Volatile Week Ends Positive (Barely)
What a wild week. Markets yo-yoed on tariff drama, rallied when the Supreme Court struck down Trump's emergency tariffs on Friday... then plunged Monday when he raised them to 15% anyway. By Wednesday, tech stocks led a relief rally ahead of Nvidia earnings. Then Thursday? Nvidia crushed estimates and the stock... fell 4%.
Welcome to 2026: where beating expectations isn't enough anymore. You need to beat by a lot, raise guidance by more, and somehow convince investors the good times will never end. Nvidia did all three—and still got punished.
Markets are in "peak expectations" territory. When the best company in the world (by revenue growth) beats by 15% and investors sell, it means one of two things:
1. Valuations are stretched. Nvidia trades at 35x forward earnings. That leaves no room for disappointment.
2. The AI bubble narrative is gaining traction. Investors are starting to ask: "What if demand plateaus?" Even a hint of that sends overvalued stocks tumbling.
The bright spot? Bitcoin surged 9% this week, hitting $69,200—its best week since early February. Crypto is riding a short squeeze + risk-on sentiment. But it's still down 30% from its November highs. Call it a bounce, not a trend reversal.
Nvidia Crushes Earnings—Stock Tanks Anyway
Here's what Nvidia delivered Wednesday night:
✅ **Q4 revenue:** $68.1 billion (beat estimates by 15%)
✅ **Q1 guidance:** $78 billion (well above Wall Street expectations)
✅ **Gross margin:** 75% (up from 73.4% last quarter)
✅ **Data center revenue:** Up 75% year-over-year
By every metric, this was a blowout quarter. CEO Jensen Huang doubled down on AI infrastructure demand, saying companies are rushing to deploy inference chips (the ones that run AI models in production, not just training).
So why did the stock fall 4% the next day?
The Expectations Game
Whisper numbers were even higher. Wall Street analysts publish official estimates, but big institutional investors trade on "whisper numbers"—unofficial, higher targets. Nvidia beat the official number but apparently missed the whisper. That's enough to trigger selling.
Investors are exhausted. Nvidia is up 5% year-to-date while the Nasdaq is flat. For a stock that's supposed to be "the AI play," that's underwhelming. People expected more fireworks—maybe 10-15% guidance beats, not "just" 8-10%.
The AI skepticism is growing. Questions are mounting: How long can demand stay this hot? What happens when companies finish their initial AI infrastructure buildouts? Are we heading for an AI capex cliff in late 2026 or 2027?
Remember the dot-com boom? Cisco was the "picks and shovels" play—selling routers and switches to every company building the internet. Revenue was exploding. Stock was unstoppable. Then in 2000, companies stopped buying networking gear all at once (they'd overbought). Cisco's stock cratered 90%.
The risk: AI infrastructure spending could hit a similar wall. Once every cloud provider and enterprise has their GPU clusters, who's buying more? Nvidia's dominance makes it vulnerable to a demand shock.
The counter-argument: AI is different. It's not just infrastructure—it's a platform shift like mobile or cloud. Demand will compound for years, not quarters. Inference chips (running AI models) will dwarf training chips (building them). Nvidia is just getting started.
What to Watch
Nvidia's next earnings (May): If Q1 guidance proves conservative and they beat again, the sell-off was noise. If growth slows even slightly, watch out.
Competitors: AMD, Intel, and custom chip makers (Google TPU, Amazon Trainium) are ramping. Nvidia's moat is software (CUDA), not hardware. If that erodes, margins collapse.
Capex spending from Meta, Google, Microsoft, Amazon: These four account for ~40% of Nvidia's revenue. Their quarterly earnings will signal whether AI spending stays hot.
Trump Defies Supreme Court, Raises Tariffs to 15%
In a bizarre sequence this week:
**Friday (Feb 20):** Supreme Court strikes down Trump's emergency tariffs as unconstitutional.
**Markets:** Rally 0.7% (S&P 500) in relief.
**Monday (Feb 21):** Trump announces 15% tariffs on all imports from all countries anyway.
**Markets:** Plunge 1.7% (Dow drops 800 points).
The tariffs hit everything: electronics, cars, food, industrial equipment. Trump claims it's about national security and "fair trade." Economists call it inflationary, growth-killing, and legally dubious.
Economic Impact
Immediate: Importers scramble to front-load shipments before tariffs hit. Ports are jammed. Supply chains disrupted again (we just recovered from COVID snarls).
Medium-term: Prices rise for consumers. A 15% tariff on imported goods = ~5-7% price hikes at retail (companies absorb some, pass the rest along). That's on top of existing inflation.
Long-term: Retaliatory tariffs from trading partners. China, EU, and Canada are already drafting responses. This could spiral into a full-blown trade war—killing global growth and triggering recession risk.
Tariffs are a tax on consumers, not foreign countries. When Apple imports iPhones from China, the 15% tariff is paid by Apple (and passed to you). China doesn't write the check—American companies and consumers do.
Historical precedent: The Smoot-Hawley Tariff Act of 1930 raised tariffs to similar levels. Global trade collapsed by 65% over the next few years. Most economists blame it for deepening the Great Depression.
Will this play out the same way? Probably not—economies are more integrated now, and there are mechanisms (WTO, trade agreements) to negotiate. But the risk is real.
What to watch: Inflation data over the next 2-3 months. If CPI starts climbing again (especially goods prices), the Fed will face an impossible choice: keep rates high and risk recession, or cut rates and let inflation run.
Consumers Keep Spending (For Now)
Despite all the chaos—tariffs, Nvidia sell-offs, political drama—consumer spending rose 2.4% this quarter. Americans are still buying stuff.
Equipment and intellectual property spending also surged. But construction (commercial + residential) fell. Translation: businesses are investing in tech, not buildings. Makes sense in a high-rate environment (borrowing for construction is expensive; software upgrades are cheaper).
Consumer spending = 70% of U.S. GDP. As long as people keep spending, recession risk is low. The labor market is still strong (unemployment at 3.9%), wages are up 4.5%, and household balance sheets are solid.
The catch: This could change fast if tariffs spike prices or layoffs accelerate. Consumer confidence is a lagging indicator—it holds up until it doesn't.
- Eurozone Inflation at 1.7%: Below the ECB's 2% target. Markets now expect rate cuts in Q2. Euro weakness benefits U.S. exporters but hurts European consumers.
- Coffee & Cocoa Futures Plummet: Coffee down 15% in February alone (biggest drop since Oct 2022). Cocoa also crashing. Good for Starbucks margins; bad for farmers in Latin America and Africa.
- Nasdaq Breaks 5-Week Losing Streak: Up 1.4% this week after five consecutive weekly declines (longest since May 2022). Relief rally or dead-cat bounce? Next week will tell.
- Japan & Australia Rate Hikes Coming? PMI data shows growth accelerating outside the U.S. If Japan raises rates again, the yen carry trade unwind could trigger global deleveraging (markets hate that).
- Broadcom, AMD, Applied Materials Hit Hard: All down 6-7% Thursday after Nvidia earnings. When the sector leader disappoints (even slightly), the followers get obliterated. Semi supply chain still fragile.
What to Watch Next Week
Tariffs are the wildcard. If Trump backs down or delays implementation, markets will rally. If he doubles down and other countries retaliate, buckle up. This is the biggest economic policy risk right now—bigger than AI, bigger than the Fed.
Nvidia's reaction is instructive. When the best company in the market can't satisfy investors, it signals peak expectations. Either earnings across tech need to accelerate (unlikely), or valuations need to come down (painful). Something's gotta give.
Watch inflation data closely. PCE (the Fed's preferred measure) comes out next week. If tariffs are already showing up in goods prices, the Fed stays hawkish. If inflation is cooling, rate cuts come back on the table.
Bitcoin's bounce matters. Crypto is a risk-on barometer. If BTC breaks above $75K, it signals investors are back in growth mode. If it rolls over here, risk appetite is fading.
For investors: This is a stock-picker's market, not a "buy the index" market. Nvidia's stumble shows that even dominant companies can disappoint. Diversify, hedge, and stay nimble. 2026 will reward the flexible, not the dogmatic.
For everyone else: Brace for higher prices. Tariffs take 3-6 months to fully flow through supply chains. By summer, you'll feel it at the grocery store, gas pump, and electronics aisle. Budget accordingly.
The big question: Can the economy handle tariffs + high rates + peak tech valuations all at once? History says no. But this time _could_ be different (famous last words). Stay alert.