Tariff Uncertainty Is Back

Performance for Week Ending 2.20.2026:

The Dow Jones Industrial Average (Dow) gained 0.3 percent, the Standard & Poor’s 500 Index (S&P 500) added 1.1 percent, and the Nasdaq Composite Index (Nasdaq) tacked on 1.5 percent for the week ending Feb. 20. Sector breadth was positive, with seven of the 11 S&P sector groups closing higher. The communication services sector (2.3 percent) was the best performer, while the consumer staples sector (-2.3 percent) was the weakest.

*See below for Index Definitions

MARKET OBSERVATIONS: 2.17.2026  – 2.20.2026

The S&P 500 finished the holiday shortened week higher, snapping a two-week losing streak. While the weekly return was positive, the period was marked by elevated levels of volatility driven by a major Supreme Court ruling on tariffs, mixed economic data, and ongoing shifts in sentiment around the artificial intelligence (AI) trade. On Friday, the Supreme Court ruled that President Trump had overstepped his authority to use an emergency-powers law to institute his sweeping global tariffs last year. The outcome was widely expected by investors, and stocks rallied on the news, reflecting the removal of a big overhang on earnings while potentially boosting economic growth prospects. Several recent studies have found that most of the economic burden from tariffs was borne by U.S. companies and consumers. However, the favorable market reaction could prove short lived as Trump over the weekend announced he would raise the global “baseline” tariff from 10 percent to 15 percent, effective immediately. Trump will use Section 122 of the Trade Act of 1974, which allows the President to impose tariffs of up to 15 percent to address trade deficits—though they can remain in effect for only 150 days. This latest action suggests the policy landscape will remain fluid through at least mid-2026.

FOMC Meeting Minutes: According to the release of the January Federal Open Market Committee (FOMC) meeting minutes, many Federal Reserve (Fed) officials want to see inflation fall further before they support additional interest rate cuts this year, particularly if the job market continues to stabilize. The “vast majority” of the 19 participants on the Fed's rate-setting committee said there were signs the labor market has steadied, after the unemployment rate rose in late 2025. Most officials agreed that the Fed’s key rate is close to a level that neither stimulates nor restrains the economy. At the meeting Fed officials agreed to keep its key rate steady at a range of 3.5–3.75 percent, after cutting it three times late last year. Two officials—Fed Governors Miran and Waller—voted instead to cut another quarter point.

Fed Speak: Minneapolis Fed Kashkari said he thinks the central bank is “pretty close” to neutral on the level of its benchmark policy rate, implying there may be little room left to cut rates. Fed Governor Barr indicated that the central bank is likely to keep interest rates unchanged "for some time" as officials monitor inflation risks and economic data. Chicago Fed President Goolsbee said the Fed could approve "several more" interest rate cuts this year if inflation resumes a decline to the central bank's 2 percent target. San Francisco Fed President Daly said that while there isn’t much indication yet that AI is fundamentally changing the U.S. economy, policymakers must be open to signs that the new technology will have an impact.

Q4 Earnings: Through Feb. 20, 425 companies in the S&P 500 have released fourth quarter results, with 75 percent beating expectations. Aggregate earnings for this group are up 12.4 percent from a year ago, solidly ahead of the 8.6 percent projected year-over-year growth rate from early January. Looking ahead, full year estimates remain supportive with the Bloomberg consensus expecting S&P 500 earnings to post 2025 growth of 13.1 percent, followed by 13.7 percent this year.

Economic Roundup: Initial claims for state unemployment benefits dropped 23,000 to a seasonally adjusted 206,0000 for the week ended Feb. 14, the Labor Department said. Economists polled by Bloomberg had forecast 225,000 claims for the latest week. Mortgage rates fell to their lowest level since September 2022 in the week ended Feb. 13, according to data released by Freddie Mac. Thirty-year mortgages averaged 6.01 percent, down from the previous reading of 6.09 percent and a pullback from an average of 6.85 percent a year ago. U.S. industrial production increased in January by the largest month-on-month percentage since March 2025, according to data released by the Fed. Industrial production grew by 0.7 percent month on month, marking a steep jump over December's growth of 0.25 percent.

The pace of construction of new homes in the U.S. rose to a five-month high in December as the housing market tries to show some signs of life with interest rates leveling out. Elsewhere, new orders for U.S. manufactured durable goods pulled back by much less than expected in the month of December, according to the Commerce Department. The report said durable goods orders slumped by 1.4 percent in December after spiking by an upwardly revised 5.4 percent in November. The pullback largely reflected a steep drop in orders for transportation equipment, which plunged by 5.3 percent in December. Excluding orders for transportation equipment, durable goods orders increased by 0.9 percent in December after climbing by 0.4 percent in November.

Outlook: Despite the uptick in volatility in recent weeks, it is important to separate headline political and geopolitical noise from an otherwise robust macroeconomic backdrop. The focus should be on what actually drives stock prices—earnings, the economy, and interest rate policy, all of which we think remain in a favorable place. The U.S. economy is growing, earnings are forecast to grow at a double-digit pace, the Fed is expected to maintain an easing bias, and fiscal policy from the One Big Beautiful Bill Act will likely be a tailwind during the first half of the year. History books suggest that bull markets rarely end when the Fed is easing and both the economy and earnings are growing. Typically, bull markets end when the Fed begins raising rates, not cutting, and we just don’t see rate hikes any time in the foreseeable future.

The Week Ahead: Highlights of the economic calendar include the delayed January Producer Price Index (PPI) on Friday as well as the Conference Board’s consumer confidence measure for February on Tuesday. On the earnings front, 55 members of the S&P 500 are scheduled to release quarterly results with all eyes expected to be on Wednesday’s report from Nvidia, which is viewed as a bellwether on semiconductor strength, AI demand, and capex investments. Rounding out the earnings calendar will be reports from Salesforce, Home Depot, TJX, and Lowe’s. In politics, the focus will be on the State of the Union address to be delivered by President Trump on Tuesday evening. Finally, the Fed speaking calendar will be busy with eleven speakers scheduled throughout the week.

— By Michael Schwager, Chief Market Strategist, Managing Director

Definitions

The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally defined as the leaders in their industry. It has been a widely followed indicator of the stock market since Oct. 1, 1928.

Standard and Poor's 500 Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The Nasdaq Composite Index is a broad-based capitalization-weighted index of stocks in all three Nasdaq tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of Feb. 5, 1971.

This material contains opinions of the author, but not necessarily those of Guggenheim Partners, LLC or its subsidiaries. The opinions contained herein are subject to change without notice. Forward looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable, but are not assured as to accuracy. Past performance is not indicative of future results. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information. No part of this material may be reproduced or referred to in any form, without express written permission of Guggenheim Partners, LLC.