Struck Down
"IEEPA does not authorize the President to impose tariffs..."
Summary: The most significant economic event of last week was the Supreme Court decision to strike down Trump’s tariffs. Outside of the decision, the economy seems to continue to be in relatively good shape. Consumer spending is resilient, and bankers are bullish on capital markets activity. Inflation doesn’t appear to be fully gone, though.
Editor’s Note: Welcome to this week’s edition of The Transcript, which is available to all our premium subscribers.
Catalyst Watch
The Supreme Court decision to overturn Trump’s tariffs is surely a catalyst of some sort, but at this moment, it’s not really clear what the medium-term impact will be because that impact depends in large part on how Trump reacts to the decision and then how the market reacts to his reaction. My primary thought is that this increases the probability that Trump will be viewed as a lame duck in the not-too-distant future. Markets are clearly levered to Trump’s worldview. If his worldview holds less weight, then there could be price volatility around his change in influence.
Honeywell’s quote from this week’s macro section serves as a reminder that inflation has still not been fully removed from the economic system. Concerns over inflation are not currently part of the market narrative. They could easily return, buoyed by the thematic weight of “$7 Trillion in datacenter spend” driving up memory prices for a wide variety of products.
Industrial companies appear to be turning slightly more optimistic. This is true across several industries and was represented this week by quotes from John Deere, JB Hunt, and Analog Devices. It’s unclear whether there’s much money to be made by investing in this change, but the XLI sector ETF is up 12% ytd.
Macro
The economy is doing well despite gloomy headlines
“...there are 2 economies in this country. If you listen to the BLS, the economy is doing great. If you listen to the big firms that are making huge capital investments, the economy is doing great. If you listen to the newspapers and the television, the economy is doing extremely poorly. So I don’t quite know how to interpret that. But I believe that the economy is doing great, and it will continue to do great.” – Interactive Brokers Group (IBKR 0.00%↑) Chair Thomas Peterffy
Spending is resilient
“Across our customer base, spending continues to be resilient. In the U.S., we see the customer is choiceful in their spending.” – Walmart (WMT 0.00%↑) CEO John Furner
“The one word I would use to describe the consumer these days and everything we observe at Capital One, is the word stable. So if we -- let’s just start with the sort of from a macro point of view, things despite all the noise in the economy, things are pretty stable.” – Capital One Financial (COF 0.00%↑) CEO Richard Fairbank
“...consumers’ beliefs don’t match their behaviors. And my dad used to tell me a long time ago, ‘Watch what people do more than what they say, and you’ll learn a lot more.’ So they’re giving surveys or taking surveys that sentiment may not be as high as we would hope that it would be. But what they’re actually doing is totally different. They’re spending, they’re active. And so that’s something that we’re seeing.” – Truist Financial (TFC 0.00%↑) Senior EVP Dontá Wilson
CEO optimism is high
“We survey our CEOs every quarter. Their optimism is at the highest level in over a year. And virtually none expect a recession in the next 12 months. So all this translates into a capital markets environment that is really quite robust, which is a very good thing for the operating environment for our businesses, the combo of healthy economic growth, moderating inflation.” – Blackstone (BX 0.00%↑) CFO Michael Chae
“It feels like the environment is a little set up for growth. Our customers are feeling a little bit better about putting capital work. So I mean, that appears to be the reason why we’re off to a fast start and why everyone is a bit more constructive on loan growth this year.” – Fifth Third Bancorp (FITB 0.00%↑) Treasury Lead Brennen Willingham
But there is a K-shape
“Clearly, we see elements of that sort of 2-speed or K-shaped consumer economy. We see that in our economy hotel assets, some of our water parks, some other consumer-facing businesses. But the higher-end consumer, which drives so much of consumption in this country, remains strong, and we see that in our luxury hotels, in premium travel, in credit card data broadly.” – Blackstone (BX 0.00%↑) CFO Michael Chae
“So one, we’re definitely seeing that, that whole K-shape economy thing is real. So when you do talk about higher income cohorts, the highest income cohort place that we offer is our Perigold platform, the luxury platform. And that’s growing at a very fast rate. And you see -- you really don’t see any economic strain there, especially retail brands would be the second highest level after Perigold, AllModern, Birch Lane, Joss & Main, you see nice growth there. And then you go to Wayfair, you see nice growth there. But then if you cut it by income cohort, you definitely see more strain as you go down the income segments. And our data is not any different than the market data you’re going to see broadly.” – Wayfair (W 0.00%↑) CEO Niraj Shah
“For households earning below $50,000, we continue to see that wallets are stretched. And in some cases, people are managing spending paycheck to paycheck.” – Walmart (WMT 0.00%↑) CEO John Furner
Labor markets are slow but stable
“Unemployment inched up a little bit, but it’s at relatively low levels on a historical basis. The job basically, the -- well, there’s a striking thing going on, and there’s very little people losing -- very little of people losing their jobs and very little sort of new job creation. So it’s at a stable but odd place in terms of the velocity of movement within it has slowed down. But wage growth, real wage growth, is still positive. Spending is robust.” – Capital One Financial (COF 0.00%↑) CEO Richard Fairbank
The Supreme Court struck down Trump’s tariffs
“IEEPA does not authorize the President to impose tariffs...the framers did not vest any part of the taxing power in the Executive Branch.” - U.S. Supreme Court Ruling
Inflation hasn’t gone away
“...industrial economy has become high inflationary now. This is, 2026 will be the third year in a row in which we are talking of the price of the order of 3%, maybe even 4%, 3%-4% range...my foundational concern is that longer term, industrial markets have become more, inflationary....Honeywell buys three broad things: electronics, commodities, and labor. You know, electronics cost is going up with the shortage of semiconductor, memory. That obviously increases input cost. Commodity prices keep going up due to constraint, while there’s a lot of commentary on rare earth, but price of copper is going up, price of zinc is going up. We use our precious metals in manufacturing of catalysts. Those prices have gone up by 75%, 100%, and the labor cost is going up.” – Honeywell International (HON 0.00%↑) CEO Vimal Kapur
“Many consumers are uneasy with the current average price levels of snacks. US wage increases are being outpaced by total snack inflation.” – Mondelez International (MDLZ 0.00%↑) CEO Dirk Van de Put
“...affordability, when you think about real affordability around groceries and gasoline and housing utilities and insurance and health care, that’s weighing on that middle consumer a little bit more. So they have a little bit less disposable income.” – Synchrony Financial (SYF 0.00%↑) EVP & CFO Brian Wenzel
International
European public companies’ financial results are in line with US peers
“If you look at European companies, public companies based on their return on invested capital, the 95th percentile European company ranked by ROIC is -- has a return on invested capital equivalent to the 92nd percentile U.S. company. So I think in the popular perception, there’s this view that the whole distribution of European companies is just performing worse than U.S. companies. There’s a little gap, 95th versus 92nd. That’s not a huge gap. It underscores there are a lot of fantastic European companies. And that’s kind of at the heart of our European franchise.” – Lazard (LAZ 0.00%↑) CEO Peter Orszag
Asia represents 40% of the global economy but only ~8% of global AUM
“And then I’d just say from a global regional perspective, Asia is 40% of the world’s economy, and it’s about 8% of all AUM globally. So that’s a big opportunity.” – Blackstone (BX 0.00%↑) CFO Michael Chae
Financials
Bankers are bullish on capital markets activity
“You pull it together, we do believe that 2026 will be a constructive year in the capital markets. We do expect, in our industry, that we’re going to see more deployment. Certainly, we believe more monetization, which I know our industry has been waiting for, for some time. But we’ll see how the year plays out, of course, but that is our base case as we move into 2026....We do see deal flow picking up. We’ve talked about monetizations across our industry picking up. Our pipeline is definitely a lot better going into 2026 than it was going into 2025. So we are encouraged by the early signs,” – KKR (KKR 0.00%↑) CFO Robert Lewin
“If you look at the M&A stocks, which many of you -- you know many of them, they are trading well. So the only thing that makes me nervous is that when that’s the consensus, it’s usually wrong. But I’m cautiously optimistic. I -- we see a good M&A market, which will lead to good deployment.” – Blue Owl Capital (OWL 0.00%↑) Co-CEO Douglas Ostrover
Credit markets are near record tight
“High-yield spreads today are at nearly, I think, all-time heights -- tight, sorry, heights would be bad. Investment-grade spreads, I think, are the tightest since like 1998.” – Blackstone (BX 0.00%↑) CFO Michael Chae
Credit quality stable
“So we’re not seeing any signs of credit stress that’s more elevated than where it has basically normalized that currently back in 2022 and 2023, we derisked these portfolios. So we’re ahead of the game to make sure our credit quality was good and stable and met our appetite.” – Truist Financial (TFC 0.00%↑) Senior EVP Dontá Wilson
“Credit is stable. And if I go back and change that slide, I sit there and say credit is stable on the slide. But that’s what we’re trying to convey. And I think people try to overread that.” – Synchrony Financial (SYF 0.00%↑) EVP & CFO Brian Wenzel
Hyperscalers are issuing a lot of public debt
“In 2025, we rated $6.6 trillion of debt. That was an all-time high, supporting investment across infrastructure, AI-driven data centers, energy finance, energy transition finance, and private credit. In the Q4 alone, we rated more than $70 billion of issuance for companies including Alphabet, Amazon, and Meta, in part related to their AI investment programs.” – Moody’s (MCO 0.00%↑) CEO Rob Fauber
High ROIC dispersion creates an incentive for M&A
“If you look at return on invested capital 20 years ago, the 95th percentile firm in the U.S. had a return on invested capital that was 10x the 10th percentile. Today, that ratio is 25x...it creates a massive incentive for the frontier firm or the frontier firms to be buying other firms.” – Lazard (LAZ 0.00%↑) CEO Peter Orszag
Banks could start growing CRE loans again
“Most of the industry and the banks rightfully so were focused on the CRE office portfolio that for the better part of the last couple of years, we’ve been working down. That’s coming or slowing down to the point where that won’t be the headwind that it’s been for loan growth. Beyond that, into multifamily and construction loans, multifamily is still healthy. There’s a couple of areas of the country where it’s an overbuilt, but the underlying fundamentals, particularly around the housing shortage in the United States bode well for that. Well, the other thing that it wasn’t as focused on as much was just the construction loans or the lack of construction loans in the last couple of years that fund up that are now beginning. So we sort of have that air pocket working through. If you go back to COVID, everybody thought retail was dead and that you wouldn’t be building another retail shopping center ever again and that’s starting to come back online. So I think CRE is going to enter a period here of sort of BAU for lack of a better word, going into the second half of ‘26.” – The PNC Financial Services Group (PNC 0.00%↑) CFO Robert Reilly
Office demand highest since 2019
“Momentum is similarly building in our Leasing business as office demand reached its highest level since 2019, and industrial demand is improving and diversifying across more industries.” – Jones Lang LaSalle (JLL 0.00%↑) CEO Christian Ulbrich
NYC office market tightening with rents rising faster than concessions compress
“As you can tell from all of our remarks today, we’re extremely constructive about the office market in Manhattan. We believe that it is tightening. We believe that rents are going up. And by the way, rents are going up more rapidly than TIs or tenant inducements are going down.” – Vornado Realty Trust (VNO 0.00%↑) CEO Steven Roth
Private real estate values are down ~16% since 2022 vs. S&P up 75%
“Private real estate values have slowly improved from the trough about 2 years ago. It’s still down about 16% since the start of that interest rate cycle in 2022, versus the S&P being up 75% over the same period.” – Blackstone (BX 0.00%↑) CFO Michael Chae
Construction starts are at the lowest in a decade
“...new construction starts for virtually all kinds of real estate are down sharply. U.S. multifamily, new starts, the lowest in over 14 years. Logistics, the lowest in 12 years. And this will increasingly translate into depressed deliveries and new supply, just a time lag from starts. And it’s become much more expensive to build. We estimate construction costs are up about 50% over the last 5 years across real estate sectors in the U.S.” – Blackstone (BX 0.00%↑) CFO Michael Chae
Consumer
Walmart grew topline 5% in 2025
“For the full year, we grew the top line by approximately 5% in constant currency, adding $35 billion in revenue, with sales exceeding $700 billion for the first time and we grew adjusted operating income 5.4%, even with a 300 basis point headwind from increased claims expenses and navigating a bumpy tariff environment.” – Walmart (CFO 0.00%↑) John Rainey
Walmart’s e-commerce business is solidly profitable
“We’ve far surpassed the breakeven level. We were profitable in each of the 4 quarters in the U.S. segment, and the momentum is only upward from here. We’ve been enjoying roughly double-digit incremental margins in eCommerce. We don’t expect that to change.” – Walmart (CFO 0.00%↑) John Rainey
Travel demand remains resilient
“Despite volatility in the broader global markets, the underlying fundamentals of our business are solid. Travel demand remains resilient, and we continue to benefit from our existing global platform,” – Booking Holdings (BKNG 0.00%↑) CEO Glenn Fogel
“Consumer spending remained healthy with longer booking windows and lengths of stay relative to 2024.” – Expedia Group (EXPE 0.00%↑) CEO Ariane Gorin
“The short answer, Patrick, is really no change to what we saw in ‘25, continued strong demand, both for their vacations and for their purchasing.” – Travel + Leisure Co. (TNL 0.00%↑) CEO Michael Brown
DIY home improvement demand remains structurally soft
“Obviously, the DIYer has not been as healthy for a while now, and I don’t think that that’s something that’s going to -- we don’t have forecast is recovering in 2026.” – Stanley Black & Decker (SWK 0.00%↑) CEO Christopher Nelson
Big-ticket home improvement projects remain slow
“We are encouraged by the trend towards lower mortgage rates, but housing affordability and economic uncertainty remain key constraints on large discretionary purchases. Compounding this, the severe winter weather in the early first quarter makes it difficult to clearly assess the underlying demand until we are further into spring.” – Floor & Decor (FND 0.00%↑) CFO Bryan Langley
Swimming pool builds are down 50% since the pandemic
“In 2025, we estimate that just under 60,000 new pools were built in the U.S., a mid-single-digit decline from last year. This is about half of what we saw at the height of the pandemic and 40% lower than in 2022.” – Pool Corporation (POOL 0.00%↑) CEO Peter Arvan
General Mills is seeing measurable headwinds from low population growth and GLP-1s
“...we estimate that about half a point is from consumption-related headwinds, including lower population growth in the US, as well as increased adoption of anti-obesity medications.” – General Mills (GIS 0.00%↑) CFO Kofi Bruce
Ferrari’s order book extends through 2027
“I think that, as I said, the order book is strong and then it extends towards the end of 2027. That’s what I said today.” – Ferrari N.V. (RACE 0.00%↑) CEO Benedetto Vigna
Younger generations like hot sauce
“It’s pretty incredible that in the U.S., Gen Z and millennials spend more on hot sauce than on ketchup. They use more hot sauce than any other generation. In fact, Gen Z’s spending on hot sauce in 2025 has risen significantly compared to the prior year.” – McCormick & Company (MKC 0.00%↑) CEO Brendan Foley
Technology
AI infrastructure CapEx projected to 3.5x over 5 years, requiring ~$7T of investment
“We talked about that a lot, data center CapEx increasing by some forecast projected to increase 3.5x over the next 5 years, versus the last 5 years, that’s probably low. something like $7 trillion required. We have the largest platform in the world.” – Blackstone (BX 0.00%↑) CFO Michael Chae
“So I can’t tell you right now, you probably saw this. Everybody came out and doubled their CapEx budget. It’s now $650 billion. And for all of you, obviously, you’re looking at the economy, I mean, we’re working on projects right now. Our biggest deal is just under $30 billion for Meta. We’re working on deals. I am not exaggerating. This is just for the shell and maybe some GPUs in there, $50 billion. I mean, in our lifetime, I never thought I’d be financing deals of that size, but I never thought I’d come across CapEx projects of that magnitude. So it’s an exciting opportunity. I think it’s going to go on longer than I originally thought, and we’re really going to try to take advantage of that arbitrage.” – Blue Owl Capital (OWL 0.00%↑) Co-CEO Douglas Ostrover
Datacenter backlog is projected as 200GW+ through 2030, compared to 35GW currently installed
“Back in March of last year, we estimated that the data center build-out in the U.S. would be roughly around 100 gigawatts by 2028. And at the end of last year, we kind of estimated that, along that progression, there was between 35 and 40 megawatts or gigawatts of installed data center capacity. We see about 17 gigawatt planned for 2026. And our latest estimates show that there is a backlog of over 165 to 200-plus gigawatts that are planned through 2030 and beyond.” – Eaton (ETN 0.00%↑) CTO Michael Regelski
Memory shortages are expected to last multiple years
“...in 2026, the situation has worsened significantly. We’re having to smile and take it just about at any price we can get, and the prices are horrendous. They’re an order of magnitude exponentially higher. So clearly, with the situation worsening and also expected to last multiple years, we are experiencing shortages in memory.” – Arista Networks (ANET 0.00%↑) CEO Jayshree Ullal
Shortages are driving input cost increases for a wide variety of consumer goods
“...at the moment, we’re definitely seeing suppliers starting to push price increases through in the PC category. The major driver of that now is cost increases for suppliers in memory and storage. And those price increases are likely to be on average around 20%. They haven’t hit yet. They’re likely to hit from March. We -- our expectation is we won’t see ASP increases anywhere near that 20%. And it’s like what we’ve talked about when we’ve seen price increases before in a category like appliances.” – JB Hi-Fi (JBHHY) Group CEO Nick Wells
Google has a structural data advantage in the AI race
“And so, how much more of the web would you guess that Google sees and is able to train their AI systems on versus OpenAI?...The answer is actually 3.2 times more...That means that for every one page that OpenAI sees, Google is seeing, you know, 3.2 pages. So there’s just so much more data that’s going into it. And again, OpenAI is the next closest. After that, Google sees 4.8 times more of the web than Microsoft. They see similar to what they see with Anthropic as well. And it just drops off from there. And so what I worry about is that, because Google has this unique access to the web that nobody else has, the game might just go to them. Because I think that, at the end of the day, whoever has the most data wins in the era of AI. I think what a lot of these companies are seeing is they’re hitting kind of a data limitation.” – Cloudflare (NET 0.00%↑) CEO Matthew Prince
50% of travelers use AI to plan trips, but only 10% use it to book trips
“Almost half of travelers use AI to plan trips, but less than 10% of them are actually booking with AI. And the gap represents a huge amount of unrealized value. And we think it exists because we need -- there needs to be an improvement in trust, and there needs to be an execution capability in the current tools.” – Tripadvisor (TRIP 0.00%↑) CEO Matthew Goldberg
TripAdvisor sees AI-users as having higher intent to purchase
“We’re using that both on our own platforms as well as in our partnerships. And what we’re seeing is that as AI traffic comes in, it tends to be higher intent. It tends to be -- these long queries tend to help us get the answers more quickly. And so we are seeing the conversions to be a bit stronger because it’s relatively higher intent, we think, lower down the funnel. Now that traffic that we’re driving through that AI-first approach is a lower relative percentage of our overall traffic, but it’s growing much, much faster” – Tripadvisor (TRIP 0.00%↑) CEO Matthew Goldberg
Industrials and Transport
Industrial companies sound more optimistic
“While one month doesn’t make a trend, we’re also encouraged to see January PMI above 50% for the first time since February 2025” – Genuine Parts Company (GPC 0.00%↑) CEO Will Stengel
“I think we’re encouraged by some of the momentum we’re seeing. I think, you know, obviously, with some of the leading indicators like PMI and whatnot, starting to inflect a little bit more positively, I think we’re encouraged. But I do think we still wanna continue to be prudent, you know, in terms of expectations going forward.” – Ingersoll Rand (IR 0.00%↑) CFO Vik Kini
“You know, we’re now seeing normalized ordering patterns for an upcycle in the broad-based industrial market.” – Analog Devices (ADI 0.00%↑) EVP & CFO Richard Puccio
“We entered 2026 with high confidence. That confidence is supported by a strong backlog, durable data center demand, industrial market returning to growth, expanding companion use cases, and continued new product ramps.” – Lattice Semiconductor (LSCC 0.00%↑) CEO Fouad Tamer
Freight market is showing early signs of tightening
“To me, that only supports this idea or notion that we have seen a pretty considerable amount of supply attrition in the market. You know, now that we’ve, I think, rolled into the Q1, and we very rarely do comment on trends we’re seeing intra-quarter, but out of the gate, yeah, demand seemed to be a little bit more positive than what we were expecting early January.” – J. B. Hunt Transport Services (JBHT 0.00%↑) CFO Brad Delco
Deere believes that ag markets are bottoming
“Global large ag fundamentals, while still challenged, were largely stable over the quarter...The developments over the course of the past 3 months have strengthened our belief that 2026 marks the bottom of the current cycle as we project mid-single-digit net sales growth for the equipment operations this fiscal year.” – Deere & Company (DE 0.00%↑) IR Manager Christopher Seibert
Capex outside of data centers has been slow for the last 3 years
“...capital expenditures outside of AI data centers have been nonexistent for 3 years. They have to show up at some point; that’s a big part of our loan usage, use of proceeds. So that all is adding up to being fairly constructive.” – The PNC Financial Services Group (PNC 0.00%↑) CFO Robert Reilly
EV demand is still rising 21% globally
“We continue to see EV demand growth globally in line with our expectations, with sales up 21% year-over-year with the highest growth in Europe, up 34%. European EV demand was driven by continued policy support for electrification, which we expect to continue to drive similar growth in 2026. As expected, U.S. EV demand slowed in the fourth quarter following the removal of the 30D consumer tax credits.” – Albemarle (ALB 0.00%↑) CEO Jerry Masters
Materials & Energy
Demand outpaced supply in Lithium in 2025
“2025 global lithium demand was 1.6 million tons, up more than 30% year-over-year and in line with the midpoint of our previous forecast range. 2025 lithium demand growth outpaced supply growth, leading to tighter inventories and increased pricing by year-end.” – Albemarle (ALB 0.00%↑) CEO Jerry Masters
Global oil industry replacing <25% of produced reserves, signaling structural supply tightness ahead
“But if you look at the industry, the industries around the world, worldwide, the industry reserve replacement ratio right now is about less than 25%. So I think that means that the macro has got to become better for oil sooner rather than later. When you look at the exploration that’s happening along the western side of Africa, the Eastern side of South America, while those reservoirs are good and they’re going to be -- they’re going to add value to the shareholders of the companies that are developing those.” – Occidental Petroleum (OXY 0.00%↑) CEO Vicki Hollub