Market Note: Broadening Horizons Beyond the AI Frontier

By Hightower Great Lakes on February 16, 2026

Market Insights

We are a month and a half into 2026, and there are several interesting market observations year-to-date. The sector outperformers are led by the smallest weightings in SPX, while the Mag 7 is -7%.[1] WMT is +12% vs software -22%, and AMZN is down 9 days in a row, which is the first time in 20 years.

Resilient Labor Market and Gradual Inflation Progress

Economic data continues to reflect underlying strength and steady disinflation. Nonfarm payrolls rose by 130,000 in January, exceeding expectations, while the unemployment rate declined to 4.3% from 4.4% in December.[2] Over the past 12 months, average hourly earnings increased 3.7%, signaling continued wage growth.[3]

On the inflation front, core CPI came in at 2.4% and core PCE at 2.8%, while the fourth-quarter Employment Cost Index rose less than expected. Taken together, these data points suggest continued progress on inflation, and while inflation remains above the Fed’s ultimate target, the trajectory is moving in the right direction.

Productivity and AI Uncertainty

The productivity story has been nothing short of exceptional, with productivity growth at an annualized rate of 4.9%.[4] Corporate commentary continues to reinforce this strength.

At a Financial Services conference last week, Bank of America noted consumer spending was up 5% year over year in January, Wells Fargo described both consumers and corporations as healthy, and Goldman Sachs highlighted that M&A activity is the strongest in five years with IPO pipelines poised to accelerate. Fundamentally, the backdrop feels constructive across growth, credit, and capital markets.

Yet despite this positive narrative, the S&P 500 remains roughly flat, with certain sectors experiencing sharp pullbacks tied to AI-related uncertainty. In contrast, the equal-weight S&P 500, offering a broader representation of the market, is up more than 5% year-to- date[5], signaling improving breadth beneath the surface. While the economy appears well-positioned, equity markets are in a wait-and-see phase, digesting how the AI story will play out.

Short-Cycle Industrials

An emerging theme we are beginning to look at is short-cycle industrials. Short-cycle industrials are companies with limited backlog duration and book-to-bill ratios that adjust quickly to real-time demand.

These businesses tend to respond early when economic and manufacturing activity improve, independent of AI-driven data center spending. Recent data support the idea that conditions may be turning.

The Chicago PMI printed 54 while ISM Manufacturing and S&P Global Manufacturing printed 52.6 and 52.5, respectively, signaling a return to expansion. While a sustained short-cycle recovery has been absent for some time, the data suggest we may be at the early stages of one.

Dover Corporation fits this theme, given its meaningful exposure to shorter-cycle demand, and areas like trucking and rails could also benefit under a similar framework. If the broader economy continues to firm, these more economically sensitive segments should begin to participate more meaningfully.

Technology now represents roughly 33% of the S&P 500 and has been the dominant leadership group over the past decade. However, as market rotation broadens and manufacturing data improves, opportunities away from technology are becoming increasingly compelling.

Upcoming

The week ahead brings several important catalysts, including fourth-quarter GDP along with PCE, both critical in assessing the durability of growth and the path of inflation. On the earnings front, Palo Alto will be closely watched to see whether software stocks can stabilize.

We will also be watching EQT Corporation, which is tied to the natural gas and power demand theme, and Deere & Co will offer insight into whether manufacturing momentum is beginning to translate into results.

Fixed Income

U.S. Treasury yields declined across the curve last week. The market initially rallied on Tuesday after December retail sales came in weaker than expected, and the move extended into Friday as a softer January CPI print reinforced expectations for a more accommodative policy path.

By Friday’s close, the 2-, 10-, and 30-year yields were lower by 9, 16, and 16 basis points, respectively.[6] Credit markets weakened for a third consecutive week, with spreads widening across both investment-grade and high-yield sectors.

Investment-grade spreads widened 5 basis points to +112, while high-yield spreads expanded 12 basis points to +347.[7] In the municipal market, tax-exempt yields were lower by 2-8 basis points across the curve.

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Return for Selected Indices^[8]

Click here to read last week’s Market Note (2/9).

Disclosures

Investment Solutions is a group comprised of investment professionals registered with Hightower Advisors, LLC, an SEC registered investment adviser. Some investment professionals may also be registered with Hightower Securities, LLC, member FINRA and SIPC. Advisory services are offered through Hightower Advisors, LLC. Securities are offered through Hightower Securities, LLC.

This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is neither indicative nor a guarantee of future results. The investment opportunities referenced herein may not be suitable for all investors.

All data or other information referenced herein is from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other data or information contained in this presentation is provided as general market commentary and does not constitute investment advice. Investment Solutions and Hightower Advisors, LLC or any of its affiliates make no representations or warranties express or implied as to the accuracy or completeness of the information or for statements or errors or omissions, or results obtained from the use of this information. Investment Solutions and Hightower Advisors, LLC assume no liability for any action made or taken in reliance on or relating in any way to this information. The information is provided as of the date referenced in the document. Such data and other information are subject to change without notice.

This document was created for informational purposes only; the opinions expressed herein are solely those of the author(s) and do not represent those of Hightower Advisors, LLC, or any of its affiliates.

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[1] Bloomberg: As of February 17, 2026

[2] Bureau of Labor Statistics: As of February 11, 2026

[3] Bureau of Labor Statistics: As of February 11, 2026

[4] Bureau of Labor Statistics: As of January 29, 2026

[5] Bloomberg: As of February 16, 2026

[6] Bloomberg: As of February 16, 2026

[7] Bloomberg: As of February 16, 2026

[8] Source: Bloomberg. As of February 16, 2026