Let’s start with two charts. We used Jan 1, 2025, as the start date so we could capture the effects of Trump 2.0, and we’ve tracked data through the close of day on Friday, February 28, 2026. That way we incorporate the SCOTUS tariff decision and the State of the Union speech. Hat tip to Cumberland Advisors’ Matt McAleer, president of Private Wealth, for help with ETF research.
Here’s SPY, the benchmark S&P 500 Index represented by the well-known ETF.
Now let’s look at the same 500 stock using RSP, the equal-weighted ETF. Same stocks, different methods of weighting (cap weight versus equal weight). Note the effects of the large cap-weighted tech stocks. Also note that the Mag 7 stocks peaked on October 29. 2025.
For emphasis, the Mag 7 are represented here by the ETF whose symbol is MAGS:
The debate among market agents and observers is whether the AI boom and hyperscale build-out are too extended and whether the rotation of their capital investment into using borrowed money (debt) is a sign of trouble ahead. While the debate rages, the markets are repricing the stocks involved.
We can dig deeper and examine the semiconductor sector versus the software sector. Commentators have been beating this debate to death. Compare two ETFs. Ask yourself whether AI is really going to kill the software industry while the semis boom.
SOXX represents the semiconductors. Their stock performance is self-evident.
IGV is a software ETF.
I will save one more chart for the end. But first a quote from Doug Kass’s morning note (Feb. 6). Thank you to Doug for permission to share with readers.
Doug wrote:
I have repeatedly written that many of the Mag 7 had morphed from having attractive capital-light profiles to problematic (read: uncertainty of the timing and the returns from massive AI capital spending) capital-heavy (and intensive) profiles.
Doug cited his Barron’s interview with Randy Forsyth (October 2025). Note the timing right before the MAG 7 peaked.
All eyes were on the parade of earnings reports from the technology behemoths this past week. But what grabbed the markets’ attention were the implications of their massive capital investments in artificial intelligence on their balance sheets and cash-flow statements. At the center of this debate was Meta Platforms, which plunged 11% on Thursday after reporting a miss on earnings but, more importantly, said it was pushing full speed ahead on AI data centers, projecting $71 billion in spending, up from $69 billion previously. Moreover, the company said that capital expenditures “will be notably larger in 2026 than 2025.”
Meta brought this year’s biggest investment-grade corporate bond deal to market, totaling some $30 billion, the latest in a parade of recent data-center borrowing. Bank of America tallies $75 billion of AI-related public debt offerings in the past two months. And that doesn’t count other financings, including Meta’s creative off-balance-sheet funding of its Louisiana data center…. Also included is a “$38 billion loan tied to Oracle’s data centers, on top of $18 billion of public bonds issued by the company.”
(Readers may find the rest of the Barron’s column here: “Meta Stock Took a Dive. It’s the Poster Child for the Debate Over AI Spending”
Jim Reid gave us permission to share an excerpt from his morning note (Feb. 5):
A reminder about our latest chartbook, “2026 so far: Everything, Everywhere All at Once”, delving into the key themes driving an extraordinary 2026 for markets so far. You can find it here. (Note A db login is needed.)
It’s still very early, but we see some intriguing parallels between the current US equity rotation and the market dynamics that unfolded in 2000.
Since the tech peak on October 29 last year, the past three months have delivered a dramatic shift beneath the surface. Energy (+20.6%), Materials (+18.3%) and Consumer Staples (+13.9%) have surged, while Tech is down 11.2%. Despite more sectors rising than falling, the S&P 500 has gone essentially nowhere—held back by the sheer weight of its tech constituents. That’s striking when you consider the equal-weighted index is up 4.2% in that period, closing at another record high yesterday.
A similar pattern emerged in 2000. After Tech peaked in March of that year, Consumer Staples, Utilities and Healthcare rallied about 40–45%, even as Tech and Communications slumped 51.8% and 39.4%, respectively. By September, the rotation had not yet inflicted major collateral damage: the S&P 500 came within a percentage point of its all-time highs from six months earlier. But by year end, the Tech sell-off deepened to the point where strong gains elsewhere could no longer compensate.
Before we offer readers the final chart, we ask this question: Has the OBBBA pulled billions in CapEx spending forward by allowing expense instead of depreciation? AI-driven, 2026 hyperscale capital expenditures are running close to $700 billion annualized. Tech companies are now raising money with bonds, and the bond issues are sized in the tens of billions. Some issues have a 100-year maturity. Some are denominated in foreign currencies, which adds a foreign currency exchange rate risk. So how much is being pulled forward into 2026? And are various asset classes being repriced to reflect this change?
Obviously, the answer is yes and yes. The results of corporate debt burdens are unknown; they are revealed only after the fact. But markets adjust prices because of estimates and opinions about the future. Witness credit default swap pricing on Oracle.
Let’s close by looking at the chart of a single stock. This stock was once loudly declared to be the litmus test of the new policies that have been unfolding in Washington during the last year.
Here’s the stock performance of DJT, a symbol whose initials are also those of a very large shareholder. The rest speaks for itself.
That said, the shooting regional war now creates a new list of issues for market agents and therefore supersedes any conclusions we may have considered before the attack on Iran commenced Saturday morning.
Further Reading and Viewing
Hat tip to John Mousseau, Cumberland Advisors’ CIO, for suggesting the following LinkedIn discussion of corporate profits. This is a serious research paper well worth taking 10–12 minutes to read.
“Data Update 6 for 2026: In Search of Profitability!” | Aswath Damodaran, professor at NYU Stern School of Business,
https://www.linkedin.com/pulse/data-update-6-2026-search-profitability-aswath-damodaran-9dbhc?utm_source=share&utm_medium=member_ios&utm_campaign=share_via
From MacroStrategy Partnership, we suggest this October 2025 analysis of the AI buildout. MacroStrategy Analyst Julien Garran delved into the real-world limitations of how LLMs function. He concluded that the AI bubble is 17 times the size of the dot-com bubble and 4 times the size of the subprime bubble:
“Power Plai” | MacroStrategy Partnership,
https://www.youtube.com/watch?v=uz2EqmqNNlE
And here’s a link to the famous (infamous?) Citrini Research Substack article. Readers can decide for themselves.
“The 2028 Global Intelligence Crisis: A Thought Exercise in Financial History, from the Future” | Citrini Research,
https://www.citriniresearch.com/p/2028gic?utm_medium=web
In the FRBSF Economic Letter for February 23, Mary C. Daly, president and CEO of the Federal Reserve Bank of San Francisco, reflected on the AI transformation and its implications for monetary policy:
“The AI Moment? Possibilities, Productivity, and Policy” | FRBSF Economic Letter, Federal Reserve Bank of San Francisco, https://www.frbsf.org/research-and-insights/publications/economic-letter/2026/02/ai-moment-possibilities-productivity-policy/
Last, here’s a recent two-minute video clip from me about where we find the growth/inflation tradeoff as we enter the month of March 2026.
“Inflation 3%, Real Growth 1.4%! Why?” | Kotok Report Quick Take,
https://youtube.com/shorts/Uv2abiGmKHw?feature=share
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