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Good morning, investors. I’m writing to you from the heart of a cold New York blizzard.
But there’s still reason to celebrate — the US Olympic men’s hockey team secured their first gold medal for the first time in 46 years, toppling Canada in an overtime victory.
Look up the highlights if you missed it.
Now, as we do so often these days, we’re turning our attention to the latest on the AI trade.
Physical precedence
This year’s stock market winners look nothing like 2025’s.
While the S&P 500 has gone nowhere, the dispersion beneath the surface has been dramatic.
Over the past seven weeks, roughly 26 percentage points separate the best- and worst-performing sectors, marking a violent rotation that amounts to a clear rebuke of last year’s AI trade.
The move reflects Wall Street’s updated focus on what a technological revolution actually requires.
Unlike last year, investors now favor sectors tied to the physical world rather than the digital.
Energy is up more than 22% year-to-date, followed by materials and industrials.
Financials and technology, meanwhile, continue to trade negative.
There is a 26% gap between energy and financials this year (Chart courtesy of Exhibit A)
Plus, as Opening Bell Daily documented last week, the equal-weight S&P 500 has outperformed the market cap-weighted index, underscoring the improvement in breadth and rotation out of last year’s mega-cap winners.
The rotation is also showing up within technology itself.
Since 2006, software stocks have broadly outperformed chipmakers. Investors made a killing betting on asset-light, high-margin business models.
But that dynamic has suddenly flipped. The relative performance of software to semiconductor stocks has collapsed to multi-decade lows, according to data shared by strategist Stephanie Aliaga of JPMorgan Asset Management.
The AI trade, in the market’s view, is shifting toward hardware and away from code.
“The rapid rise of AI agents, systems that can autonomously execute complex workflows, has raised questions about the demand for traditional software,” Aliaga wrote in a recent note.
“If AI agents can perform tasks that previously required teams of employees, companies may need far fewer software licenses, compressing the per-seat subscription models that have underpinned SaaS valuations.”
This change helps explain the divergence in sector performance.
Energy, materials and industrials are key pillars to the AI supply chain and infrastructure layer.
And even though software isn’t going away, Wall Street is no longer assigning the same premium to it.
Market snapshot
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Elsewhere
🚢 Global tariffs are still in play. While the Supreme Court struck down President Trump’s initial tariffs, he said Saturday he would increase levies to 15% from 10% globally, and they would be “effective immediately.” (CNBC)
🤝 US-Iran nuclear talks will continue on February 26. The two sides will resume negotiations in Geneva, extending the search for a diplomatic solution over Tehran’s nuclear program. (Bloomberg)
📊 Nvidia earnings come out Wednesday. It’s the biggest market event on the agenda this week. Investors will take results as a bellwether for the broader AI trade and economy. (Yahoo Finance)
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Interview
I sat down with Bitcoin IRA co-founder Chris Kline to discuss the 45% drawdown for bitcoin, why bullish policy has not moved price, tax hacks for long-term holders, and what has to happen for the asset to return to record highs before year-end.
Tune in on YouTube, Spotify or Apple Podcasts.
Rapid-fire
This robotics play could outperform in 2026 as it dominates both healthcare and AI (Best Ideas Club)
Mexico killed a powerful cartel leader, sparking a violent response across major Mexican cities (WSJ)
A former Apollo exec is now head of the Office of Energy Dominance Financing (CNBC)
Boring household stocks are going up while popular names like Tesla and Amazon fall (Opening Bell Daily)
Thousands of flights cancelled across US East Coast as storm hits (CNBC)
Blue Owl’s private credit concerns drove a sell-off across asset management firms (MarketWatch)
Citrini Research’s hypothetical AI macro update from 2028 (Citrini)
On this day
🗓 February 23, 1995: The Dow Jones Industrial Average closed above 4,000 for the first time ever, marking the midpoint of the 1990s bull run that culminated in the popping of the dot-com bubble.
Last thing
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