Market Thoughts: Hit my head all day

A version of ‘agentic roulette’ is being played out across equity markets. Twitchy investors reacting to the headline-fed disruption threatened by AI companies. They will inevitably challenge how every business needs to respond. You can run, but you can’t hide.

The past few weeks have felt like a frenzied reaction to ‘what industry might AI threaten next?’ Emphasis on might. Like innovation, disruption is inevitable. The operative questions to ask... how, when and by how much? That ‘fear vibe’ is streaking through sub-sectors including software, data, legal, insurance, real estate, tax prep, payments and brokerage firms.

A recent blog post by Matt Shumer—“Something Big is Happening”—captured almost perfectly the market’s zeitgeist. You can find it on his LinkedIn page. It’s worth reading. I found it a meditation on the inevitability of technology, innovation and change. It’s a single point of view. It takes two to make a market. Investors find themselves in that market making swirl.

Draw your own conclusions from Shumer’s post. His observations seem directionally accurate. They mirror a lot of my initial and recurring engagement with AI models. Bad, better, good… rapidly improving. Shumer’s narrative frames well current investor behavior. Greed to fear. Fear to greed. Chaos creates opportunity. There’s good and bad news in that observation.

‘Fear of disruption’ whack-a-mole has only added to internal market volatility. Jittery doesn’t begin to describe the frenetic pace of investor activity and sector churning. And yet, on the surface, all seems calm. The repricing we’ve seen, caused by fear of LLM disruption, is warranted. Pockets of single stock prices were becoming excessive. Risk to the ‘grow, grow, grow’ mantra is being priced in.

That’s not meant as a ‘death knell’ for the sub-sectors mentioned at the start of this note. It’s a simple observation that fundamentals matter. For a cycle to be sustainable, gravity needs to ground greed. Valuation levels should reflect earnings growth and free cash flow, the strength of balance sheets, and the risks ahead. Disruption risks have risen. Investors have reacted accordingly by pricing them in.

U.S. Government bonds have been working hard to diversify portfolio risk. For every article written about core bonds no longer being able to serve as a risk diversifier, let me politely say they’re misleading. That said, when inflation is high and interest rates press higher, bonds wobble. It’s math.

Core bonds are doing their job. They did so last year. They are again. There are moments when it makes sense to dial up or down duration. Also, to hold cash. Those are tactical observations about positioning. Bonds remain a core component of our strategic asset allocation.

We continue to be well-diversified across government bond markets. Clipping coupons along the way. Bonds serve as ballast to the modest overweight we have in extended credit and equities. They’re a funding source to add risk should markets break.

General investor sentiment is one of restrained exhaustion. Behavior, labile. When everything is moving, at least below the market surface, slowing down is the rational response. Fundamentals argue for it.

Anchoring on the U.S., consumers are buying less but continue to spend. The personal savings rate is down about 2% since last April, which is worth paying attention to.

January jobs data was strong, with nonfarm payrolls coming in at 130k, doubling forecasts. Private payrolls were even stronger. The unemployment rate printed 4.3%, down 20bps from November. Like markets, there’s a lot going on under those headline figures.

After a tough year, the labor market is stabilizing. The U.S. added 181k jobs in 2025, an average of 15k per month. That absolute number of jobs added, outside recessions, was the lowest since 2003.

Employment data's shown particular strength in healthcare. Over the past year, private sector jobs growth excluding health care and social assistance contracted by about 150k. Labor markets remain in Bardo.

Productivity is running around 2%. So far, corporate earnings growth in Q4 is in the low double digits. They’re expected to rise by double digits this year. As a starting point, I’m penciling in a +10-12% growth rate. The above combines to keep equity and credit markets—at an index level—treading water. At least for now.

A piece of data worth digging into is the increase we’re seeing in total consumer delinquent debt. It rose to 4.8% in the fourth quarter of last year. Context matters. In aggregate, we’re trending back to pre-covid levels. Worth watching, not yet alarming.

I would point out that seriously delinquent debt to income levels have risen to around 3%. That’s in line with levels seen in late 2019. In 2009-2010, after the financial crisis, it was running close to 10%. Current pain, especially for low-wage earners, is real. If affordability isn’t addressed, midterm elections may prove the outlet for that pain. Adding to market agita.

I’ve kicked off my 2026 Tunes (so far)… playlist. You can find it on Spotify under tunes4ourtimes. Enjoy listening to what cycles on and off. When I was thinking of a theme to anchor on for this week’s note, a new tune from Dry Cleaning seemed the obvious choice to lean into. Hit my head all day.

“Tell us this or this, think of that / The objects outside the head control the mind / To arrange them is to control people’s thinking…” Dry Cleaning, “Hit My Head All Day.”

Unless explicitly stated otherwise, all data is sourced from Bloomberg, Finance LP, as of 02/12/26.

Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable but should not be assumed to be accurate or complete. The views and strategies described may not be suitable for all investors.