Four trading days (Tue–Fri). Markets closed Monday for Presidents Day.
Four events competed for control of markets this week: the Supreme Court's tariff ruling, a GDP miss, Walmart's cautious guidance, and a crack in private credit — and on Friday, the tariff ruling won out, giving indexes a positive close to an otherwise unsettled week.
Here's what actually happened, in the order it happened — and why each event moved markets the way it did.
Investors returned from Presidents Day with a to-do list: Fed minutes were due Wednesday, Walmart was due Thursday, and the Supreme Court tariff ruling could drop any day. That's enough uncertainty to keep positioning tight. Stocks opened mixed, with tech software names continuing their 2026 slide as investors grew increasingly skeptical that traditional software businesses are insulated from AI disruption. Palo Alto Networks reported earnings Tuesday and the read-through mattered for the entire cybersecurity sector.
The Fed released minutes from its January meeting, and the language reinforced what most investors already knew: the Fed is in no rush to cut rates. Officials emphasized that "inflation progress has stalled" and that further patience is warranted before resuming rate reductions. The hawkish read briefly pressured bond markets, lifting the 10-year yield. But equities found a reason to rally anyway — Meta announced it would deploy millions of Nvidia chips in its data center buildout, sending Nvidia up 1.6% and sparking a tech-led rebound. The S&P 500 gained 0.56% and the Nasdaq added 0.78%. Moody's surged 6% on a strong earnings beat. Wingstop jumped 13% on an upbeat outlook. Amazon rose 2% after regulatory filings showed Bill Ackman's Pershing Square increased its stake by 65%. The tape had breadth — eight of eleven S&P 500 sectors finished higher.
Thursday was the kind of day that tests conviction. Three things hit the market at once. First, Walmart's guidance disappointed: the world's largest retailer beat Q4 earnings but guided for fiscal 2027 profits below analyst expectations, specifically citing a "K-shaped" consumer where lower-income shoppers are under pressure from elevated living costs. Walmart shares fell 1.4%. Because Walmart is considered the definitive pulse check on American consumer health, the cautious outlook spooked the broader retail sector. Second, Blue Owl Capital announced it was permanently restricting redemptions in one of its private credit funds and sold $1.4 billion in loans. That sent Blue Owl down over 8%, Blackstone down ~6%, and Apollo down ~5% as investors grappled with what this means for the private credit market more broadly. Third, Iran tensions escalated after President Trump warned of potential military action within 10 days, sending crude oil above $66/barrel — a direct inflation headwind that makes the Fed's job harder. The three-day winning streak was over.
Before markets opened, two delayed data releases hit simultaneously: Q4 GDP grew at just 1.4% annualized, well below the 2.5% consensus estimate. And December PCE (the Fed's preferred inflation gauge) came in at 3% year-over-year on core — still significantly above the Fed's 2% target. That combination — slower growth plus sticky inflation — is the definition of stagflation risk, and markets opened in the red. Then at 10 a.m., the Supreme Court ruled 6-3 that President Trump's IEEPA tariffs are unlawful. Chief Justice Roberts delivered the majority opinion: the law "does not authorize the President to impose tariffs." Stocks reversed sharply. By late morning, the S&P 500 was up 0.4%, the Nasdaq up 0.6%, and the Dow up 0.3%. Alphabet rose 2%. The Nasdaq is now on track to snap a five-week losing streak.
The week had a lot of headlines. Here's what actually mattered and why — with the causal logic laid out plainly.
What happened: In a 6-3 decision, the Supreme Court struck down the "Liberation Day" tariffs that Trump imposed using the International Emergency Economic Powers Act (IEEPA), ruling that the law does not authorize the President to levy tariffs.
Why markets cared: These tariffs had been a direct tax on imported goods sold by U.S. companies. Wells Fargo estimated that a ruling against tariffs would boost S&P 500 earnings before interest and taxes by 2.4% in 2026. Consumer-facing companies — retailers, auto manufacturers, electronics makers — stood to benefit most immediately because their cost structures were built around tariff assumptions. That's a real, quantifiable improvement in corporate profits, not a vibes-based rally.
The important caveat: Multiple analysts noted this is unlikely to be the end of the tariff story. Trump can pursue tariffs through other legal pathways — Section 232 (national security), Section 301 (unfair trade practices) — that are on firmer legal ground. As Renaissance Macro's Neil Dutta put it, the issue is now more political than economic. If Trump doesn't dial back the tariff threat, he risks looking like a lame duck. If he does dial it back, it's a genuine win for corporate margins. The market is pricing the hopeful scenario.
What happened: Both reports were delayed from their normal release dates due to last year's government shutdown and dropped simultaneously on Friday morning. Q4 GDP grew at a 1.4% annualized rate versus the 2.5% consensus. Core PCE inflation was 3% year-over-year in December — in line with estimates but still 50% above the Fed's 2% target.
Why this combination is uniquely uncomfortable: Slow growth and high inflation together create a problem with no clean solution. If the Fed cuts rates to stimulate growth, it risks re-igniting inflation. If it holds rates high to fight inflation, it slows an already-decelerating economy further. The market is currently pricing the first rate cut for mid-2026, with roughly 94% probability that the Fed holds at its March 18 meeting. That path only stays intact if growth slows gently without collapsing and inflation continues to drift lower. This week's data is not disqualifying — but it's not comforting either.
The number that matters most going forward: Watch wages and shelter inflation, which are the most persistent components of core PCE. If those two don't slow, the 3% core reading won't either, regardless of what happens with goods prices.
What happened: Blue Owl Capital announced it was permanently halting quarterly redemptions in its OBDC II private credit fund — a vehicle marketed to retail investors — and sold $1.4 billion in loans. The firm cited concerns around credit quality in the software sector. This triggered a sector-wide selloff: Blackstone fell ~6%, Apollo fell ~5%.
Why this matters beyond the headline: Private credit has grown dramatically over the past decade, with assets under management in the hundreds of billions. Unlike publicly traded bonds, these loans don't have a daily market price — their value is estimated periodically, not marked to market continuously. When a fund "gates" redemptions (blocks investors from taking their money out), it often signals that the fund manager believes the true value of the portfolio is lower than what would be obtained if they tried to sell quickly. The concern isn't that Blue Owl is collapsing. It's that software company loans — a large component of many private credit portfolios — may be deteriorating as AI disruption undermines the business models of traditional software firms. El-Erian described it as a "canary in the coal mine."
What to watch: Whether other private credit managers follow with similar restrictions. A one-off event is manageable. A pattern of gates would signal broader credit quality deterioration in a market that many retail investors have only recently entered.
This week had a lot of jargon. Here's what the terms actually mean — click to expand each one.
IEEPA stands for the International Emergency Economic Powers Act, a 1977 law that gives the President broad authority to regulate international commerce during a national emergency. Trump invoked IEEPA to justify sweeping "Liberation Day" tariffs on dozens of countries in April 2025, arguing that the U.S. trade deficit constituted a national emergency. The Supreme Court ruled 6-3 that while IEEPA gives the President many emergency powers, the power to impose tariffs is not among them. This matters because tariffs are essentially taxes — the cost gets passed along the supply chain and usually ends up with American consumers and businesses. Striking them down removes a cost that had been baked into corporate profit forecasts across virtually every industry that relies on imported goods or materials.
PCE stands for Personal Consumption Expenditures price index. Both PCE and CPI (Consumer Price Index) measure inflation, but they measure it differently. The main difference: CPI measures what consumers buy at fixed weights (a static basket of goods). PCE adjusts its basket over time based on what people are actually buying — if steak gets expensive and people switch to chicken, PCE captures that substitution. The Fed prefers PCE because it's considered a more accurate reflection of real-world spending behavior. Core PCE (which excludes food and energy) came in at 3% year-over-year in December, well above the Fed's 2% target. Until this number gets consistently closer to 2%, rate cuts remain unlikely regardless of what happens with GDP growth.
Private credit refers to loans made by non-bank institutions (like Blackstone, Blue Owl, and Apollo) directly to companies, rather than through the public bond market. These loans don't trade on an exchange — there's no daily price discovery. The lender and borrower agree on terms privately. This market has exploded in size over the past decade and has increasingly been sold to retail investors through vehicles like Business Development Companies (BDCs). "Gating" means a fund manager is restricting investor withdrawals. It happens when the manager believes that trying to sell holdings quickly to meet redemption requests would force them to sell at prices well below the true value — essentially a fire sale. It's a sign of stress. When Blue Owl gated OBDC II, it raised the question: if AI is disrupting software companies, how many of those companies have loans outstanding in private credit funds? And if those companies' prospects dim, what's the actual value of those loans?
A K-shaped recovery describes an economy where different groups of people are recovering at very different speeds — like the two arms of a "K." The top arm tilts upward (higher-income households doing well, benefiting from rising asset prices, stable employment) while the bottom arm tilts downward (lower-income households struggling with elevated food costs, housing costs, and credit card rates). Walmart's CEO flagged this directly in the company's earnings report, noting that while households earning over $100,000 are resilient and actually choosing Walmart for its premium private label products, lower-income consumers are under pressure from elevated living costs. This is important not just for Walmart — it's a data point about the health of the broader economy. If the consumer base is bifurcating, spending will become increasingly concentrated at the high end, which has implications for everything from restaurant stocks to consumer credit default rates.
A "losing streak" just means the index closed lower week-over-week for five consecutive weeks. The Nasdaq had been under consistent pressure since early January, driven primarily by two things: first, the AI capex spending revelations from Amazon, Alphabet, and Meta (massive capital expenditure plans that raised questions about near-term profitability) and second, growing skepticism that AI might disrupt traditional software businesses rather than benefit them. Five losing weeks in a row is notable because it reflects sustained selling pressure, not just a bad day. Snapping it doesn't mean the trend is reversed — it means the selling stopped for one week. Today's catalyst (the Supreme Court ruling) is what did it. Whether that's a durable turning point or a one-day bounce depends on whether the tariff relief translates into actual earnings improvements and whether tech companies can demonstrate that AI spending is generating returns.
Based on what you just read — not what you already knew — let's see how well you've absorbed the week's key dynamics.
The sector rotation this week reflected the competing narratives directly.
The consistent pattern across the past several weeks is a rotation away from software, SaaS, and high-multiple growth names and toward industrials, infrastructure, consumer staples, and energy. This isn't random. It reflects a thesis: the AI buildout benefits physical infrastructure (power, machinery, data centers) more than it benefits traditional software businesses. Investors are paying for what AI consumes (electricity, chips, servers) rather than what AI may eventually replace (software subscriptions, knowledge workers, back-office tools).
Next week is earnings-heavy and could be the most important stretch of the quarter. Nvidia reports Wednesday. That single print will be read as the definitive verdict on whether AI capex spending is translating into actual semiconductor demand.
| Day | Time ET | Event | Why It Matters |
|---|---|---|---|
| Mon | — | No major events | Market digests Friday's tariff ruling |
| Tue | 8:00 AM | January New Home Sales Med | Rate-sensitive sector read; housing still struggling with 7% mortgage rates |
| Tue | 10:00 AM | February Consumer Confidence High | After Walmart's K-shaped consumer warning, this is the first broad read on consumer mood |
| Tue | After Close | Home Depot (HD) Earnings High | Housing bellwether; guidance tells us if the housing slowdown is getting worse |
| Wed | After Close | Nvidia (NVDA) Earnings High | The print that determines whether the entire AI infrastructure thesis is on track. Data center revenue and guidance are the only numbers that matter. |
| Wed | After Close | Salesforce (CRM) Earnings High | Read-through for enterprise software demand amid AI disruption fears |
| Thu | 8:30 AM | Initial Jobless Claims Med | Last week printed 206K — lowest since November. Labor market strength is the key variable for the Fed's patience |
| Thu | After Close | Dell (DELL), Intuit (INTU) Earnings Med | Dell's AI server order book; Intuit for the enterprise software read |
Nvidia is the single most consequential earnings report of the next three months. Here's the simple framework for how to read it: Bull case — data center revenue beats and guidance is strong → AI capex is being absorbed by chip demand, sector rotation from software to infrastructure continues. Bear case — data center revenue misses or guidance disappoints → the AI capex spending isn't flowing into chip revenues as cleanly as hoped, and the entire AI infrastructure trade gets questioned. The result will set the tone for the entire tech sector's next move.