Good morning, investors. Iran continues to loom large over the global geopolitical stage as well as markets, and the US military presence is growing in the surrounding region.

This morning, we are unpacking why consumer staples stocks have become the dominant trade to start the year.

Investors are piling into household goods, detergents and groceries to start the year.

Consumer staples are having their best start to a year since at least 1990, according to data from Bespoke Investment Group. At the same time, consumer discretionary stocks have fallen as much as 5%, marking the widest gap between the two sectors on record.

On the surface, the trend looks like a classic defensive turn in the market.

When investors get jitters, they gravitate toward businesses that sell essentials like Walmart and Costco, while moving off “nice to have” trades like Tesla and Airbnb.

But given that retail sales and spending have remained relatively steady, the divergence in this case seems to be instead about market flows and positioning.

The weakness in the consumer discretionary stems from just two mega-caps in Amazon and Tesla, which have declined about 9% and 6%, respectively.

Those two alone account for most of the sector’s market value.

Take out the Magnificent 2 and most stocks in the sector are actually positive in 2026.

The “average” consumer discretionary name keeps ticking higher, but it’s being masked by a top-heavy grouping.

Consumer staples, meanwhile, are rallying with unusual breadth.

The seven largest names in the sector are up double-digits, as Bespoke data shows.

Expand the list to 15 and every single stock is still positive year-to-date.

That signal of uniform strength suggests a deliberate re-allocation — reinforcing the “great rotation” theme that we have been writing about over the last two months.

After three years of chasing AI-linked narrative, investors appear to be rebalancing toward steadier cash flows and pricing power.

Indeed, with the market still calibrating its outlook for Fed rate cuts and geopolitics, it’s hard to fault investors for opting into predictable revenues and sticky businesses.

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📈 Amazon surpassed Walmart in annual revenue for the first time. Both companies are chasing AI initiatives and growth, and the milestone underscores the retail rivalry between the two companies. (CNBC)

🛢 Oil prices could spike if an Iran conflict unfolds. Crude futures rose on Thursday, and analysts are bracing for geopolitical talks to turn into action. President Trump said it’s still possible a deal is reached before escalation. (Yahoo Finance)

📉 Blue Owl stock tumbled 6% after restricting investor withdrawals. The company said investors will no longer be able to redeem shares on a quarterly basis from one of its private credit funds. Instead, the fund will return capital through distributions backed by loan repayments or asset sales. (Bloomberg)

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I sat down with Bloomberg quant researcher Steve Hou to unpack the US-China de-coupling and AI arms race, the new global order, stock markets outperformance across Latin America and South Korea, the economic price of freedom, and what's next for Wall Street.

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🗓 February 20, 2009: The Dow Jones Industrial Average closed at 7,365 to hit its lowest level in six years as panic spread through markets over the stability of the financial system.

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