While flat, the market is showing some signs of stress. There is real fear being displayed. How do I see that? The software subsector is down 20% this year alone. There was some very negative news in the world of private equity, private credit this week. Is there something bad going on in the life insurance sector? And I think that there is a massive potential problem brewing in the life insurance sector. It involves increasing investment risk and hidden leverage. It's a very important story to tell. So, let's get started.
Hi, this is Steve Eisman and this is another edition of the weekly wrap. This is for the week ending Friday, February 20th, 2026 and recorded Thursday night, February 19th. This is a shortened holiday week and on this week's wrap, I'm going to cover the following. One, a review of market movements. The market is flat year to date and under the hood there is real pain in reallocation and reweighting. Number two, some very negative news for private equity, private credit. Number three, comments on notable pending acquisitions and impacts. Number four, a review of earnings. Software continues to be a bloodbath and payments is consolidating to two long-term investors, Mastercard and Visa, with every other company becoming trading vehicles at best. And number five, a whole bunch of mailbags whose topics range from what a recession would do to the market to what sectors to invest in during a recession to a brewing potential scandal in life insurance and to my views about technical analysis. So let's get started.
The market is moving from performance chasing to flight to safety. While flat, the market is showing some signs of stress. There is the beginning of a flight to safety. The market started with a nice rally in January but is now flat for the year, but underneath the hood there is real fear being displayed. How do I see that? Now tech has been the driver of this long bull market. This year however the S&P 500 info sector is down 4% for the year and because of AI fears the software subsector is down 20% this year alone. And what's up? Staples. The S&P 500 staples sector is up 13% this year. For now, at least, investors are nervous and looking for safety. The irony is that the fundamentals of the staples sector have not really improved at all with the sector suffering from the after effects of inflation and tariffs.
Moving on, there was some very negative news in the world of private equity private credit this week. There were reports that Blue Owl was restricting withdrawals from one of its private credit funds. Specifically, investors will no longer be able to redeem shares on a quarterly basis, and the fund will only return capital through distributions funded by actual loan repayments or asset sales. Those were the news reports. And what is this all about? Private equity has been selling private credit funds to retail investors for years. This has, in my view, always been a ticking time bomb. Retail investors are allowed to redeem quarterly, but the loans that the funds make are both illiquid and long-term. This is a classic duration mismatch. It's what destroyed the savings and loan industry in the 1980s. Duration mismatches always, always create problems. It's only a question of when. Here, retail investors are getting increasingly nervous about the loans the private equity industry has been making. The publicity has been bad for over a year and so they are putting in for withdrawals. However, the loans are too illiquid to meet these redemption notices. This was always inevitable. Don't be surprised if over the next few months other private credit funds suspend redemptions as well. This story is far, far from over.
On the acquisition front, Tuesday morning, Warner Brothers announced that it was reopening negotiations with Paramount. I have no idea how this will end, but I'm becoming convinced that the winner here will be the one that does not get Warner Brothers. I don't think Warner Brothers is worth $70 billion. It also has an extremely problematic culture where the division's heads only pull for themselves. And that's why no one has been able to run the company well for a long time. The best thing for Netflix, I think, is to actually lose Warner Brothers to Paramount. In fact, if Netflix does lose out, I might become interested in buying the stock given how much it's gone down.
In other acquisition news, late last week, a small public home builder, TPH, announced that it is being acquired by Japanese homebuilder Sumitomo Forestry. The all-cash purchase price of $47 per share or 4.1 billion equity value represents a 29% premium to TPH's prior price. The valuation was 1.3 times tangible book value. If you recall a few weeks ago, I recommended a different small cap home builder, Meritage, which has a market cap of 5.6 billion. Back then, the stock was at 1.0 times tangible book value. It is now at 1.07 times tangible book value. My thesis on Meritage is not a buyout thesis, but it's nice to see outside affirmation that there is value in homebuilders.
On earnings, the big earnings report will occur next week when Nvidia reports. I think it will be a non-event. How could the numbers be bad? After all, the four large hyperscalers, Meta, Google, Amazon, and Microsoft have already announced that they will spend $650 billion combined on AI capex in 2026. All 2025 AI capex was only 450 billion. So Nvidia should report good numbers and give strong guidance. Whether the market will care could be another story.
And the software bloodbath continued. The narrative in software is so awful that software stocks go down on good news, mixed news, and bad news. On Tuesday, almost all software stocks were down. After the close on Tuesday, Palo Alto Networks, the iconic cyber security software company, reported revenue grew 15%. Good. EPS grew by 27%. Better. Both beat expectations, but guidance was mixed. On the positive side, revenue guidance was much better than expectations, but EPS guidance was surprisingly worse with the company guiding to 79 cents versus expectations of 92 cents. This is no time for a software company to provide mixed guidance and the stock was down over 6% after hours.
Payment stocks continue to shake out and my conclusion is that only Visa and Mastercard are worthy of being long-term investments. Everything else is at best a trade. Global Payments, a 20 billion payments company, proves my thesis. We have spoken about the payments industry many times. Global Payments is part of the payments group of merchant acquirers and payment software companies. These companies did great during COVID and have suffered terribly since then. Global Payments for example reached $220 a share during COVID and is now 80. This is a stock that hedge funds like to trade because of the volatility that accompanies its earnings reports. The stock was up 16% on Wednesday when the company reported. Why? The company beat on earnings and revenue and issued decent guidance. So, the shorts covered in a panic. But this is no more than a trade. This is a 20 billion market cap company with revenue growth of only 5%. So, who really cares? Certainly not long-term investors. Yes, the stock had a nice day, but it's still down 24% over the last 12 months, even after Wednesday's performance.
Moody's reported Wednesday and taught us a huge lesson. When a company owns a proprietary database, AI inroads become difficult to impossible. In comparison, last week S&P provided weak guidance and the stock was down on that plus fears that AI will eat into the ratings agency's franchises. Moody's by contrast beat on revenue and earnings and gave 2026 guidance that was better than expected. On the conference call, management went out of its way to point out the proprietary nature of its varied businesses. The stock was up 6.5% on Wednesday. Full disclosure, I've owned Moody's for years. From an investing point of view, I like companies that are duopolies.
Carvana reported Wednesday night. This is an online used car company that competes with CarMax. The company beat on revenue but missed on earnings. It blamed the miss on higher used car reconditioning costs. Its forward guidance was also pretty vague. The stock was down over 20% after hours. Now, Carvana is a meme cult stock. It was $4 at the end of 2022 and recently got to $480. It's an incredibly controversial name. I have stayed away from it, but given its high multiple, this is a company that cannot disappoint in any way, and it just did. And yet, despite being down over 20% after hours, the stock rallied back on Thursday and ended the day down only 8%. This shows the dangers of shorting a heavily shorted stock. 11% of the stock's float is short, which represents three days to cover. I'm betting the rally in the stock was shorts covering because the stock did not stay down.
And a sign that there is no place to hide because the US consumer is showing signs of real weakness. Walmart's earnings report was not great. So even Walmart is being impacted by a stressed consumer. For the last several years, Walmart has been taking share from other retailers. Retailers like Target have suffered. In virtually every earnings report, Walmart has beaten and provided guidance better than expected. But not this time. EPS and revenue beat, but the guidance was weak. Earnings per share guidance was $2.80 for 2026 versus the estimate of 2.96, which would only amount to 6% EPS growth for this year. And same store sales guidance was a weak 4%. I'd also point out that despite this 6% projected EPS growth, Walmart has a 2026 PE of, get this, 50 times. Why? Because most traditional retail has been so devastated by e-commerce that investors are willing to pay up for anything in retail that is doing well. And there are very few such stories. So there is scarcity value for the few traditional retail companies like Walmart and Costco. And this scarcity value perhaps explains why even though Walmart provided weak guidance, the stock was flattish end of day Thursday.
Finally, there weren't many AI earnings related reports this week. I'll just flag one. Quanta, symbol PWR, reported. Quanta is an engineering construction company that mostly focuses on construction for the utilities industry. This company is a major beneficiary of AI data center construction as utilities have to scale up to provide the necessary additional power. Quanta reported a great quarter beating on all metrics including guidance. This is not a small company but 4Q revenue was up 20% which is pretty astonishing. Full disclosure, I've owned this stock for a long time. I think it's one of the best infrastructure stories out there.
Hi, Steve Eisman here. On my weekly wrap, I try to both teach and convey information as objectively as possible. I try to make clear what are the facts and what are my opinions. But in today's media, it's increasingly hard to figure out what are the facts and where the facts are being shaded by opinion. That's why when I look into news events, I first go to Ground News. Ground News is my solution for getting to the facts of important stories, but also to see how left, right, and center are seeking to convey the same exact story. Take for example the recent Senate rejection of dueling health care bills as the Obamacare deadline nears. To understand the story, I went to groundnews.com and clicked on that particular story headline. There I immediately saw four tabs, left, center, right, and bias comparison. When I clicked on the center tab, a series of headlines appeared, all from center-leaning sources. I could then click on any of those headlines and read the story at the source. The same happened when I clicked on the left tab and on the right tab. The bias comparison tab showed Ground News's own analysis of how all three political leanings conveyed the same exact story. I find the Ground News system enormously helpful because it allows me to easily separate the facts from opinions. I use Ground News and I recommend you try it out. Go to groundnews.com/real to get 40% off their unlimited access Vantage subscription. That's groundnews.com/real. And if you don't mind, use this link to get the discount so they know I sent you.
And now for the mailbag. First up is a question from Larry who asks, "Hi, Steve. I love your weekly wrap and other interviews. You talk about needing to have a full recession to fully correct from the K-shaped situation we are in right now where the market, inflation, prices, etc. are not reflecting the vast majority of the population and those doing well are somewhat unaffected. Can you explain this in more detail? Why and how would a full recession reset or fix what looks broken right now? I'm particularly concerned about the job market and prices. I have three young adult kids with recent college degrees in very good fields, all of which are facing a very challenging job market and they are unable to be sustainable working unskilled jobs and meeting living expenses while I wait this out."
Thank you, Larry, for your question. To be clear, I am absolutely not hoping for a recession in any way. A recession is not an academic exercise. Recessions cause real pain for real people. My only point that I was trying to make is that retail investors have been trained for years now to buy every single market dip. And they have been right. We've had a bull market for many years now. And each correction was just another buying opportunity. Each time the market feared a recession and each time the market was wrong and retail was right to buy the dip. The only way retail investors will stop buying the dip is when there is an actual recession. And the resulting economic pain will cause a real market correction that could last for a time. As for your question, a recession does have the ability to recalibrate an economy. In a recession, companies with weak balance sheets suffer and can fail. Stocks drop in sympathy and fear. Computer trading kicks in with a vengeance and retail investors race to the exit. Instead of buying the dips, they sit on the sidelines. Unemployment rises and the economy weakens overall. Then the Fed lowers rates. Companies begin to invest again. And the economy emerges healthier for almost everyone. Recession and recovery are as inevitable as death and taxes, and they are painful. We have not had a recession in the US since the great financial crisis. Our K-shaped economy shows the potential for recession, but I don't see enough signs yet on the horizon to predict one.
Next question is from Tim. "Steve, hope you are well. Love watching your YouTube channel. Regarding your five themes, how would you square the reaction of the underperforming sectors in the event of a recession and/or AI bubble burst? If there's a rush to exit from tech stocks, it seems natural to think the money would move to the traditional consumer, utility, etc. safe havens. Do you see a reason why it wouldn't play out like that?" This is a wonderful question. And let's first put up on the screen the 11 sectors of the S&P and whether a sector is considered growth, cyclical or staples. So for example, tech is a growth sector, financials is a cyclical sector and staples of course is a staple sector. From a simplistic perspective, in a recession, money would flow out of growth and cyclical sectors and to the four staple sectors, which are consumer staples, healthcare, real estate, and utilities. There is an additional important wrinkle. However, some sectors like financials, which is largely a cyclical sector because of the dominance of banks, contain a subsector with staples characteristics. That would be the property and casualty insurance sector. So in a recession, I would also expect money to flow to subsectors like property and casualty.
With respect to Tim's question, I suspect that in a recession, at least this time, the story about money flowing to staples and staple groups would be a lot more complicated. Let's start with utilities, a very traditional staple sector. The problem here is that many utility companies are currently beneficiaries of the boom in AI and the resulting increase in electricity prices for everyone. In a recession, AI construction would slow and a stock like Constellation Energy, a leader in nuclear energy, would get hurt. In a recession, if I was looking for a utility stock, this time around, I'd just buy something really boring like Edison International, symbol EIX. What about healthcare? Here too, things are more complicated this time around. Within healthcare, the subsector with the most staples characteristics is health insurance. Thus, in a recession, a stock like UnitedHealth normally will do well. But right now, the health insurance sector is experiencing massive problems. We've spoken about this several times on this podcast. The industry suffers from rising medical costs in every category. This problem or series of problems has proven to be very difficult to fix. So if there was a recession, I would not be buying a stock like UnitedHealth just because historically it's done well in a recession. With respect to real estate, it's a very small sector, but might do okay in a recession. But if a recession occurred right now, I'd confine myself to consumer staples, a utility like ConEd, and property and casualty stocks like Chubb, Travelers, and Progressive.
Next up are two questions about life insurance. First from Kate. "Hi Steve, I hope you're doing well. I look forward eagerly to your YouTube videos. I really appreciate your generosity in sharing what you know with individual investors so that we don't get taken advantage of. In light of that, I am concerned with the increasing pace of articles coming out of Bloomberg about the dangers in the insurance industry, the participation of private equity in the insurance business, and she's really referring to the life insurance business, and the apparent leveraging up and/or asset stripping that's going on. I hope you will address this. My husband and I are on the verge of retirement. And even though our investments have been in equities at a discount broker, Fidelity, we are constantly solicited to give up our equity investments in favor of annuities. To me, this is an indication that someone's making a big fee and that it's not likely good for me or my financial future to trust a promise from a financial institution. Again, thank you for all that you do for the individuals out there." And from Jeremy, similar question. "Steve. Curious as to your thoughts on the recent critical Bloomberg piece regarding private equity-owned insurance companies like Athene gaining more exposure in the pension and annuity liability world. Specifically, do you think this is creating problematic systemic risks that could have unintended consequences?" I've grouped these two questions together because they're basically asking the same thing. Is there something bad going on in the life insurance sector? And I think that there is a massive potential problem brewing in the life insurance sector. It involves increasing investment risk and hidden leverage. It's a very important story to tell. Two Mondays from now on March 9th, I will drop an interview with a forensic accountant and former life insurance examiner who is an expert in what is actually going on in the life insurance sector. It's an intriguing but also frightening conversation and you should all tune in.
And from Alex. "Dear Steve, thanks for the great podcast which have become a regular part of my weekly routine. It's so useful to hear updates from a real pro." You're welcome. "My question for you relates to an area of investing that I haven't heard you mention much. So, here goes. What do you think about technical analysis and to what extent does it play a role in your investing process? By technical analysis, I'm particularly referring to the study of trend, market breadth, sentiment positioning, and seasonality. Do you prefer to invest in stocks where your fundamental view is confirmed by an upward trending chart? Do you wait for a turn in the chart before investing in beaten down stocks? And do you use technical analysis to assess overall market conditions? Would love to hear your take." Thank you, Alex, for this question. First of all, let me define what I think technical analysis actually is. When you look at a chart of a stock or the market, to me it expresses what all the investors think about the company or the market in question. A chart can show love, hate, or even indifference. Some investors use charts and technical analysis all the time. They will not invest in a stock unless the chart looks good or is at least building a base. Now, I do not use technical analysis quite as rigorously. However, I will admit that before I buy a stock, I will always consult the chart. I will not invest in a stock whose chart has just collapsed. That's like trying to catch a falling knife. After a collapse, I will wait for the stock to start building a base before I will think about buying it. Otherwise, I use charts to see if something I own still looks good. If the chart is deteriorating, I will recheck my fundamental analysis. So I view technical analysis as an important tool but not as a substitute for fundamental analysis.
This last Monday we dropped an interview with Columbia professor Daniel Guetta who is an expert in the field of AI and large language models. About a month ago we posted an interview with Gary Marcus who is a critic of the entire LLM scaling enterprise. Because this is such an important topic I decided to seek a second opinion. Professor Guetta agrees with Gary Marcus on certain points, but is much more positive on LLM and AI. So check it out. And this coming Monday, we will drop an interview with George Noble, a famous investor who used to run one of the largest equity mutual funds at Fidelity. This is a stock jockey episode. George is very bullish on gold and negative on crypto and negative on the tech sector and negative about AI infrastructure spending. He voiced opinions that you don't normally hear on business news. Feel free to send me questions about this particular interview. It involves many different topics with some at times complex lingo. Hope you tune in and be sure to check out our website realismanplaybook.com. There you can easily access all our episodes as well as the financial literacy master classes. If you're enjoying these weekly wraps and our podcasts, we kindly ask that you support the channel by subscribing. Subscribing is the best way to help us expand this community to more like-minded individuals such as yourselves, and we greatly appreciate your support. And that's the wrap. See you real soon.
This podcast is for informational purposes only and does not constitute investment advice. The hosts and guests may hold positions in stocks discussed. Opinions expressed are their own and not recommendations. Please do your own due diligence and consult a licensed financial adviser before making any investment decisions.
