Weekly Investment Update (02/13/2026)

Major indexes ended the week near record highs, but this week was a timely reminder that the “index view” can obscure what’s happening beneath the surface, where there have been some sharp moves in companies vulnerable to artificial intelligence (AI) disruption, most notably in software stocks.

The sell-off in certain technology stocks appears to be less a generic risk-off move and more a repricing of business-model durability. If AI shortens product cycles and lowers switching costs more quickly than expected, the competitive advantages that once justified premium valuations may prove less defensible. In response, the market is increasingly distinguishing between “AI enablers” and “AI-disrupted” incumbents.

Away from those AI-affected areas, the macroeconomic backdrop remains broadly supportive, with economic data this week pointing to continued resilience. A strong January jobs report, discussed in more detail below, saw the unemployment rate dip 10 basis points to 4.3%, helped by gains in healthcare and manufacturing jobs, along with the fading impact of temporary distortions linked to the federal shutdown. Our read of the week’s data reinforces the view that the next rate cut is most likely to occur after Warsh assumes the Fed chairmanship in June.

Looking abroad, Japan offered a welcome dose of good news. Prime Minister Takaichi’s LDP won a landslide in the snap election, sparking a rally in Japanese equities as investors priced in reduced political uncertainty and a clearer policy runway. We discuss this in more detail below.

Resilient Labor Market and Cooling Inflation Reinforce a Positive Outlook

What is happening: The January jobs report underscored a broad improvement in labor market conditions at the start of the year. Nonfarm payrolls beat expectations with a 130,000 gain for the month, reflecting a strong showing in private employment, which was up 172,000. Although healthcare and private education continued to drive the bulk of job growth, there were signs of broadening, with cyclical industries such as manufacturing and construction turning positive and temporary help jobs rising for the third consecutive month. The unemployment rate fell to 4.3% after hitting a cycle high in November amid the government shutdown. Other measures of labor market slack also declined, including workers employed part-time for economic reasons and those unemployed longer than 27 weeks. Average hourly earnings growth held at 3.7% year-over-year in January, while in a separate release, the Employment Cost Index slowed to 3.4% in Q4. Wage growth remains at levels unlikely to threaten the Fed’s inflation target.

Benchmark revisions lowered average monthly payroll growth by 72,000 for the year ending March 2025, largely reflecting methodology and population adjustments. Downward revisions are likely to continue, implying recent job gains could be revised lower. Historically, the bulk of revisions have tended to occur in January, as seen in 2025 and 2024, when much of the early year job growth was revised away.

Key inflation data for January came in slightly below expectations largely on relief in food prices, with headline CPI easing to 2.4% year-over-year. Excluding food and energy, core CPI eased to 2.5%, matching expectations despite numerous upside risks such as start-of-the-year price increases, ongoing tariff passthrough, and some giveback related to last year’s government shutdown. Importantly, housing costs, a key driver of price pressures, remained modest.

Why it matters: Looking ahead, we believe the risk of higher inflation is largely already reflected in market expectations, and with inflation following a stable-to-lower trajectory through year end, it could continue to come in softer than market expectations. On the labor market, after nearing stall speed in late 2025, job growth now appears not only to be accelerating but also broadening across sectors at the start of the year. Unemployment has declined accordingly. While the scope for downward revisions warrants caution, the recent data suggest resilience rather than renewed weakness.

There are several reasons to view the recent data through a constructive lens:

First, the jobs report should keep the Fed on hold in the coming months, but it does not close the door on additional rate cuts later this year. With the policy rate at 3.75%, Chair Powell and, more notably, his successor, Kevin Warsh, likely still view policy as restrictive. Job growth also remains exposed to revisions.

Second, a cyclical recovery in employment may be taking hold, consistent with economic activity indicators (e.g., ISM, NFIB) and supported by policy tailwinds alongside fading headwinds. Reduced trade uncertainty and greater policy clarity may further support hiring.

Third, despite soft readings on January retail sales and existing home sales for January this past week, real GDP growth continues to track above 2% for the first quarter and beyond. Limited job cuts, low gasoline prices, and the incoming tax refund season should help support the consumer alongside the ongoing capex cycle.

Finally, even if the labor market strengthens further, reflation is not a foregone conclusion. We continue to expect price pressures to remain contained this year, supported by slowing rental costs, rising productivity, and low oil prices.

Overall, improving labor market conditions, stable-to-falling inflation, and economic growth powered by fiscal policy, business capex, and a resilient consumer create a positive backdrop for markets. Moreover, U.S. growth momentum, which is likely to continue outperforming other regions, may be the key to further market broadening.

Japan’s New Prime Minister Secures a Mandate for Fiscal Expansion

What is happening: Japan’s first female prime minister, Sanae Takaichi, took office in October, after winning leadership of the Liberal Democratic Party (LDP). In a bold move, she quickly called a snap election for February 9, effectively gambling her premiership on a renewed public mandate. The strategy paid off decisively. The LDP captured 352 of 465 seats in the lower house, a two-thirds supermajority, up sharply from the 233 seats it held going into the vote.

Takaichi campaigned on a platform centered on fiscal stimulus and a more assertive national security posture. From a fiscal standpoint, one near-term policy goal is the temporary repeal of the consumption tax on food to support households (the current rate is 8%). On national security, she has pledged to strengthen Japan’s armed forces, build a new national intelligence agency, and loosen restrictions on weapons exports, while signaling stronger alignment with the U.S. and a firmer stance toward China.

Markets responded swiftly. Japanese equities rallied, bond yields moved higher, and the yen strengthened, reflecting expectations of stronger growth, higher spending, and greater policy clarity.

Why it matters: The scale of the victory gives Takaichi significant political capital. With a supermajority in hand, she is less dependent on coalition partners and better positioned to advance her agenda. That clarity reduces political uncertainty and increases the likelihood of meaningful fiscal stimulus and increased defense spending.

Economically, the proposed fiscal stimulus, alongside large-scale industrial policy and increased defense outlays, should support household affordability and near-term growth, which is positive for the equity market. At the same time, Japan already carries one of the highest fiscal debt burdens in the developed world. Increasing the deficit is likely to put upward pressure on bond yields, which could cap equity multiple expansion. The yen, which has been weak for several years, may find support if stronger growth, contained inflation, and higher rates attract capital back to Japan.

On defense, Takaichi’s proposals could reshape regional dynamics. Closer alignment with the U.S. and a more hawkish stance toward China could either enhance deterrence or increase regional fragility. At the same time, closer alignment may reduce the likelihood of U.S.-Japan trade friction.

Longer term, Japan faces structural challenges, including an aging and shrinking population that constrains labor supply and long-term growth. Strict labor laws that prioritize seniority and make it hard to fire employees add further constraints. How Takaichi tackles these issues may ultimately matter more than short-term stimulus.

Bessemer equity portfolios remain slightly underweight Japan, though this underweight has narrowed significantly over the last two years. Key holdings include Mitsubishi UFJ Financial Group, Japan’s largest financial institution, which benefits from both stimulus and rate normalization, and Komatsu, a manufacturer of machinery used in construction, mining, and agriculture.