February 2026

The Slice

A Monthly Market Update & Investment News Roundup

Cutting through the noise...so you don't have to.

Good morning,

We spent last month's snow storm watching a man climb a 101-story building, streamed live on Netflix. No ropes. No parachute. Just man versus gravity. 

Cue the sweaty palms (mine; climbers have chalk).

Alex Honnold scaled the Taipei 101 tower last month. Honnold, the subject of the 2018 Oscar-winning documentary Free Solo, made history free climbing Yosemite's El Capitan in 2017. 

Netflix said it aired the climb on a ten-second delay, just in case of an, um, accident. When asked to put free climbing into perspective, one fellow climber described it like this: "Imagine an Olympic gold medal level athletic achievement. [And] if you don’t get that gold medal you’re going to die. You have to do it perfectly.”

Sweaty palms. 🖐️

Risk is something that we don't often appreciate unless it's staring us in the face. Watching a man scale a building does that. But most of the risks in the market aren't so obvious — and that’s what makes them more dangerous. They don’t announce themselves. We feel comfortable right up until we don't.

With that backdrop, here are three risks we’re watching most closely as we head into the new year.

1. Lack of a Clear Path to Profitability with AI

JPMorgan's Michael Cembalest recently warned that today’s AI boom risks repeating a similar kind of drawdown as we saw in 2022. That year, Magnificent 7 stocks corrected 50% as investors began to question the payback periods for the companies' long-duration bets (e.g., "The Metaverse").

Within the Mag 7, there are four hyperscaler companies where this could start to play out. Now, when I say “hyperscaler,” I’m not talking about our climber friend Alex; I mean Alphabet, Microsoft, Meta, and Amazon—companies that own and operate large data centers and provide cloud-based services like storage and data processing.

"Given gradually declining hyperscaler free cash flow margins and falling cash balances, a clearer path to profitability on AI investments may be needed in 2026 for current valuations to be sustained," writes Cembalest.

Capital spending on AI has been enormous and front-loaded. Since the fourth quarter of 2022, hyperscalers have invested a combined $1.3 trillion in AI. But the returns remain uneven, slow to materialize, and difficult to measure.

Investors are losing patience. Just last week, shares of Microsoft slid 10% when the company revealed it had spent $72 billion on capital expenditures in the first six months of its fiscal year, but that growth in its cloud unit missed expectations. The result: a decline of $350 billion — the equivalent of Bank of America — in one day. 

Cembalest also references a report from MIT last year that made waves. The report cited that the share of CEOs who are “very confident” in their AI strategy has fallen from 82% in 2024 to 49% in 2025. Additionally, 95% of companies surveyed saw zero return on their AI investments made at the time of the report.

These points may not invalidate the long-term story of AI — we are early in the cycle. They do, however, create vulnerability when expectations are already embedded in prices.

2. The Risk of Overheating 

The bigger danger in 2026 may not be growth fading — it may be growth holding up too well.

At first blush, that sounds like a good thing. But an overheating economy accompanied by higher inflation could cause the Fed to raise rates, not lower them, which would be a decisive break from where the consensus is now:

• The house view is for two, if not three, more Fed cuts this year. -Citi
• We pencil in a couple of interest rate cuts in 2026. -Barclays
• [We] expect the Fed to make two rate cuts of 25 basis points each. -Goldman Sachs

If those banks are right on monetary policy, we are slated to get fiscal stimulus in the form of Big Beautiful Bill tax cuts and the possibility of tariff "refund" checks sent later this year, just as corporate profits hit record highs. At the same time, the disinflationary forces in the housing, commodity, and labor markets that helped stabilize markets in the last several years begin to wane. That combination shifts the balance of risk away from slowdown and toward overheating, and could cause the Fed to change its stance.

This is important because the interest rates act like gravity for stock prices: when they’re low, asset prices can float higher with little effort; when they rise, everything feels heavier — something our climber can surely relate to.

3. Geopolitical Shock.

Finally, there is the risk that almost no one is positioned for — because it feels remote until it isn’t.

Source: JPMorgan Asset Management, Associated Press.

It is an interesting coincidence that the skyscraper Alex picked to climb was in Taiwan. Global reliance on Taiwan for advanced semiconductor manufacturing is extreme, and the concentration risk rivals past geopolitical dependencies that only became obvious after they broke.

Source: JPMorgan Asset Management. BP Statistical Review, ROC Taiwan, Global Guardian, 2024

And Taiwan itself is reliant on others. JPMorgan's Cembalest points out that 90% of Taiwan's energy usage relies on fossil fuel imports.

Any disruption — whether military, political, or economic — would have immediate and far-reaching consequences for technology supply chains, capital spending, and global markets.

This is a low-probability event. But it’s also a high-impact one — and history suggests markets tend to price these risks only after they materialize.

But risks aren't the same as consequences.

During the broadcast of Alex's climb, one commentator pointed out that "risks aren't the same as consequences." That's true — not every risk produces a negative outcome. Despite all of the risks, the market still looks resilient and poised to continue its ascent. 

One of the best arguments I've heard comes from Fundstrat's Tom Lee. Lee points out that we've seen six black swan events in the last six years: a global pandemic, a supply chain shock, an inflation spike, the fastest Fed rate hiking cycle in history, tariffs, and the US bombing Iran. 

"If [the market] was a company and we threw six events that could wipe out the earnings power of that company, but the company grew earnings, we would consider it super resilient and re-rate it to a higher multiple."

And yet, over that time, the valuation of the equal-weighted S&P500 index has barely budged. Lee's point is that this resilience means that the risk in the market should probably be to the upside, not the downside.

Here's what you need to know.

Markets

2026 Year-to-Date Asset Class Returns

Data thru 01/30/2026. Source: © Exhibit A, FactSet Research Systems Inc., Standard & Poor's  This slide is for informational and illustrative purposes only. The data provided is believed to be accurate, but there is no guarantee of its accuracy, completeness, or timeliness. This is not a recommendation or offer of any financial product. Past performance is not indicative of future results, and investors should consider their own objectives and risk tolerance. Indices, if presented, do not include fees, are unmanaged, and not available for direct investment. Definitions & Methodology: The returns shown represent year-to-date price performance of sector ETFs provided by iShares (EEM, EFA, TIP,AGG, DJP), SPDR (GLD, VNQ, MDY, SPSM, SPY, BIL), and Vanguard (VNQ). These ETFs track the following sectors: Commodities, International, Emerging Markets, U.S. Large Cap, REITs, U.S. Mid Cap, TIPS, U.S. Small Cap, Cash, and Bonds. Data is sorted by return from highest to lowest.

News & Notes

• Gold Above $5000: In a choppy week of trading, Gold broke the $5000-an-ounce barrier for the first time last month. (WSJ)
   

• Fed: President Trump picked Kevin Warsh as his nominee to head the Federal Reserve. Warsh, who served on the Fed board from 2006 to 2011, supports lower interest rates and has called for “regime change” at the central bank. (Barron's)

  • Also: Fed Holds Rates Steady in January Meeting (BBG)

• Davos: TCW CEO Katie Koch sees asset managers shifting away from US assets. (CNBC)
   
• How to Get a Bigger Tax Refund This Year Under the New Rules: Expect smaller tax bills and bigger refunds this year — after navigating a pile of new rules from last year's tax law. (WSJ)
   
• Preventing Aging Relatives from Making Financial Mistakes: Getting family members to listen to you when you think they are headed down a dangerous financial path can be difficult. But there are preventive steps you can take. (NYT)
   
• Travel & Spend:
  36 Hours: Mexico City (NYT)
  36 Hours: Sapporo, Japan (NYT)
  36 Hours: Cortina d'Ampezzo, Italy (NYT)
  
  New Favorite Thing: Tillamook Campfire Peanut Butter Cup Ice Cream

(Pie)Chart of the Month

Pop music has grown significantly gloomier over the past two decades.

Source: The Economist.

In an analysis for The Economist, MusixMatch, an analytics company, gathered lyrics from the Billboard top 100 songs for each week of the past few decades. Using AI tools, the company assigned moods to each track. The share of hits with lyrics invoking “angst” increased by 13 percentage points in the past two decades.

Management Tip

Is Your Leadership Style Too Nice?

Kindness builds trust. But confusing kindness with avoiding discomfort can erode performance, drain morale, and stall your organization. Here’s how to reset:

• Hold people accountable—especially high earners. Paying more should come with higher expectations.
   
• Give candid feedback, even when it’s uncomfortable. Support growth with clear, constructive guidance. Don’t sugarcoat.
   
• Stop treating retention as the ultimate goal. Retention matters, but not at any cost.
   
• Tighten your strategy by saying 'no.' Too many priorities mean nothing gets done well.

Read the full article here, written by Ron Ashkenas and Gali Cooks. Published January 12, 2026.

Firm News

Q&A: An interview with Nick Bradfield. Nick is a business coach, EOS implementer, and Marine Corps veteran.

PieCapital: It's that time of year when business owners are making plans and communicating their goals for the year ahead. You coach business owners to help them hit their goals and get real traction. What’s the #1 mistake you see entrepreneurs make when trying to grow their company?

Nick Bradfield: Lack of focus. They try to do everything for everyone all at once. It tends to create a bit of chaos and whiplash throughout the company. It’s often better to really hone in on the few actions you can focus on over the next 90 days that drive real value.

We often hear owners say they want “alignment” on their leadership team. In your experience, what does true alignment actually look like — and what’s the first step to get there?

It's everyone rowing in the same direction towards a common goal, having the right people in the right seats, and having each team member owning their decision space. It’s actually beautiful when you see it happen. It usually shows up with teams that have clarity and transparency, which drives the willingness to be open and honest about solving issues as they arise. The first step is identifying the right seats the company needs for the next 6-12 months. From there you can work towards getting the right people in those seats (if you don’t already have them).

If a business owner wants to start implementing EOS the right way, what are three things you’d tell them to put in place immediately to start seeing results?

First, you need an Accountability Chart showing who does what. Identify the critical functions first, then plug in the people. 

Second, start weekly meetings with your leadership team. We call these Level 10 Meetings. Follow the agenda. It’s clunky at first but it’s worked for 30,000 other businesses we've worked with; start with the assumption it will work for you too. The real magic is in the issues solving piece because companies that achieve their vision get really good at prioritizing the most important issues and solving them at the root every week.

Last, you need a dashboard -- we call ours a "scorecard." It may take a bit to nail the right measurables and goals but you have to start measuring what you think matters in order to drive results.

Thanks Nick.

Tax Season Reminders

• We provide all tax forms for managed accounts to clients via secure email by March 1st.
• Please note that we advise filing after March 1st due to tax documents being corrected from time to time.
• For those who uploaded their 2024 tax return last year, we will also provide you with a tax letter (see below) that you can forward to your CPA. The letter explains what tax documents he/she should expect from you, and what we did last year that may impact your return.

Why do we do this?

As we recommend more complex strategies involving the use of private capital, consolidating accounts, giving to charity, gifting to kids, setting up trusts, etc., a 1099 may not tell the full story of what was actually done, and we want to make sure you get the full credit for implementing these strategies at tax time by communicating them clearly to your tax professional. We hope it saves you and your tax professional some time.

You will still get tax documents directly from Schwab and our private capital providers (via mail or email, however you have elected to receive them). For those who don't want to wait, Schwab makes tax forms available on the following timeline:

If you have any questions or concerns regarding tax season or your tax documents, please contact Molly at molly@piecapital.com.

Advyzon Conference

Molly traveled to Phoenix to learn how we can better leverage our investment technology platform to serve our clients. Advyzon serves as the foundation of our technology stack with performance reporting, trading, and customer relationship management (CRM) capabilities, all in one place.

NC Heroes Fund

Last month, the board of the North Carolina Heroes Fund (NCHF) ​​​​met to discuss our goals for 2026 at the NC State University Club. The mission of NCHF is to improve the quality of life of North Carolina’s military personnel and their families via small grants to overcome a temporary financial hardship.

We'll be sending out info soon about our 2nd Annual Hoops for NC Heroes Bracket Challenge. Sign up here for updates!

🎵And Mom and Dad Can Hardly Wait For School to Start Again🎵

Snow days. Making frozen penguin pops. 

Happy Winter!

Love The Slice? Forward it! Got forwarded The Slice? Subscribe here.