A Pronounced Lack of Clarity
February 7, 2026
Ralph Waldo Emerson is credited with the saying 'a foolish consistency is the hobgobblin of little minds'. It occurred to me about myself... was my little mind going to slavishly pursue a 'foolish consistency' or, given a whole lot of other obligations this week, would I consider letting my every other week schedule drift a week because I have been buried with other obligations and wasn't sure I would find the time. But the market's angst-inducing daily gyrations of 1.5%- 2% seemed to deserve some commentary, at least a little context.
The steady declines from the first few days of the week, accompanied by the plunge in bitcoin and the silver market implosion, gave way to an unexpected, tremendous snapback rally on Friday that left the Dow and the Russell 2000 up marginally for the week and the S&P500 just off slightly. Even bitcoin rallied 10%. The powerful recovery surely left investors and advisors (including yours truly), a bit relieved... and thoughtful ones amongst them surely a bit wary as well. Frankly, the strength of the rally was surprising and its source was not clear at all.
So what do we know:
There is an unusual lack of clarity in the equity markets.
The advent, development, and rapidly growing capabilities of artificial intelligence are having impacts, both positive and negative, known and as yet unrevealed. (If the internet roll out is any guide, the jury is still out on the winners and losers, some may not even have been founded yet.)
The S&P500's forward PE (S&P500 average divided by the next 12 months’ projected earnings of all the companies... a valuation gauge) is 22, high compared with the 5-yr. average of 20 and the 10-yr. average of 18.8. The market taken as a whole appears fully valued.
Still, close to 80% of companies that have reported earnings so far this quarter have beaten the estimates expected by analysts... an indication of the economy's strength and one justification for rising equity prices.
At the same time, nearly one-third of all companies in the S&P500 are trading at least 20% below their recent highs, technically known as 'bear market territory' (a decline of at least 20% or more).
The unemployment rate has been increasing steadily for the last three years, now over 4%. It has been a very gradual, though steady, climb — rising unemployment is often a harbinger of a recession.
The January job cuts were the highest, and new hires the lowest — according to data tracked by Challenger, Gray and Christmas — for any January since the company began collecting this data during the Great Recession. The cuts were more than double those of January a year ago.
I hope some clarity is emerging... that there is no clarity. There is strength in the economy evidenced by company earnings and reports that consumers are continuing to spend. There is evident weakness in the labor markets. All the activity around the building of data centers is surely a positive contribution to economic growth. That said, data published earlier this week seemed to indicate that tariff policies had, despite all the announcements of companies investing in the US, not led to a revival in US manufacturing as that activity showed modest declines. In fact, it has been postulated that the greatest impact of the tariffs has been to hinder small and mid-sized US manufacturers, imported parts and materials from overseas increasing costs and rendering the end products economically unattractive.
It is clearly a confusing time to which we can add potential further tariff actions (who knows) and the possibility that the Supreme Court will overturn the administration's use of the International Emergency Economic Powers Act to initiate and enforce the tariffs. We haven't even mentioned Kevin Warsh taking over as Chairman of the Federal Reserve Board with a clear mandate from the President to lower rates. Typically that is viewed as a spur to economic activity (and it will lower interest costs on the federal debt) and yet it can also goose inflation again. A lot of uncertainty... significant volatility will remain.
In light of all that, tread lightly... add new positions gradually as opposed to all at once. A day like Friday is a great day to do a little trimming, take some profits on something that is pretty fully valued... better yet, do it in a retirement account and defer taxes on the gains. The takeaway for the average investor, the reasonable advisor, is no sudden dramatic moves. If you trimmed, and the stock continued rising, you still have more. If you bought some and it continued to decline, you can add a bit more at a lower price, average down your cost. Look for some ideas in the recently less favored sectors like energy and healthcare. Don't ignore the benefits of dividends.
It is a difficult moment, likely even an unwise one, to be making firm predictions on the markets and especially on individual equities. When the markets decline by more than 1% one day, rise by over 2% the next, it is easy to get crossed up. If you are content with your portfolio and/or your advisor, then your best move may be to sit on your hands and observe. Many times the best trades are the ones you don't make.