U.S. economic data continue to reflect solid underlying momentum, supported by AI-driven productivity gains, resilient business investment, and firm industrial production. At the same time, widening trade deficits, rising wealth concentration, shifting global supply chains, and renewed tariff uncertainty are creating new crosscurrents for markets, reinforcing the need for disciplined positioning in a rapidly evolving environment.
US Economy
The US Weekly Economic Index rose to 2.7%, the strongest level since April 2025. Evidence that AI is boosting productivity is beginning to emerge in US data—particularly in information and professional services—where higher reported time savings from AI tools correlate with stronger post-ChatGPT productivity growth.
US wealth concentration has reached new highs, with the top 1% holding 32% of net worth in Q3 2025 and the top 10% owning roughly 68%–70%, while the bottom 50% control only about 2.5%.
South Korea leads the world in manufacturing automation, with 101 industrial robots per 1,000 workers.
Ski resorts in the West have been suffering as a result of low seasonal snowfall.
Durable goods orders fell by 1.4% month over month, less than expected. The decline was driven by volatile aircraft orders. Stripping out transportation, orders rose by a solid 0.9%, well above consensus. Core capital goods orders, a proxy for business investment, also rose by a robust 0.6%, signaling solid underlying momentum. Shipments of computers and electronic products continued their solid expansion. Core capital goods shipments have been strong.
Industrial production rose by a strong 0.7% in January, well above forecasts. The increase was broad-based, driven by gains in both manufacturing and utilities output.
Housing starts also jumped month over month, with both single- and multifamily construction showing strength. Despite the recent momentum, housing starts have essentially moved sideways over the past few years. Mortgage applications fell for the fourth consecutive week even as the 30-year fixed mortgage rate ticked down.
The Atlanta Fed’s GDPNow model’s Q4 GDP estimate remains high at 3.6%
The trade deficit widened significantly in December, far exceeding analyst estimates, driven by a decline in exports and a broad-based surge in imports. The trade in nonmonetary gold accounted for more than half of the December widening. The strength in imports can partially be attributed to high-tech goods from Taiwan and Korea. These charts show annual trade balances with select countries. The US trade deficit with China fell to a 21-year low in 2025 amid sweeping tariffs that reshaped supply chains, while gaps widened sharply with Mexico, Vietnam, and Taiwan as imports—especially semiconductors tied to the AI boom—were increasingly rerouted through third countries.
US Stock Market
Gold fell back below $5,000, while silver slumped amid thin trading due to the Lunar New Year holiday. Speculative accounts continue to reduce net long exposures to precious metals.
The S&P 500 companies are on track to post their strongest revenue growth in three years for Q4.
According to BofA’s survey, global investor sentiment is the most bullish since June 2021.
Source: BofA Global Research
The gap between Chinese and US equity performance has significantly widened in recent years.
Here is a look at the breakdown of Berkshire’s assets.
The Fed
Headline inflation for January was a touch softer than expected, driven by a sharp drop in gasoline prices, while core inflation was in line with consensus. Rates markets reacted dovishly to the print, with more rate cuts priced in for 2026.
Treasury yields declined across the curve. Both medium- and longer-term breakeven inflation rates dipped. Business inflation expectations for the coming year decreased to 1.9%, according to the Atlanta Fed’s latest survey.
President Trump’s Tariffs vs Supreme Court
A large chunk of President Donald Trump’s tariffs are illegal. That’s what the Supreme Court said last Friday, delivering a decision that we have long expected.
Last April, just days after Trump and the White House threatened startlingly high “reciprocal tariff” rates against the world on “Liberation Day,” a group of small businesses filed suit against them.
Trump had cited the International Emergency Economic Powers Act (“IEEPA”) of 1977 to impose tariffs in response to a “national emergency” of a trade deficit. The suit claimed Trump illegally misused that law and threatened their businesses, and it seemed to us that they had a good case.
I am not a lawyer, but I do know these things typically take a while to reach an ultimate conclusion… and this case seems destined for the Supreme Court.
When you pair this suit with what we’ve heard recently about tariff “flexibility”… exemptions… and expected trade deals with more than 10 foreign partners to be announced in the future, it sure sounds like the tariff war is losing its teeth.
I think a lot of investors were expecting this outcome too, or at least they should have been… Over the ensuing months, as the White House used tariff threats to negotiate “deals,” the market reacted to them less and less… and then not at all.
The average tariff rate (even before the Supreme Court nullified many tariffs) was around 27%. But the actual rate “only” added up to about 14% after various exemptions and carve-outs.
These double-digit increases in import costs have affected businesses, including a lot of small businesses. But overall, the rates aren’t as high as they could have been. And that’s “part of the reason why tariffs haven’t disrupted the economy as badly as expected,”
How will refunds go, or will they happen? Or will the White House try other ways to impose the same tariff rates? And will that work? Today, we have some answers for you, but some remain.
Well, first, you should know that some tariffs survived the Supreme Court’s ruling. For example, steel and aluminum tariffs fall under another clearer law – Section 232 of the 1962 Trade Expansion Act – that allows for tariffs to protect “national security.”
Plus, Treasury Secretary Scott Bessent has said in the past few months that the White House can turn to other (legal) ways to impose similar tariffs. The 1930 Tariff Act, the 1962 law, and the 1974 Trade Act all allow for paths to imposing tariffs.
Trump said in a press conference this afternoon that the White House is going to use them. “We have very powerful alternatives,” he said, that are “even stronger.” He said he hoped to impose more tariffs, but the process takes a little more time.
He also said it is “ridiculous” that the Supreme Court opinion finds he can’t charge countries “even $1” under IEEPA, but that he is “allowed to cut off any and all trade or business with that same country.” As he put it, “I can destroy the trade… but I can’t charge $1.”
In any case, Trump announced a backup tariff plan… The White House will keep Section 232 tariffs in place and impose a 10% global tariff under Section 122 of the 1974 trade law, which allows a president to impose as high as a 15% tariff for up to 150 days to address trade deficits. That will start in the coming days.
“We have tariffs, we just have them in a different way,” Trump said.
We don’t know if this is the entire backup plan… what new tariffs will stick… or when or if refunds to U.S. businesses will be due in the meantime. On refunds, Trump said, “I guess it has to get litigated for the next two years,” or “five years,” he later added.
In a dissenting opinion as part of the 6-3 decision published today in Learning Resources, Inc. v. Trump, Supreme Court Justice Brett Kavanaugh acknowledged this part of the story (while also saying it doesn’t have anything to do with the decision about the law)…
The interim effects of the Court’s decision could be substantial. The United States may be required to refund billions of dollars to importers who paid the IEEPA tariffs, even though some importers may have already passed on costs to consumers or others. As was acknowledged at oral argument, the refund process is likely to be a “mess.”
No tariffs, or minimal tariffs, and refunds to businesses would help out those companies. But I can’t imagine it would lead to prices on goods and services moving lower. And potential tariff repayment also means the government has to come up with more money that it doesn’t have (i.e., more debt).
And just yesterday, Trump said, “Without tariffs, this country would be in such trouble right now,” alluding to their role in his negotiations with other countries.
The president slammed those who voted against the legality of the tariffs under an emergency declaration. He said he was “absolutely ashamed” of them, called them “disloyal to our Constitution,” and accused them of being swayed by foreign interests rather than American ones.
Upon release of the Supreme Court decision last Friday, Mr. Market indicated a reaction in the ballpark of “who knows, but this seems like good news.”
The major U.S. stock indexes initially bounced higher from flat and slightly down levels shortly after 10 a.m. Eastern time, searched for direction, then finished mostly higher. Only the small-cap Russell 2000 Index finished slightly lower, bucking the prevailing trend.
The tech-heavy Nasdaq Composite Index was up the most (almost 1%). Technology supply chains could benefit from lower costs and fewer potential disruptions. Still, you wouldn’t necessarily expect tech stocks to be the biggest beneficiaries of erasing, reducing, or pausing tariffs.
Broadly, the market did not react as much as it could have.
Great Quotes
“Life is 10% what happens to you and 90% how you react to it” — Charles R. Swindoll
Picture of the Week
Haghartsin Monestary, Armenia
All content is the opinion of Brian Decker
