What a week of ups and downs. As you are aware by now, investing isn’t for the faint of heart. However, to be more precise, speculating isn’t for the faint of heart. Investing is about owning companies that have solid fundamentals and that one plans on holding for many years. I hope the difference isn’t lost on us. Having said that, it is understandably difficult to box one’s emotions up and not get caught up in the sometimes-volatile dips and spikes. If it makes you feel any better, while tech and AI-related companies experienced downside this week, consumer staples and energy sector companies did quite well. For the year, the best performing sectors are energy (+16%), basic materials (+12%), and consumer staples (+11%).
So, what’s driving the volatility? Namely it falls into three categories. The first is the labor market which is experiencing the most substantial recalibration since the financial crisis in 2008. The jobs numbers don’t look good with reports suggesting only 50,000 jobs were created in January and possible future revisions to zero. Many analysts believe this trend of minimal job growth will continue throughout 2026. While we may not see the unemployment rate rise due to the reduction in the supply of labor, the job market will remain tight as jobs themselves will not be plentiful. In fact, the JOLTS report showed job openings have fallen to 6.52M, down from 11.4M in December 2021.
The second reason markets are on edge is due to the extraordinary amount of money being spent on AI and its necessary infrastructure. Both Google and Meta intend on doubling their capex to $185B and $135B respectively. Amazon, not to be outdone, said this week it plans on spending $200B this year on capex. The circular investment between the largest AI companies is troubling investors. Some analysts compare this to the late-1990s dot-com bubble, when telecom equipment companies provided financing to startups to buy their gear. When those startups went bankrupt, it caused a cascade effect resulting in massive write-offs and ultimately the market downturn.
And lastly, the third category is uncertainty surrounding the nomination of Kevin Warsh to be the next Federal Reserve chair. He had been hawkish under both George W. Bush and Barack Obama, tending to focus on inflation during his time on the Fed board. He now presents as dovish, which creates real questions for the Fed, its independence, and its direction in the coming year. There’s also the issue of his confirmation but that seems less in peril.
In company news, we learned that Amazon intends to lay off another 16,000 corporate employees after having laid off 14,000 last October. CEO Andy Jassy attributes this move to “reduce bureaucracy” as the company pivots to AI. Walmart joined the rarefied club of $1 trillion market cap companies. There are currently eleven companies in this club including Nvidia, Apple, Alphabet, Microsoft, Saudi Aramco, Amazon, Meta, Broadcom, Tesla, and Berkshire Hathaway. And lastly, PepsiCo announced it is cutting the price of its chips by up to 15%. Whether this is an indication of how tapped out its customers are, or simply a recognition that an $8 bag of chips (half filled with air) is not the value it once was, it is welcome, nonetheless.
In closing, I turn to the strangest thing I read this week. McDonald’s is launching a limited-edition McNugget Caviar Kit for Valentine’s Day. The kit includes a 1-ounce tin of Paramount's Baerii sturgeon caviar, a $25 Arch Card for Chicken McNuggets, crème fraiche, and a mother of pearl caviar spoon. Before you run to your nearest McDonald’s you should know this is only available for sale online. As for the cost… it’s free. So, if you’re significant other loves both caviar and chicken nuggets, this is for you. The kits will be available online starting at 11 a.m. Tuesday, February 10. Now you know.
Bruce J. Mason, MBA
