Good morning investors,
The January jobs report delivered a genuine surprise on Wednesday, with the economy adding 130,000 jobs and the unemployment rate falling to 4.3%, more than double what economists expected. Yet the major indices finished essentially unchanged, with the S&P 500 flat, the Nasdaq down 0.2%, and the Dow slipping 0.1%. The muted reaction tells you everything about where investor psychology sits right now, as good news on jobs is bad news for rate cuts, and the market is struggling to find a clear catalyst amid cross currents that seem to cancel each other out completely.
Bulls see a resilient economy powering through uncertainty. Bears see a structural hollowing out as AI accelerates layoffs in the digital economy while healthcare and physical economy sectors continue expanding. Both outlooks contain truth. Last week's Challenger report showed companies cut 108,000 jobs in January, up 118% year over year and the worst start to a year since 2009, with 7% of those layoffs explicitly citing AI. Yet Wednesday's government data painted a picture of surprising strength. These mixed signals will likely remain gray for some time.
Opening Bell
Futures are modestly higher this morning, with Dow ($DIA ( ▼ 0.59% )) futures up 143 points, S&P 500 ($SPY ( ▼ 0.37% )) futures gaining 0.28%, and Nasdaq ($QQQ ( ▼ 0.24% )) futures posting similar advances. The cautious optimism comes as investors digest yesterday's jobs data and position ahead of Friday's CPI report, which now carries enormous weight given the Fed implications.
Cisco is down 8% in premarket trading after issuing disappointing guidance, with quarterly gross margins of 67.5% missing the 68.14% estimate as global memory price increases pressure costs. McDonald's is rebounding after its earnings beat. Today's economic calendar includes weekly jobless claims and existing home sales data.
The earnings slate is packed with names I am watching closely: Coinbase reports after what has been a brutal stretch for crypto, alongside Airbnb, Rivian, DraftKings, Roku, Applied Materials, and Anheuser-Busch InBev.
Jobs Report: Good News That Complicates Everything
The 130,000 jobs added in January were especially meaningful because investors are looking for clues on what the Fed will do next. The stronger than expected numbers pour cold water on the idea the Fed could cut rates again before mid-year and will fuel internal debate about how restrictive policy actually is and how much slack remains in the labor market.
Market bets now show just an 8% chance of a rate cut at the March meeting, down from 20% a day ago. This is arguably good jobs news that also serves as a killjoy for investors hoping the Fed would resume its rate-cutting campaign.
But the report came with important caveats. Updated 2025 numbers revealed the economy gained just 181,000 jobs all of last year, sharply below the previously reported 584,000. That represents the slowest pace of job growth outside a recession since 2003. Much of January's growth was also concentrated in just a few sectors rather than broad based. Private data released last week indicated the labor market remained a tough environment for Americans already out of work.
As Fundstrat's Tom Lee noted, this puts enormous weight on Friday's CPI report. If inflation comes in tame, at least the market can understand that the Fed's equation is cooling. And if the job market is showing decent strength, it relieves macro concerns about an economic downturn. The interplay between these two data points will set the tone heading into the March FOMC meeting.
Meta: Ackman's Vote of Confidence
Bill Ackman's Pershing Square disclosed a sizable new stake in Meta, allocating roughly 10% of fund capital to the position as of year-end 2025. In its annual investor presentation, Pershing argued that Meta's current valuation underappreciates the company's long-term upside potential from AI, describing the stock as deeply discounted relative to the quality of the business.
This aligns closely with the thesis I have outlined since the post Thanksgiving selloff. Meta shares are down 16% over the past twelve months, with 2026 AI related capex projected at $115-135 billion. The stock trades at approximately 22 times forward earnings, a discount to peers such as Alphabet, Apple, and Nvidia despite having arguably one of the most scalable AI monetization engines in the public markets.
The key distinction is that Meta is not just building AI capacity. It is embedding it directly into a revenue model that already generates massive free cash flow. The market has punished Meta on concerns that AI spending is excessive, but Pershing's view, and one I share, is that investors are extrapolating near-term capex pressure without properly valuing the earnings power that AI infrastructure unlocks across advertising, content ranking, and monetization tools.
Wednesday's announcement of a $10 billion data center in Lebanon, Indiana, the company's largest infrastructure project yet, underscores the scale of commitment. From a portfolio manager's perspective, this is classic sentiment dislocation. Elevated spending today is compressing optics, not destroying economics. I continue to believe Meta can trade back above $700 over the coming months as confidence around monetization catches up with infrastructure investment.
Robinhood: The Market Is Looking at the Wrong Line Item
Robinhood delivered $0.65 EPS versus $0.62 expected and posted record revenue of $1.28 billion, yet the stock fell 10% on Wednesday. The culprit was crypto transaction revenue falling 38% year over year to $221 million, with trading volumes down 52%. That is the headline algorithms latched onto.
But step back. The broader crypto complex has been weak. Volumes across the ecosystem have cooled. This is cyclical, not structural. Robinhood's business model is evolving well beyond pure crypto trading dependence.
The underlying operating data actually improved. Gold subscribers hit an all-time high of 2.8 million. Funded accounts and Gold cardholders reached records. Retirement assets doubled year over year to $26.5 billion. Prediction markets traded 8.5 billion contracts in Q4 and now represent roughly 14% of transaction-based revenue.
The mid 2026 launch of Rothera, a joint venture with Susquehanna International Group, expands Robinhood's positioning well beyond being the crypto brokerage. The company is quietly building a diversified transaction ecosystem across equities, derivatives, prediction markets, and retirement assets.
Markets often punish businesses tied to volatile segments at exactly the moment those segments are bottoming. If crypto stabilizes, transaction revenue normalizes quickly. If Gold growth and retirement assets continue compounding, the multiple should expand. I continue to see a path back above $100 for the stock this year.
McDonald's: Value Strategy Working
McDonald's delivered a clean fourth-quarter beat as its renewed focus on value and promotions brought customers back through the door. Adjusted EPS of $3.12 beat the $3.05 estimate, with revenue of $7.0 billion topping the $6.84 billion expected. Global same-store sales rose 5.7% versus expectations of 3.9%, with U.S. comps surging 6.8%.
CEO Chris Kempczinski said there was growing evidence that the value strategy was working, with gains in low-income customer visits. Promotions such as Monopoly and seasonal bundles, alongside the relaunch of Extra Value Meals at roughly a 15% discount, clearly resonated with price-sensitive consumers.
McDonald's is proving that value does not necessarily mean margin destruction when executed with discipline. Traffic growth above expectations in a cautious consumer backdrop is not trivial. In a market environment where investors are punishing any softness in discretionary spending, McDonald's ability to grow comps nearly 6% globally signals operational resilience.
Corporate Developments
Alphabet's rare 100 year sterling bond is the latest sign of the extraordinary capital mobilization underway to fund AI infrastructure. The century bond, part of a broader $20 billion multi-currency offering, attracted almost 10 times orders for the £1 billion sale. Century bonds remain rare and are more commonly associated with governments than corporate borrowers. With tech giants' total debt issuance predicted to reach some $3 trillion over five years, Alphabet is clearly diversifying funding sources to avoid oversaturating the dollar market.
Mercedes-Benz reported a 57% drop in full year operating profit to 5.8 billion euros, significantly below the 6.6 billion euro estimate, citing a 1 billion euro hit from tariff costs alongside intense competition from Chinese rivals. European automakers continue facing a multitude of challenges from rising production costs to a bumpy EV transition.
Applied Materials agreed to a $252 million settlement with the Commerce Department for illegally exporting chipmaking equipment to China's SMIC, a reminder of the regulatory complexities facing semiconductor companies navigating US-China tensions.
Schroders is being acquired by Nuveen for $13.5 billion in one of Europe's largest fund management deals, marking the end of an era for the 222 year old British money manager.
Coinbase Watch
I am watching Coinbase earnings with particular anticipation after the large sell-off in crypto-exposed names. The company reports after the close today, and results will provide important color on whether the volume weakness we saw in Robinhood's crypto segment is industry wide or company specific. With Bitcoin finding some support from whale accumulation and sentiment at extreme lows, the setup into crypto earnings feels asymmetric.
Final Thought
The diversified portfolio continues winning in 2026. Small cap and international outperformance persists exactly as my outlook report laid out at the start of the year. While mega cap technology debates whether AI spending will ever generate returns and the market struggles to price disruption across sectors, the boring parts of the market keep compounding.
Friday's CPI report will likely determine whether the recent consolidation resolves higher or lower. If inflation comes in tame while employment remains resilient, the soft landing narrative regains credibility and risk assets should respond positively. If inflation surprises to the upside, the Fed's hands remain tied and the path forward becomes more uncertain.
What I find most compelling about the current setup is the tension between macro data that remains supportive and sector level repricing that feels overdone. The AI disruption story is real, but the market's habit of selling first and asking questions later creates opportunities for patient investors willing to distinguish between genuinely vulnerable businesses and those merely caught in indiscriminate selling. Use volatility to add exposure where the risk-reward has shifted in your favor.
As always, feel free to reach out with questions about positioning for these evolving market dynamics.
Best regards,
Dan Sheehan [email protected]
Subscribe: https://substack.com/@dansheehan3
This newsletter is for informational purposes only and should not be considered as investment advice. Please consult with your financial advisor about your specific situation.