
Short answer: That's a bad question. 😀 The better question is which model is best for which use case?
Each model has its own strengths and weaknesses and I think that's a good thing. The lead for various benchmarks will go back and forth between the various AI labs like a tight horse race and we shouldn't all freak out when one is a little better than the other after a training run… Model quality does impact user growth and retention so ultimately, that is perhaps the most important dimension to compete on. But I truly believe AI will not be zero-sum given demand for intelligence and compute is infinite.

@bespokeinvest: The average software stock is now in a 40% drawdown! Absolute carnage in the space recently even with the broad market close to record highs.

Net realizations from investment exits surged 59% in the quarter, the highest level in more than three years, as private equity dealmakers stepped up the pace of sales. The share of so-called carried interest that Blackstone executives collected from profitably selling assets last year soared 15% to $1.1 billion.

“The deal environment feels like it’s reached escape velocity,” Gray said in an interview. “We have a big drawdown cycle underway.”

“What’s going on with your phone? You got some weird outgoing message thing,” Jackson recalled a friend telling him recently.

What that friend heard was the iPhone’s call-screening feature, which uses an automated voice to ask unknown numbers for their names and reasons for dialing. It then transcribes the answers and allows recipients to determine whether or not they want to take the call…

The Apple feature, introduced last year with iOS 26, is meant to block the spam calls that continue to bombard Americans’ devices. It’s also had an unintended effect: Plenty of users, whether they realize it or not, are now channeling Michael Ovitz, the superagent who once enlisted a small army of assistants to filter calls. It’s starting to annoy the rich and powerful.

When venture capitalist Bradley Tusk dials others and encounters call screening, his first reaction is irritation. But given his hatred of junk calls, he understands why it’s needed. “It’s like, ‘Well, you get spam all day, so how do you blame them?’” he said.

Has another film this decade so polarised clever people? Oppenheimer had faults — the portrayal of Harry Truman as a bumpkin with somehow a Texan accent — but no one lost their rag over it. Hamnet is Meghan Markle-like in its power to unhinge the otherwise calm and well-adjusted.

Perhaps this is the “vibe shift” at work: the ongoing reaction against the culture that brought us sensitivity training, victimhood as an achievement, and so on. Hamnet, conceived in woker times, might be too wet for 2026.

Well, I am mostly in favour of the vibe shift. I also buy the old Jungian line that sentimentality is a mask for brutality. Everything was set up for me to walk scoffing out of the cinema after an hour or so. Instead, Hamnet is the only film since the pandemic that I have gone to see twice. I didn’t “cry”, of course, being above such things, but it is possible that two to three millilitres of a salt-flavoured leakage escaped the general vicinity of my left eye socket.

The cynics have got this one wrong. For lots of reasons, Hamnet has the potential to outlast our era.