What Happened Last Week
- Tariff Uncertainty Returns: After the Supreme Court struck down the administration’s justification for tariffs, President Trump reinstated the duties, citing a different law.
- Soft GDP: Last week’s Q4 2025 gross domestic product (GDP) print was weaker than expected due to a mechanical effect from the government shutdown.
- Oil on the Move: Oil prices rallied 6% last week as the U.S. continues its military buildup in the Middle East.
What We’re Watching This Week
- Earnings Week Seven: Nvidia will update investors on Wednesday afternoon, and several software names and big box retailers will report this week.
- U.S. Policy: The State of the Union Address may bring more policy fireworks than usual as the market responds to tariff policy in flux.
- Iran: U.S. military assets remain in place in the Middle East as the President weighs a strike against Iran.
Investment Management Team’s Views
Tariff developments dominated an otherwise quiet holiday-shortened week. Investors continued to digest AI disruption fears while tensions around Iran and stress in private credit simmered in the background. The key inflection came on Friday, when the Supreme Court ruled that President Trump’s justification for tariffs was illegal. Though widely expected, the decision sparked a relief rally led by mega-cap equities, and the administration’s initial 10% across-the-board tariff, issued under a different legal authority, was viewed as manageable. Optimism quickly faded as uncertainty over the next steps resurfaced. Over the weekend, President Trump announced an increase in that blanket tariff to 15% (the maximum allowable rate under the new legal framework) on all U.S. imports. Policy unpredictability remains elevated, and in our view, the clearer impact will be in rates and currencies rather than equities, with higher policy risk premia likely to steepen the yield curve and pressure the dollar lower. Tuesday’s State of the Union now takes on added importance for markets.
The weak fourth-quarter GDP print does not alter our constructive macro outlook. Headline softness was heavily distorted by shutdown effects, while underlying consumption and core growth metrics remained solid. The fiscal impulse from tax refunds is only beginning to flow through the economy, and recent inflation data was similarly affected by shutdown-related noise. If growth evolves as we expect, the Fed may ultimately deliver just one or two rate cuts this year. That outcome would not be a material headwind for equities, particularly if nominal GDP growth holds above 5% in 2026, a backdrop that historically supports corporate earnings and risk assets.
Nvidia’s earnings will be the focal point in a week otherwise shaped by positioning and policy crosscurrents. While the economic calendar includes updates on housing, consumer confidence, producer prices, and central bank policy meetings, the macro backdrop is likely to take a back seat to the AI theme. Nvidia reports at a critical juncture for the entire AI complex, with investors focused not just on headline numbers but on forward guidance around the durability of infrastructure spending and the fate of legacy software companies in the application layer. After weeks of pressure on software and AI-adjacent names, results from companies such as Intuit and Salesforce will also be closely scrutinized for signs that enterprise software-as-a-service (SaaS) spending remains intact and that companies are working to implement their own AI features.