Weekly Hotline: February 20, 2026
Stocks experienced significant intraday volatility in this holiday-shortened trading week as investors continued to grapple with changing expectations regarding AI profitability and disruptions.
MACROECONOMIC UPDATE
- The National Association of Home Builders (NAHB) Builder Confidence Survey dropped to 36 indicating widespread pessimism among home builders.
- Pending Home Sales for Existing Homes also sent a warning for the housing market as it dropped -0.8% to the lowest level on record (see Market Insight).
- New Home Sales* fell -1.7% in December. The total number of new homes sold in 2025 was -1.1% below the number sold in 2024 as the housing market slowed throughout the year.
- Housing Starts* increased +6.2% in December but are still -7.3% below their level in December 2024. Building Permits* also rose in December but remained -2.2% below the level of a year ago. This continues to indicate that the housing market is stalling.
- The Leading Economic Index (LEI)* declined even further in December, falling -0.2%. The sustained downtrend indicates continued economic softness for early 2026.
- Consumer Sentiment ticked up slightly from 56.4 to 56.6 as evaluations of current economic conditions and future expectations were little changed. However, internally there was more movement in the survey as wealthier consumers and those with large stock holdings saw an increase in Sentiment. This increase was offset by a decline in Sentiment from lower income individuals and those without stocks. This dynamic is known as the K-shaped economy – a phenomenon we dive into in our latest issue.
- The Personal Consumption Expenditures (PCE) Price Index* rose in December from 2.8% to 2.9%. The Core inflation rate, which excludes the volatile food and energy components, also increased – jumping from 2.8% to 3.0%. This report shows that price pressures are not fading, and it forces the Fed to keep a closer eye on inflation as it moves further from their 2% target.
*December release delayed due to residual effects of the federal government shutdown in late 2025.
TECHNICAL UPDATE
- InvesTech’s Artificial Intelligence (AI) Index bounced around this week after declining rapidly last week. If the Index continues to tumble, it would indicate that high-risk speculative investments are falling out of favor and warn that the broader market is vulnerable.
- Margin debt rose further in January as speculative investors continued to pile in to leverage. This measure of excess in the stock market reached yet another new high, indicating that the public’s appetite for risk is extreme. It is important to note that margin debt represents “hot money” (funds that will head for the exit quickly at the earliest sign of trouble or when margin calls hit and leveraged positions must be sold) and this indicator sitting at all-time highs means that the downside risk could be significant.
INVESTECH MODEL FUND PORTFOLIO
There are no changes to the Model Fund Portfolio this week, which is comprised of 58% long positions, 7% in an inverse index ETF, 5% in an intermediate Treasury ETF, and 30% cash held in short-term Treasurys or a money market fund. This results in 51% net equity exposure.
Latest issue of InvesTech Research out later today!
Don’t miss today’s issue of InvesTech Research where we take a deep dive into the Wealth Effect that has been driving the U.S. economy, expose the growing technical warning flags, and reveal the extreme risk associated with a K-shaped economy.
