Three numbers tell the small cap story right now: Earnings, valuations, and rates. It’s a setup that deserves attention.

The defining macro event last week was the Supreme Court’s 6–3 decision to strike down President Trump’s global “Liberation Day” tariffs imposed under IEEPA authority, reaffirming that tariff powers rest with Congress rather than the executive branch. The decision overturned a system that had driven average tariff rates close to 25%. In response, President Trump plans to implement a new broad 10% tariff (that may potentially be raised to 15%) under Section 122, citing issues with international payments as the justification.

If inflation isn’t fully broken and growth isn’t overheating, how much risk should fixed income investors take— and where?

Highlights from the week of February 13 – February 19, 2026.

U.S. equities moved higher while Treasury yields rose and the curve flattened.

Amid a backdrop of positive technicals and emerging late-cycle behavior, high starting yields should anchor returns once again in 2026.

After a year of strong outperformance relative to U.S. markets, international equities are continuing their comeback following a prolonged period of underperformance. Year-to-date returns (in USD terms) highlight the rotation: - MSCI Korea: +35.28% - MSCI Emerging Markets: +10.78% - MSCI Japan: +10.23% - MSCI Europe: +4.93% - S&P 500: -0.03%

The market moved to a more defensive posture and yields declined as rate cut expectations rose.

With spreads tight and issuance set to rise, elevated all-in yields remain the key force anchoring investment grade credit returns in 2026.

December retail sales showed clear signs of cooling after months of resilience amid a turbulent economic backdrop. The latest report showed sales were flat month over month, falling short of expectations for 0.4% growth and marking a sharp deceleration from November’s robust 0.6% increase. Weakness was concentrated in discretionary categories such as furniture, apparel, and electronics, while spending proved more resilient in necessities and home related materials. Soft auto spending was also a key contributor to December’s flat reading. Together, these trends suggest that the effects of tariffs and a softening labor market are beginning to filter through to consumer behavior, raising concerns that households may be approaching the limits of their spending capacity.