Category: Acciones

This Week

The two focuses for markets this week were the Iran conflict and the Federal Open Market Committee meeting.

• Iran: Continued developments saw Brent oil prices swing from under $100/barrel to $119 to $105 to $112 now. Those included:
  • Announcements that Israel killed multiple Iranian leaders.
  • Continued attacks on Persian Gulf energy infrastructure, including some that could take five years to repair.
  • Israeli Prime Minister Netanyahu saying Israel and the U.S. are working to reopen the Strait of Hormuz and the conflict could end “faster than people think.”
  • Iran’s Supreme Leader Khamenei saying Iran’s enemies were being “defeated.”
  • News the Pentagon is sending three warships and over 2000 more Marines to the Middle East, raising concerns of a ground invasion.
• Fed: As expected, the Fed left rates unchanged at 3.50%-3.75%. And, despite revising up inflation estimates in response to higher energy prices, the Fed left projected rate cuts unchanged from December, still seeing one this year and one next year. Markets, however, no longer see cuts as likely, with a two-thirds chance rates are unchanged this year, a 25% chance of one or more hikes, and less than a 10% chance for one or more cuts.

So, with no end in sight to the conflict, oil prices rising and rate cut odds disappearing, 10-year Treasury yields are up 10 basis points to 4.4% (highest since July 2025) this week, while the Nasdaq-100® is down 2%.

Next Week

Here are the top events I’m watching next week:

• Tuesday: Flash PMIs (March)
• Thursday: Jobless Claims

In the past few years, retail traders had the ability to trade fractional shares on all stocks through various retail brokerage platforms. 

While this was useful for those customers with small investments to make, it was tricky for the consolidated tape, which is used to report trades in whole shares.  

Today, we will look into changes in reporting of fractional shares, and how much those trades matter to the market.  

Changing how fractional shares are being reported

Initially, fractional shares were excluded from the tape, which made some sense when you think that there was no change in “voting” ownership if less than a whole share matched. 

But as fractional share trades became more popular, FINRA in a 2017 FAQ required them to be reported as if they were whole-share trades. However, it wasn’t until FINRA clarified their rules in 2021 that fractional share reporting really started.

Recently (as of Feb. 23), FINRA required that actual fractional share volume also be reported to the Trade Reporting Facility (TRF), in a new field, which is also reported to the Securities Information Processor (SIP). 

How much does this change average daily volume (ADV)?

Before Feb. 23, fractional share trades were being rounded up or down:

• Less than 1 share was rounded up (to 1).
• More than 1 share was rounded down (to the nearest whole share).

This means that the ADV could actually be lower or higher than reported.

Now, fractional shares are reported on the TRF at up to six decimal places.

Table 1: Fractional shares reporting guidelines before and after February 23

Now, we can see how many “one-share” trades are actually frictional trades and which stocks have the most over or understated ADV. As we show in Chart 1, many of the popular retail stocks see the most shares trade in fractions. The data also shows that:

• Trades are much more likely to be rounded up (blue) than rounded down (red).
• Unsurprisingly, very high-priced stocks like Berkshire Hathaway also see a lot of fractional value (blue bar) but actually much less fractional volume (light blue dot).

Chart 1:  Retail names had the biggest discrepancy in volume

Overall, the market ADV is overstated by 4.4 million shares. That’s comprised of 4.3 million shares rounded up (black) to one share, and 100,000 worth of shares rounded down (red) to the nearest whole number. This adds to $1.3 billion per day more value traded on the tape than in real liquidity.

How much do fractional trades affect liquidity

Fractional trades all need to be facilitated by an investor’s broker on a principal basis as fractional quantities can’t be sent to exchanges or dark pools or settled by the DTCC. Given that, it’s interesting to look at how prevalent they are, and how much they distort available liquidity.

Looking at the proportion of trades in different share quantities (Chart 2a), we see that:

• High-priced stocks see more fractional or whole one-share trades.
• Low-priced stocks see almost 15% of all trades in the TRF representing one share or less.
• Stocks in the $1000+ group see almost 45% of all trades in the TRF representing one share or less.
• There are almost no trades for fractional larger than one share.
• Whole one-share trades are more consistent across all price groups.

Chart 2a: Fractional volume appears more in higher-priced stocks

Looking at the proportion of volume that trades in different share quantities (Chart 2b), we see that:

• Whole one-share trades still dominate the small trades in the TRF (green).
• Stocks with higher prices tend to have more fractional volume.
• It’s more likely a fractional is more than one share for low-priced stocks (red).
• It’s more likely a fractional is less than one share for high-priced stocks (red).
• Although there are few trades for fractionals larger than one share, they actually account for more liquidity (especially in low-priced stocks).

Overall, the liquidity from frictional trades adds to less than 0.2% of TRF volume. With the TRF representing around half of all shares traded, that means fractionals are less than 0.1% of ADV.

Chart 2b: Fractional volume appears more in higher-priced stocks

Why do fractional trades exist? 

It’s interesting that fractionals exist even for low-priced stocks.

Looking at a distribution of fractional trades by notional (value) hints at why this happens.

The spikes we see in Chart 3 show that a high proportion of trades occur in whole-dollar values. The largest spike occurs for a $1 trade, with relatively small quantity of trades for 99-cents or $1.01. We then see more spikes at $2, $5 and $10 exactly.  

In short, retail not only trade in small value, but they also often like to trade in notional instead of shares.

Chart 3: Fractional trades are reporting the notional to a round dollar amount 

More fractional data teaches us about how retail trade

It’s interesting that more fractional data shows that retail likes to trade in dollars — and not shares. We also see that more than 1-in-5 trades in high-priced stocks are in fractional quantities. 

However, the impact on liquidity is less problematic. Total ADV is overstated by (just) 4.4 million shares, which adds to less than 0.05% of ADV.

In short, fractional reporting turns out to be a smaller problem than maybe some expected.  

Last Week

Last week saw a bit of everything, with developments in the Iran conflict, updates on tariffs, and important macro data.

• Iran Conflict: Major economies agreed to release a record 400 million barrels of oil from reserves – enough to replace about 20 days of supply from the Strait of Hormuz. Still, with no end in sight to the conflict, Brent oil prices ($100 per barrel) remain about 40% higher than pre-conflict.
• Tariffs: U.S. Trade Representative Greer announced investigations into the country’s top 16 trading partners – a required step to eventually apply longer-term tariffs to replace the tariffs the Supreme Court found illegal.
• Macro: Most of the data is a bit stale since it predates the Iran conflict. But…
  • Revised Q4 real GDP growth was cut in half to a 0.7% annualized pace on weaker trade and consumer spending and bigger hit from the government shutdown. Still, domestic demand stayed solid at a 1.9% growth rate.
  • Real consumer spending grew +0.1% month-over-month in January, despite the snowstorm weighing on goods spending (-0.4%).
  • And we got two inflation reports: January headline PCE inflation slipped to 2.8% year-over-year (YoY) from 2.9% as the contribution from core goods and energy slowed, while February CPI inflation was unchanged at 2.4% YoY.

The one bit of data that partly captures of the Iran conflict was University of Michigan’s preliminary March data for Consumer Sentiment, which slipped as consumers expect gas prices to rise in the next year.

Given the upward pressure on inflation from higher energy prices, 10-year Treasury yields are up about 10 basis points to 4.25% since March 6, though the Nasdaq-100® is flat.

This Week

Here are the top events I’m watching this week:

• Today: Industrial Production (Feb.)
• Wednesday: Fed Meeting, Producer Price Inflation (Feb.)
• Thursday: Jobless Claims

The Nasdaq-100® (NDX®) originated in 1985 and recently celebrated being 40 years young!

Over that time, it has become a leading U.S. large-cap equity index, known for being a benchmark for many of the world’s most innovative companies.

Part of its success as an investment and trading product is the ecosystem of investments and derivatives that have evolved around it.

Four decades of ecosystem milestones

Building on the success of NDX over the past four decades, the ecosystem has progressed from predominantly supporting short-term trading instruments to supporting a diverse range of investment applications.

This development reflects the transformation of the index from its initial support of emerging technology companies into a diversified benchmark representative of the 21st century global economy. The following timeline shows the progression of this evolution.

Chart 1:Timeline of key Nasdaq-100 product launches and exchange-traded product AUM growth

An index that started before indexing took off

Back in the 1980s and 1990s, index-based investing was still in its infancy. Consequently, the Nasdaq-100 began its life to showcase the companies listed on the Nasdaq Stock Market.

The first trading and hedging products were introduced in 1994: listed options and a passively managed Rydex Mutual Fund. These sparked liquidity within the Nasdaq-100 Ecosystem.

More sophisticated derivatives entered the ecosystem in the late 1990s as the technology sector expanded. In 1999, e-mini futures were added.

ETFs are introduced

One of the most important years for the ecosystem was 1999, when the “Nasdaq-100 Index Tracking Stock” (QQQ®) launched, providing the first exchange-traded fund (ETF) to track NDX. Nasdaq initially served as the sponsor of QQQ. Then in 2007 the sponsorship transferred to Invesco, initially under their “PowerShares” brand.

The Nasdaq-100 expands as an investment product

As we entered the current millennium, the ecosystem for investors continued to expand.

The index saw investors seeking leveraged, inverse and options exposure. Initially, this was done through structured notes and insurance products, but over time many ETFs offered similar exposures, making these investment choices much easier to access.

In more recent years, we have seen ETFs that are actively managed (like JEPQ), as well as ETFs tracking mega-cap portions of the index (like MAGS).  
 

Furthermore, with significantly increased retail demand due to commission-free trading, smartphone-app based platforms and easier-to-access financial education, products requiring lower upfront capital, such as the Micro E-mini Futures, were created. 

The Nasdaq-100 of today

The Nasdaq-100’s growth has been fueled not only by the performance and economic impact of the index constituents, but also by broader investment choices and easier market access.

Today, the ecosystem represents over $1.4 trillion of exposure to NDX through ETFs, mutual funds, insurance products, structured notes, and exchange-traded derivatives.

Click here to view the full white paper on the Nasdaq-100 Ecosystem, which additionally examines the market sizing and liquidity profile of NDX products.

Pranay Dureja, Derivatives and QIS Strategist at Nasdaq Index Insights, contributed to this article.

This Week

Since the conflict with Iran began on Saturday, markets have been trying to assess its economic impact – the main channel being higher energy prices.

That’s because the conflict has essentially halted traffic in the Strait of Hormuz – which transports 20%-25% of global oil and liquefied natural gas (LNG) – and shuttered energy facilities in the region.

This week, international and U.S. oil prices are up 30% and 35%, respectively, to their highs since 2023, and European LNG prices are up 65%, while U.S. LNG prices are up just 10%. JPMorgan estimates that, if oil prices stay at these levels, they’d increase U.S. headline inflation 0.3 percentage points and lower U.S. GDP growth by 0.6 percentage points. Given this likely boost to inflation, markets have reduced their expectations for Fed rate cuts this year by 20 basis points (bp) to around 40bp.

And that’s after today’s big miss on the jobs number increased those rate cut expectations. The economy lost 92,000 jobs in February – against expectations for a 55,000 gain — and the losses were broad-based across sectors. Still, it’s best not to read too much into a single month (good or bad), and the private sector has averaged a gain of about 20,000 jobs per month in the last 3 months.

Even with this backdrop, the Nasdaq-100® is down just 1% this week, though rising inflation expectations has the 10-year Treasury yield up nearly 20bp to 4.15%.

Next Week

Here are the top events I’m watching next week:

• Tuesday: NFIB Small Business Optimism (Feb.)
• Wednesday: CPI Inflation (Feb.)
• Thursday: Jobless Claims
• Friday: PCE Inflation and Spending (Jan.), Real GDP (Q4 revision), JOLTS Job Openings (Jan.)

The fourth quarter (Q4) 2025 earnings season continued a recent trend – the Nasdaq-100® large caps and S&P 600 small caps both saw strong earnings growth. However, looking beyond the headline number, it’s clear that the drivers of these earnings trends couldn’t be more different.

Large and small caps both seeing strong earnings growth now

The Nasdaq-100® posted 17% year-over-year (YoY) earnings growth in Q4 2025, extending its remarkable streak to 11 consecutive quarters of 15%+ YoY growth. 

The story for small caps has been the mirror image. The S&P 600 endured 11 straight quarters of negative earnings growth from Q3 2022 through Q1 2025. But the tide turned in Q2 2025, when small-cap earnings returned to positive territory, and Q4 marks its third-straight quarter of positive earnings growth.

Chart 1: Nasdaq-100® on streak of 15%+ earnings growth as small caps put recession in the rearview

Looking ahead, consensus estimates project the Nasdaq-100® to continue its streak of 15%+ earnings growth for the next year and for the S&P 600 small caps to continue its own streak of positive earnings growth.

While both indexes are seeing strong earnings growth today, a look at the drivers of the growth in the last few years shows that’s where the similarities end.

Nasdaq-100® less sensitive to headwinds that drove small caps to recession

Below, we split earnings growth into three components: Earnings before interest and taxes (EBIT) growth (operational performance), interest cost (positive values = falling interest costs), and a taxes and other items. The headline earnings numbers differ from the chart above since we’re using last twelve months (LTM) data for this analysis.

The side-by-side comparison is striking.

Chart 2: EBIT growth overpowered other factors for the Nasdaq-100®

Small caps (left chart) have faced multiple headwinds. For much of the last couple years, small caps saw negative EBIT growth (green bars) as they faced margin pressure from high inflation and wage growth, along with less pricing power than large caps. At the same time, they were dealing with rising interest costs (purple bars) as the Federal Reserve hiked rates from 2022-2024. 

Lately though, as inflation and wage growth slowed, EBIT growth has flipped positive. It’s helped by the Fed’s rate cuts, which caused interest costs plateau — and they will likely start falling in the coming quarters. 

Looking at the Nasdaq-100® (right chart), however, you’d think it’s been operating in a world absent these same headwinds. In reality, these headwinds impacted these large caps less because they typically operate with higher margins (so increased input costs have a proportionately smaller impact on EBIT) and they tend to be less labor intensive (meaning fast wage growth matters less). 

At the same time, these companies have delivered robust EBIT expansion (green bars), fueled by things like artificial intelligence (AI) infrastructure investment, cloud computing growth and digital advertising strength. Compared to this, interest and taxes have been comparatively negligible.

So, why did the Fed’s rate cycle hit small caps so much harder than large caps?

Small caps rely on floating rate debt, meaning Fed moves matter a lot

The reason why is something we’ve covered in recent years. Namely, small caps are much more reliant on floating rate debt than large caps. That makes them much more exposed to changes in the fed funds rate.

Chart 3: The Fed’s 2022-2024 rate hike cycle increased small-cap interest rates nearly 50%

When the Fed started hiking rates in March 2022, it pushed up small-cap average interest rates from 4.7% to 7% by mid-2024 – a nearly 50% increase in borrowing costs in just over two years.

Since the Fed pivoted to rate cuts, small-cap borrowing costs have fallen to 6.6% by Q4 2025. While the magnitude of the decline is modest so far, it’s material since small-cap interest expense is equal of 44% of EBIT currently and further relief is likely ahead, especially if the Fed keeps easing.

Large caps, though, have more access to fixed-rate debt, and they locked in low rates during Covid for multiple years. That’s why, throughout the Fed’s whole hiking and cutting cycle, Nasdaq-100® interest rates ranged from just 3.5% to 4.4%. Plus, many of these companies hold large cash reserves that actually benefit from higher rates. 

As a result, the Fed’s rate hikes impacted large-cap earnings much less (interest expense is just 9% of EBIT for the Nasdaq-100®).

Strong earnings ahead for large and small caps, but different drivers likely

Although both large- and small-cap indexes saw strong earnings growth in 2025, it’s clear that the drivers of these earnings trends couldn’t be more different.

The Nasdaq-100® large caps have benefitted from AI spending and long-term fixed rate financing, and their margins remain strong. Small caps, in contrast, are benefiting from falling rates and slower wage growth.

Either way, if the analysts are right, we should continue to see strong earnings growth for both in 2026. 

Executive Summary 

• U.S. equities deliver mixed headline performance amid significant internal rotation
• Market leadership broadens as equal‑weight, mid‑cap, and value exposures outperform
• Market breadth improves with seven of 11 large-cap sectors within 0.5% of their respective 52-week highs
• Mega‑cap growth and AI‑adjacent software weigh on cap‑weighted indices
• Treasury yields decline meaningfully, led by the long end
• Energy prices strengthen amid geopolitical risk, reinforcing real‑asset leadership
• Earnings growth remains solid despite increasing dispersion beneath the surface

U.S. equity markets delivered a mixed performance in February, with headline indices masking a significant degree of rotation and dispersion beneath the surface. Amongst large caps, the Dow Jones Industrials (+0.3%) edged modestly higher, the S&P 500 (-0.8%) declined for the second time in the past three months, and the Nasdaq 100 (-2.3%) posted its worst monthly decline since March 2025. The cap-weighted indices were restrained by the continued corrective price action in select large cap growth stocks as evidenced by the Magnificent Seven Index (-7.3%) which registered its worst decline since March 2025. Conversely, the S&P 500 Equal Weight Index (+3.5%) had its best monthly performance since May 2025 and outperformed the cap-weighted S&P 500 for the fourth consecutive month. The S&P Midcap 400(+4.1%) outperformed with its best month since May 2025.

Importantly, February did not resemble a broad risk‑off environment. Instead, market action was characterized by rotation rather than liquidation. Investors continued to reallocate away from concentrated leadership and toward a broader mix of cyclicals and defensives, as reflected in strong gains across energy, utilities, materials, staples, industrials, and health care. This shift suggests confidence in the durability of economic activity, even as debate persists around the return profile and timing of large‑scale AI investment.

From a macro perspective, the backdrop remained supportive but nuanced. Economic data pointed to an economy that is cooling gradually rather than contracting, while inflation progress remains uneven. Treasury yields declined meaningfully during the month, with the 10‑year yield falling back below 4%, reinforcing expectations for a patient Federal Reserve. Against this backdrop, February appeared less like a turning point for equities and more like an extension of an ongoing transition toward broader participation and more selective leadership.

February’s divergence was driven largely by continued weakness in mega‑cap growth, particularly within technology‑adjacent segments. Software emerged as a notable laggard as concerns around artificial intelligence disruption intensified, fueling valuation compression and risk reduction across the group. The widely followed iShares Expanded Tech-Software Sector ETF (ticker: IGV) declined 14.6% and 9.9% in January and February, respectively. 

From its October high, the IGV declined more than 35% before bottoming in the final week of February, when it reached a two-year low on Tuesday, February 24th. That session proved pivotal, as the ETF reversed higher to finish the day up 1.9% on record volume of 50.6 million shares, roughly 3.6 times its 50-day average. This surge in turnover coinciding with a reversal off support suggests selling pressure may have been largely exhausted. The upside follow-through over the next two sessions (gains of 3.1% and 2.2%) further reinforces the view that near-term momentum is beginning to turn. From a longer-term perspective, the weekly chart adds to the constructive setup, with price stabilizing at a clearly defined two-year support level. Given the magnitude of the prior decline, conditions appear favorable for a meaningful mean reversion bounce, which could support investor sentiment in the near term.

The growth-versus-value divide sharpened dramatically in February, underscoring the market’s pivot toward fundamentals over speculative momentum. Russell 1000 Value climbed 2.6%, buoyed by strong showings in cyclical areas, while Russell 1000 Growth plunged 3.4% due to AI-related selloffs in tech-heavy holdings. Similarly, the Russell 2000 Value rose 1.9%, far outstripping Russell 2000 Growth’s modest 0.2% dip. This value resurgence, which began in late 2025, gained traction as investors questioned the sustainability of massive AI investments by hyperscalers.

Sector Performance

Sector‑level performance underscored both strong rotational dynamics and improving market breadth, with 7 of the S&P 500’s 11 sectors finishing the month within 0.5% of their respective 52‑week highs – a notable sign of underlying strength beneath the surface. Defensive and commodity‑linked groups led the advance with Utilities surging 10.3%benefiting from stable demand and their appeal as bond proxies amid declining yields. Energy gained 9.4%supported by rising oil prices tied to U.S.-Iran geopolitical tensions and continued infrastructure investment. Materials advanced 8.4% on commodity rebounds and policy‑backed manufacturing activity. Consumer Staples (+7.9%), Industrials (+7.1%), and REITs (+6.4%) also posted solid gains, reflecting confidence in resilient consumer spending and a nascent real estate recovery. On the downside, Financials (-3.7%) lagged amid mixed earnings and profit‑taking, while Technology (-3.9%), Communication Services (-5.1%), and Consumer Discretionary (-5.4%) came under pressure as AI‑related concerns broadened beyond hardware into software, media, and e‑commerce.

Small-cap sectors in the Russell 2000 echoed this cyclical tilt but with even greater dispersion. Materials led with an 8.9% rise, supported by commodity strength and domestic focus. Communications jumped 8.7%, defying large-cap trends due to niche opportunities in regional telecoms. Energy (+4.2%), Consumer Staples (+3.9%), and REITs (+3.8%) advanced on similar macro tailwinds. Industrials and Consumer Discretionary gained modestly at 2.9% and 2.4%, respectively. Laggards included Healthcare (-1.0%), Technology (-1.7%), Utilities (-1.9%), and Financials (-3.6%), where AI concerns and profit taking pressures weighed more heavily. This small-cap sector breadth reinforces the narrative of a “real economy” revival, with energy and materials particularly buoyed by geopolitical events and fiscal impulses.

Rates, Precious Metals, Bitcoin and Oil

February saw a meaningful rally in Treasuries as rates moved decisively lower, reinforcing the market’s shift toward a slower‑growth, easier‑policy narrative. The 10‑year Treasury yield fell 30bps to 3.94%, marking its largest monthly decline since February 2025, while the 2‑year yield declined 15bps to 3.38%, its lowest level since August 2022. The larger move in the long end points to falling term premiums and potentially increased confidence that inflation pressures are moderating, while the decline in the front end reflects growing conviction that policy rates will come down later in 2026.

Precious metals recovered from last month’s extreme volatility with gold gaining 7.9% in February for its 13th monthly gain over the past 14 months, reinforcing its role as both an inflation hedge and a beneficiary of easing financial conditions. Silver outperformed, rising 10.1%, and has now advanced for ten consecutive months, highlighting improving cyclical and industrial demand alongside monetary tailwinds. The sustained strength across both metals suggests investor positioning continues to favor real assets amid falling yields and elevated geopolitical conflict.

Bitcoin remained under pressure, declining 10.8% in February, marking its fourth monthly decline in the past five months and extending the post‑cycle correction. From a technical perspective, the pullback has been significant: the February low represents a 52% decline from the cycle highs reached in early October, following an extraordinary +715% advance from the 2022 lows to the October 2025 peak. Importantly, price has retraced back toward the ~$65,000 level, a technically meaningful zone that aligns with prior cycle highs from April and December 2021, and which later acted as firm resistance from March through September 2024. This former resistance‑turned‑support area carries heightened technical significance on a long‑term monthly chart, and the current consolidation suggests the market is testing whether that level can serve as a durable base.

Energy prices remained firm, with WTI crude rising 2.8% in February following a 13.6% gain in January. Strength has accelerated into March, with crude already up an additional 6.8%, driven by heightened geopolitical risk following last weekend’s U.S. – Iran conflict.

Crude oil has strengthened meaningfully in 2026 (+24% YTD) and has recently moved above a 2 ½ year downtrend line originating from the 2023 highs, marking an important technical development. This break suggests downside momentum has eased, and shifts focus on whether prices can build on this move with follow‑through. Attention now turns to the $78.50 area, which has capped advances since October 2024 and represents a key reference level for confirming a broader trend reversal. A sustained move toward and ultimately through this zone would strengthen the case for a transition from a prolonged downtrend to a more durable uptrend. Momentum indicators are increasingly supportive, with weekly RSI at its highest level since June 2022, underscoring improving upside momentum as crude works higher.

Economic Data

February’s economic data pointed to a slowing but still resilient U.S. economy, a backdrop markets interpreted constructively. Business activity remained expansionary, with February flash PMIs showing manufacturing at 52.4 and services at 53.0, leaving the composite index at 53.1. Growth data remained supportive, as Q4 GDP was revised up to a 2.8% annualized pace, driven by 2.4% personal consumption growth, while industrial production rose 0.4% m/m in January and capacity utilization edged higher to 76.5%, consistent with ongoing momentum.

The consumer continued to provide stability. December retail sales increased 0.4% (MoM) pointing to steady underlying demand entering 2026. Personal income and spending both rose 0.3% (MoM), while sentiment improved modestly in February. The University of Michigan confidence rose to 57.3, and Conference Board confidence increased to 87.1. Housing data were mixed but showed tentative signs of stabilization, with NAHB builder sentiment improving to 38 and home prices continuing to rise modestly.

Labor and inflation data reinforced expectations for a patient policy stance. January nonfarm payroll growth slowed to 65,000, with prior months revised lower, and the unemployment rate edged up to 4.4%, signaling cooling but not stress. Inflation continued to ease unevenly: January CPI and core CPI both rose 0.3% (MoM), leaving headline inflation at 2.5% (YoY), while core PCE inflation stood at 2.9% (YoY). Producer prices firmed modestly, but inflation expectations remained anchored, supporting the view that the Federal Reserve can lower rates later in 2026.

Corporate Earnings

S&P 500 earnings for Q4 2025 were solid and broadly supportive of equity performance, reinforcing the narrative of continued profit growth even as surprise rates normalized. With 96% of companies reporting, the index is tracking 14.2% earnings growth (YoY), marking the fifth consecutive quarter of double‑digit growth. While the 73% EPS beat rate and 6.8% aggregate earnings surprise were modestly below longer‑term averages, earnings have been revised meaningfully higher since quarter‑end, reflecting stronger‑than‑expected results across most sectors.

According to FactSet, earnings growth remained highly concentrated, led by the “Magnificent 7,” which delivered 27.2% earnings growth in Q4 versus 9.8% for the remaining 493 companies. Technology was the dominant driver, with the Information Technology sector posting 33.4% earnings growth. At the index level, all eleven sectors reported year‑over‑year earnings growth, highlighting improving breadth beneath the headline concentration

Looking Ahead

Looking ahead, the message of the market remains constructive, even as headline index performance has grown more uneven. February’s price action reinforced a key theme that has been developing since late 2025: equity market leadership is broadening rather than deteriorating. Beneath the surface, improving breadth, sustained rotation across styles and sectors, and resilient earnings trends suggest the current environment is better characterized by consolidation and rebalancing than by a meaningful risk-off shift.

The continued rotation away from concentrated leadership toward equal-weight, mid-cap, value, and cyclical exposures reflects a healthier internal market structure. With a majority of sectors trading near their respective 52week highs, participation has expanded meaningfully, reducing dependence on a narrow group of mega-cap names to drive overall returns.

From a macro perspective, economic data continues to point toward gradual cooling rather than contraction. Growth remains positive, the labor market is easing without signs of stress, and inflation progress, albeit uneven, has moderated sufficiently to support a more stable rate backdrop. Falling Treasury yields have reinforced these dynamics, providing valuation support for interest-sensitive and defensive areas while easing financial conditions more broadly.

Corporate earnings remain a critical anchor. Despite increasing dispersion beneath the surface, profit growth has stayed solid at the index level, with all major sectors reporting YoY earnings growth. While concentration among the largest contributors persists, the expansion of earnings participation across the broader market aligns with the improving breadth seen in price action.

Taken together, the current setup suggests markets are transitioning through a period of leadership rotation and internal normalization rather than signaling the end of the cycle. While volatility may persist as investors digest incoming economic data, earnings updates, and geopolitical developments, the weight of the evidence continues to favor a constructive intermediate-term outlook, supported by broadening participation, healthy rotation, and resilient fundamentals.

The information contained herein is provided for informational and educational purposes only, and nothing contained herein should be construed as investment advice, either on behalf of a particular security or an overall investment strategy. All information contained herein is obtained by Nasdaq from sources believed by Nasdaq to be accurate and reliable. However, all information is provided “as is” without warranty of any kind. ADVICE FROM SECURITIES PROFESSIONAL IS STRONGLY ADVISED. 

This Week

Artifical intelligence (AI) fears may have reached new heights this week, with some attributing Monday’s selloff to a futuristic viral blog post. But, in the here and now, there was some more positive AI news:

1. Anthropic’s update on its enterprise AI agents actually boosted some software stocks since it includes plugins for some of the very same software companies caught up in the months-long AI-related selloff.
2. NVIDIA’s fourth-quarter earnings highlighted continued AI chip demand, nearly doubling profits year on year and projecting higher first-quarter revenue ($78 billion) than expected. And yet, with investors questioning the durability of demand, the stock was down over 5% the next day.

So, between concerns about AI’s economic impact and geopolitical tensions, there’s been a flight to safety this week, pushing down 10-year Treasury yields over 10 basis points to ~3.95%, while the Nasdaq-100® ended the week flat.

Next Week

Here are the top events I’m watching next week:

• Monday: Manufacturing PMIs (Feb.)
• Wednesday: AVGO earnings (Q4) & Services PMIs (Feb.)
• Thursday: Productivity (Q4)
• Friday: Nonfarm payrolls (Feb.) & Retail sales (Jan.)

Investors around the world know that it’s important to know what the right prices for stocks are, and ideally, that they don’t end up paying too much for the stocks they are buying.

In the U.S., solving that problem included creating a consolidated tape (aka Securities Information Processor, or SIP) and a National Best Bid and Offer (NBBO) as part of Reg NMS.

The SIP has been undeniably good for the public. By consolidating all the best prices, it protected investors, reduced trading costs and complexity. That, in turn, arguably improved liquidity, helping attract more companies to U.S. public markets.

But the NBBO isn’t a “free service.” It is a result of venues and traders who decide to advertise their liquidity publicly. To their credit, regulators at the time realized that those providing data to the public should be rewarded and incentivized. 

However, as we show today, the market has evolved in ways that take advantage of economics – usually without adding the desired compensating value to the public, who expect that they are paying for good NBBO quotes.

The SIP formula works to reward those providing its data

We have detailed how the SIP economics works here. At a basic level, the SIP charges different kinds of users different prices based on how much that data helps those users.

• Professionals pay more than retail investors.
• Electronic trading systems pay more than professionals.

It then rewards those who contribute data to the SIP.

Because both quotes and trades contain essential signals about a stock’s value and market interest, the current formula splits revenue evenly:

• 50% to trades,
• 50% to quotes,
• With (relatively) more money allocated to less-liquid stocks (that need market makers more).

The totals are shown in Chart 1.

Chart 1: The SIP charges data users and pays data producers based on a formula

Note that “non-display” data, which we will talk about later, is based on the “use” (for routing, trade pricing and benchmarking) of the data by computers, rather than display (on screens) for their brokers or customers to see prices.

Research suggests quotes are twice as important as trades

A number of well-known academics have thought deeply about price discovery — and many are also pretty good at math.

What their research shows is that for most stocks, quotes matter around twice as much as trades.

This makes sense when you consider that the trades in the market are often using NBBO prices. (For example, midpoint trades only occur at that price because it’s in the middle of the NBBO at the time.)

Chart 2: Some research suggests quotes are twice as important as trades

The more detailed math done in Brogaard’s study is interesting when we consider a fragmented marketplace. With an NBBO on multiple venues, it helps answer the question “who is actually doing price discovery.”

What they find is that merely matching the NBBO provides very little value.

Instead, setting a new, better NBBO is important. In fact, even being the final order to cancel, making the NBBO worse, provides more value informationally than merely copying existing quotes.

Quote copying is easy (and profitable)

Unfortunately, the SIP doesn’t care if you are first, last, or always pegged to the NBBO.

Instead, the SIP shares quote credits equally for every share at the NBBO based on the amount of time they are quoted. As a result, SIP quoting revenues accrue equally to exchanges that set and copy quotes.

We have seen that quote copying happens a lot. In fact, the 10 smallest venues improve the quote just 17% of the time, and yet last year they were paid $66 million (or around 34%) in SIP quote revenues.

Chart 3: Some exchanges earn more quote revenues than they set prices

In short, the SIP formula allocates far more quote revenue (pink bar) than academics suggest for copying the existing quote (orange diamond). 

Importantly, instead of improving market quality, those revenues support fragmentation and market complexity.

Everyone agrees phantom quotes are bad 

It makes even less sense to reward phantom quotes.

Phantom quotes evaporate the moment someone tries to trade with them. That means there is less liquidity in the market than the SIP indicates. It makes the SIP misleading and noisy, so it really shouldn’t be something the SIP rewards. 

In fact, “actionable quotes“ were a fundamental principle of early electronic trading. Quotes that can be traded against are also implied by the Order Protection Rule (or OPR, Rule 611). It’s also a fact that all exchanges are meant to offer fair and equal access (Rule 610).

Given that all exchanges are expected to have fair access and actionable quotes, you would expect their trading activity to be roughly equal to their time and size at NBBO. Said another way, you would expect quote revenues to be proportional to trade revenues. 

However, as the data below shows, that’s not always the case.

In 2024, some venues earned much more from quoting than they did from trading (pink bar) and, in fact, the exchanges with the largest trading revenues (purple diamonds) generally have quote-revenue-to-trade revenue ratios close to one. The same data shows in 2024 some venues earned over $17 million more in SIP quote revenues than their trade revenues, mostly because they traded less than 0.5% of ADV. It’s something Themis even wrote a blog about.

Chart 4: Quote vs. trade revenues show some exchanges provide a lot of quotes and very few trades

Not all high quote-to-trade ratios are bad

However, there is a problem with focusing the wrong way on quote-to-trade ratios. 

When there is a competitive NBBO, with a tight spread, but no trades – that NBBO is valuable:

• Investors and issuers benefit from the protection the NBBO provides on any off-exchange trades they might do.
• Price-setters should be rewarded for providing continuous prices even though they don’t capture spread or trading fees.

We saw an example of this when we studied Limit Up-Limit Down (LULD), which we show below. In this chart, you can see that the bid and offer cost of this exchange-traded fund (ETF) is extremely small, and price updates occur frequently. Despite that there are just three, mostly small, trades all day (yellow dots).

Many illiquid stocks (and especially ETFs) benefit from accurate quoting, even if investors rarely actually trade. That costs market makers money to do, and is a behavior worth rewarding.

Chart 5: Illiquid stocks can also have high quote to trade ratios, where accurate quoting is a positive

Other research suggests that dark trades contribute very little value

We already discussed that trade data likely contributes much less than 50% to price discovery.

Other academic studies suggest that off-exchange trades could contribute much less to information than trades from exchanges. In fact: 

• Chakrabarty thinks they add less than 14%.
• Meanwhile, Hasbrouck calculated that they add almost no value to NBBO.

Chart 6: Research suggests trades that reference the NBBO prices add little new information to NBBO 

This makes sense when you consider that almost all dark trades are printed at a price that is derived from the NBBO. Consequently, they add little new information about the correct price in the market. That said, in small, less-traded stocks, sometimes the trade is the only thing that has been updated in hours.

In fact, the data suggests that a lot (30%) of off-exchange trades are at the NBBO (with no price improvement) – with another 19% using the mid-price derived by the NBBO. Even the roughly 40% of orders that are price improved are improved vs. the NBBO – and research has shown that a lot of those prints are very close, economically almost the same, to the far touch price in the NBBO.

Chart 7: Most off-exchange trades rely on the NBBO to determine their trade prices

In short, there are a lot of trades done in dark pools, allowing the capture of spread in the dark pool, using the prices set by market makers on exchange, and taking spread capture away from those advertising on exchange. Economically, this is known as free riding. The SIP should not add to the economic misallocation.

SIP economics shouldn’t pay venues to take trades away from NBBO

It’s worth quantifying what we are talking about above. 

If you look at the data, most off-exchange venues are buying a so–called “non-display data” SIP. And when those venues print the trades to the TRF, they often earn SIP trade revenues from reporting those trades.

Although non-display data is the most expensive SIP feed, in reality:

• The SIP data shows that the total costs of all non-display data feeds add to just $52 million.
• While off-exchange venues recover around $80 million in SIP trade revenues just for printing those trades.

Chart 8: Non-display SIP quotes cost less than off exchange revenues shared for trade reports

In short, the SIP is paying more for the trades than the costs of the data those trades are pegged to. That’s not a subsidy – it’s a net profit. And that’s before including trade revenues earned in those venues.

The loser is the NBBO-setter, who is deprived of the spread capture and SIP trade revenue.

From an economic rent perspective: either the costs for “non-display” quotes are too low, or the rewards for printing trades off exchange are too high. As a result, the SIP is financially rewarding fragmentation and more off-exchange trading.

Issuers matter, too, and need a good NBBO for all their tickers

It’s also important to remember that markets aren’t all about quoters and traders.

We need to ensure that markets support companies, trying to raise capital, too. 

Often, new companies are smaller and less liquid. As a result, there are less spreads to be captured, and spreads tend to be wider.

To be fair, the original SIP formula does attempt to boost rewards for less liquid stocks (see Chart 6 here). However, research shows that many trading venues focus their platforms on stocks that trade a lot, which is where they can make the most profits from trading.

Chart 9: Many trading venues focus on tickers that trade a lot – at the expense of companies that really need NBBO support 

However, this comes at the expense of supporting the whole ecosystem. Ultimately, expensive trading costs and low liquidity are factors that can discourage companies from going (or staying) public. They are, after all, key reasons why public markets are attractive – as they help reduce a company’s costs of capital.

SIP economics do more to encourage fragmentation than reward NBBO

When the SIP was built, it was designed not only to provide an NBBO that made markets more efficient, but also to ensure the economics rewarded and encouraged that NBBO, making price transparency and spread costs even better.

What we see today is that those incentives have instead created economics that supported unintended behaviors – like quote copying, phantom quotes and a focus on trading only active stocks. 

Rather than making the NBBO better, it has added to both on- and off-exchange fragmentation.

In short, the SIP formula has been broken and — in reality — everyone knows it. 

 

Shiyun Song, Research Principal, contributed to this article. 

ASIC has been comparatively explicit on this priority, making clear that it doesn’t just false reporting but also the failure to lodge required reports. However, other regulators do indicate its importance. The SEC 2026 exam priorities notes “areas of review will include the timeliness of financial notifications and other required filings” indicating that disclosure accuracy is a core part of their enforcement approach within their priorities.

At the same time, we’re seeing improved financial reporting as a market resilience theme. IOSCO plans to review its disclosure principles and standards, OTC derivatives reporting and reporting from non-bank financial institutions. Notably in India, SEBI will roll out a broad set of financial reporting reforms in 2026.

Data Safeguards and Incident Response

This one is more of a continuation of the past year, however it’s very much a common thread across most jurisdictions’ regulatory priorities. New in 2026 is the U.S. SEC’s Regulation S-P safeguards, which came into effect in December 2025 and was elevated as a priority area for 2026 examinations. They also explicitly note Regulation S-ID for 2026 and that “the Division will focus on firms’ development and implementation of a written Identity Theft Prevention Program (Program) that is designed to detect, prevent, and mitigate identity theft in connection with covered accounts.”

In Europe, DORA came into effect early 2025, with the year mostly focused on supporting adoption. However for 2026, we see regulators focusing more on full compliance, as mentioned in the ESMA work program. This view is repeated by many of the EU regulators. We saw similar rules put in place in other jurisdictions like Australia, Singapore, UK and Korea around the same time, so though not mentioned explicitly, it’s reasonable to expect a similar transition to supervision over adoption. Expect more cases like the recent one from ASIC last week. 

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February 2026 Capital Markets Regulatory Updates

17 February 2026: The Canadian Investment Regulatory Organization (CIRO) published its Annual Compliance Report 2026, outlining key compliance risks for dealers including cybersecurity, crypto asset trading platforms, artificial intelligence oversight and core supervisory obligations such as KYC, KYP and suitability to help firms strengthen risk management and regulatory compliance.

17 February 2026: The CFTC defended its authority over prediction markets, filing an amicus brief in the U.S. Court of Appeals asserting its exclusive jurisdiction over event contracts and aiming to block state-level gambling actions from undermining federally regulated prediction markets such as those operated by registered exchanges.

15 February 2026: South Korea’s Financial Supervisory Service (FSS) released a 2026 policy roadmap signaling tighter crypto market supervision and crackdowns on unfair trading practices (including coordinated trading, sudden price spikes and API-based automated strategies) to protect investors and market integrity.

11 February 2026: Hong Kong’s Securities and Futures Commission (SFC) published a new digital asset trading initiatives, announcing a high‑level framework allowing licensed virtual asset trading platforms to propose virtual asset perpetual contracts for professional investors, with safeguards on product design, market manipulation and disclosure. It also permitted eligible licensed firms to offer margin and other financing for virtual‑asset dealing, subject to liquidity, order book and investor protection requirements.

11 February 2026: IOSCO announced a global campaign to raise awareness of “relationship investment scams” (including crypto-themed “pig butchering” schemes), urging investors to watch for red flags such as shifting conversations to encrypted apps and repeated solicitations to invest.

10 February 2026: Sweden’s Financial Supervisory Authority (Finansinspektionen) published its 2026 supervisory priorities, focusing on combating financial crime, stability threats (including IT resilience/cyber risk) and suitability of consumer products such as loans, savings and insurance.

9 February 2026: IOSCO published its 2026 Work Program outlining priorities including technological transformation, investor protection and regulatory cooperation, with cross-border enforcement collaboration highlighted as central to delivery.

9 February 2026: The CFTC launched a multi-agency “DatingOrDefrauding?” campaign warning the public about relationship investment scams that frequently route victims into crypto payments and fake crypto investment websites.

9 February 2026: Indonesia’s Financial Services Authority (OJK) with IDX and KSEI announced reforms to strengthen capital market integrity after MSCI feedback, including expanded investor classifications, enhanced shareholder disclosure and a phased increase in minimum free float from 7.5% to 15%, alongside preparations for exchange demutualization.

6 February 2026: The CFTC reissued staff guidance, updating the definition of “payment stablecoin” to specify that a national trust bank may be a permitted issuer for purposes of the no-action position on stablecoins.

5 February 2026: India’s Securities and Exchange Board of India (SEBI) published a circular removing calendar spread margin benefits for single‑stock derivatives on expiry day to curb systemic risk.

4 February 2026: India’s SEBI issued revised order-to-trade ratio (OTR) rules that expand exemptions for equity option contracts and adjust how certain algorithmic orders are treated for OTR penalty purposes to reduce undue penalties while supporting price discovery.

4 February 2026: The U.K. government published the Financial Services and Markets Act 2000 (Cryptoassets) Regulations 2026, establishing a formal FSMA perimeter for crypto asset activities and creating market abuse prohibitions (including insider dealing and market manipulation) for qualifying crypto assets.

2 February 2026: South Korea’s Financial Services Commission (FSC) announced that the Korea Exchange (KRX) will begin operating an AI-driven market monitoring system used to monitor and incorporate social media into their surveillance program to strengthen early detection of online-driven market manipulation and other unfair trading in real time.

1 February 2026: The U.K. Financial Conduct Authority (FCA) published the first edition of Enforcement Watch, outlining enforcement priorities and its approach to public communication of investigations.

1 February 2026: Australia’s ASIC published its 2026 key issues outlook identifying 10 systemic risks, including financial reporting integrity, retail exposure to private credit, consumer harm from advanced technology (including agentic AI) and operational resilience risks linked to the CHESS replacement.

1 February 2026: Indonesia’s OJK warned it will begin a crackdown on market manipulation following a major equity sell‑off, alongside plans to raise free‑float requirements and accelerate IDX demutualization. 

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Latest Fines and Enforcement Actions

• FINRA fined a financial advisor $750,000 USD for supervisory failures relating to off‑channel business communications.
• The U.S. SEC issued a 30‑month prison sentence for a biotech executive convicted of securities fraud and insider trading.
• The U.S. SEC dismissed and settled its civil action against an asset management firm and its CCO, while simultaneously instituting a settled administrative proceeding over allegations of “cherry picking” trade allocations that disadvantaged advisory clients.
• The U.K. FCA fined seven social media influencers for issuing unauthorized financial promotions linked to a foreign exchange trading scheme, reinforcing its crackdown on illegal “finfluencer” activity and misleading investment advertising on social media platforms.
• France’s Autorité des marchés financiers (AMF) fined an investment services provider and its director for a total amount of €850,000 for failures in its market abuse detection system and breaches of authorization conditions following a supervisory inspection.
• Bank Negara Malaysia (BNM) imposed RM1.07 million (approx. $275,000 USD) in penalties on four entities for AML/CFT breaches related to failures in suspicious transaction reporting.
• Hong Kong’s SFC sentenced a trader for “scaffolding” and wash trading, mandating community service and orders to pay a fine equivalent to the profit and the SFC’s investigation costs.
• Hong Kong’s SFC announced prison sentences (up to 24 months) in a securities fraud case involving social media “stock tips” and alleged ramp-and-dump schemes, citing conduct including naked short selling and deceptive representations about share ownership.
• A South Korean court sentenced a crypto company CEO to up to three years’ imprisonment for virtual‑asset price manipulation, marking the first conviction under the Virtual Asset User Protection Act.
• Indonesia’s OJK fined one company and three individuals a total of 11.05 billion rupiah (approx. $655,000 USD) for stock market manipulation schemes conducted between 2016 and 2022, including the use of nominee accounts and misleading information to artificially influence share prices.
• India’s SEBI imposed penalties totaling ₹66 lakh (approx. $73,000 USD) on 28 entities for synchronized/reversal/circular trading and non-cooperation in an investigation into ANI Integrated Services, citing artificial volumes and misleading market activity.
• Australia’s ASIC announced that an investment firm was ordered to pay $2.5 million in penalties, plus costs, following ASIC action over prolonged cybersecurity failures, setting a precedent for penalties under general AFS licensee obligations. 

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