I. AI Immunity Is The New AI Trade
After ChatGPT was released on November 30, 2022, investors scrambled to overweight the AI trade, mostly by overweighting the Magnificent-7 (chart). That worked out great until the DeepSeek surprise on January 20, 2025. The AI trade made a big comeback on April 9, 2025, when President Donald Trump postponed his "Liberation Day" tariffs, and after datacenter hyperscalers reiterated their commitment to spending massively to meet booming demand.
But then, since October 27, 2025, Michael Burry has raised several questions on social media about whether all the investment in AI infrastructure will ever pay off. Investors quickly lost their confidence in the AI trade. More recently, they've been seeking to invest in companies with AI immunity after software stocks were pummeled by fears that AI would threaten their profitable business models. The stocks of wealth management companies were hard hit this week due to the same concern.
We continue to recommend underweighting the Magnificent-7, as we have since early December. We also lowered Information Technology and Communication Services from overweight to market weight back then. We maintained our overweight in Financials, which have also been hit recently by AI disruption fears. We believe the selloff in software and financial company stocks has been overdone because they will use AI to lower costs and deliver better products and services to their customers.
Nevertheless, given the uncertainty caused by AI disruptors, we would go with the flow. We are reiterating our overweight recommendation for the "old economy" Industrials and Health Care sectors. We've been bullish on precious and base metals and are now overweighting the Materials sector. We also continue to recommend overweighting foreign stock markets, particularly those of emerging markets.
By the way, the results for Alphabet's massive debt offering are now fully in. As of Wednesday, February 11, 2026, the company has successfully raised nearly $32 billion across three different currencies in just 24 hours. Demand for the 100-year bonds was described as "insane." Market historians have noted that the issuance of a century bond can be a curse signaling the beginning of a long decline for the issuer.
A current curse for the stock market is too many bulls. We've been warning about a pullback in the stock market in recent weeks because the Bull-Bear Ratio is too high. It remained so this week (chart).
II. Good News From The Labor Market
Stocks rallied this morning on January's stronger-than-expected employment report but closed slightly lower amid concerns about the data's reliability, as they can be revised significantly. January payrolls rose 130,000, with private payrolls up 172,000. The previous two months’ payrolls data were revised down by 17,000.
More significantly, the latest annual benchmark revision reduced the March 2025 payroll employment level by 898,000 (chart). The change in payroll employment for 2025 was revised from 584,000 to 181,000. The good news is that productivity boosted real GDP growth even more significantly last year.
We previously noted that low weekly initial unemployment claims data suggested an upward surprise in January's employment. The month's increase was led by a 123,500 gain in health care & social services (chart). Goods-producing jobs rose by 36,000.
Aggregate weekly hours worked in private industries rose 0.4% m/m to a record high in January (chart).
Average hourly earnings also rose 0.4% m/m in January. So our Earned Income Proxy for private wages and salaries in personal income jumped 0.8% (chart). That's likely to be solidly above the month's CPI inflation rate. If so, then Q1's real GDP should start the new year with a bang.
January's household survey data were even stronger than the payroll survey data. Household employment rose 528,000, exceeding the 387,000 increase in the labor force. So the unemployment rate fell from 4.4% in December to 4.3% in January (chart). Leading the way down were the unemployment rates for 16-19 year olds and 20-24 year olds. Both groups had increasing difficulties finding jobs last year. This year should be better for them.
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