The major averages shrugged of the Supreme Court tariff ruling closing with solid gains to finish the week in the black. Since last Fridays close the S&P 500 gained 74 points or 1.1%, the NASDAQ increased 239 points or 1.1% while the DOW added 125 points or .25% to close out a decent week. A busy economic calendar produced a few disappointments. None more surprising that the Q4 preliminary GDP print of just 1.4%, less than half expectations. I’ve got to think that this will be revised quietly higher in the 2nd and subsequent releases.
What A Surprise
The 4th quarter GDP report was, after the last Atlanta Fed GDPNow estimate pegged 3% February 19th. While data regarding real estate, consumer spending and durable goods, which includes business spending, for 2025 all remained robust. Durable Goods orders jumped 7.8% last year on record machinery, fabricated metals, electrical equipment, motor vehicles, and nondefense aircraft spending following more than a year of double digit corporate earnings growth. Along with solid gains in personal income and spending. Color me more than a little skeptical of that Q4 GDP print.
Is The Sky Still Falling?
While the pundits have backed off from their recession calls and worse. Following their 2025 humiliation ritual of being infamously wrong. Most are still pretty cautious with their expectations going into 2026. Fearing the uncertainty of domestic immigration policy, tariffs and a still struggling real estate market. Current immigration policy should continue to decrease demand for housing, especially on the rental side. Despite the Supreme Courts negative ruling on tariffs. The Trump administration made it clear that they would continue on an alternative legal basis. While Chairman Powell’s replacement may slash interest rates spurring homebuyer demand, this remains a maybe at best. Because a lot of the demand destruction that has occurred in the post Covid period has been driven by high prices.
Housing Supply Boom
2025 saw 1.36 million housing units started, slightly less than 2024, with 914,000 single family units and the rest apartments of multi family units. A figure sufficient to provide housing for about double the expected population increase. Something that is slowing significantly as a result of domestic immigration policies. With a dramatic increase in supply in the face of already weak demand. Downward pressure on real estate prices should increase. Something that will put homebuilders in a bind as they are already offering substantial financial incentives to new homebuyers in order to move inventory. Following several years of robust construction. Real estate tends to lead the economy into and out of recessions. Given the current set of facts and circumstances, it is a sector worth watching very closely in 2026. Especially if Powell’s successor doesn’t slash rates as desired. Something that will prove hard to justify if the economy doesn’t slow down.
Have a great weekend. I’ll be back next Friday.
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