Good Data, Bad News for Stocks? | S3 E122 | 02-18-26

Markets love a good data day—until the Fed has the last word. We open with a clear read on the economy’s engine room: core durable goods rose for the sixth straight month, even as the aircraft-heavy headline slipped. Under the hood, momentum clustered in AI-adjacent categories like computers, electronics, and electrical equipment, with machinery and metals showing double‑digit year‑over‑year gains. That mix points to real business investment in compute, power, and automation—signals that feed directly into fourth quarter GDP and, potentially, future productivity.

Housing adds another puzzle piece. Starts climbed to a five‑month high and permits hit a nine‑month high, hinting at a slow thaw in a starved inventory market. The surge leaned multifamily, where large projects can move faster, and the regional spread told its own story: a sharp jump in the Northeast, strength in the West and Midwest, and a softer patch in the South. More supply down the road could help cool rent inflation, one of the stickiest components in the inflation basket.

Then the tone shifts. The Federal Reserve’s January minutes leaned hawkish, with several participants endorsing a “two‑sided” stance that keeps potential rate hikes on the table if inflation lingers above target. The market’s early rally faded as equity traders recalibrated optimistic rate‑cut timelines against a Fed that’s still focused on persistent price pressures. We connect these dots: how capex strength meets policy caution, why services and shelter inflation matter most now, and where investor expectations may need to cool.

If you’re tracking the path of rates, the durability of the AI and industrial cycle, and the outlook for housing supply, this conversation is your map for the weeks ahead. Follow, share with a friend, and leave a quick review to tell us where you think rates go next.

https://youtu.be/GwQ0Agcnj2Y

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Transcript

Durable Goods Beat Under The Hood

AI-Linked Orders Gain Momentum

Housing Starts And Permits Thaw

Regional Housing Strength And Weakness

Fed Minutes Turn Hawkish

Market Reaction And Rate Outlook

Closing And Where To Find Us

Megan Horneman 0:01

We got a slew of economic data today. It is Wednesday, February the 18th, and this is Markets with Megan. If you like this podcast, subscribe, hit the alarm button, share it with your friends, family, or colleagues. But we're here today to break down several different pieces of economic data that we got and then round it off with the minutes from the Federal Reserve's January meeting. Let's start first of all with some of the economic data that we received. We got the December durable goods orders. This is the preliminary reading on the December durable goods. So this has a lot to do with what may we may see with the estimates for four-quarter, fourth quarter GDP. And these were pretty good numbers when you take out the very volatile items like defense and aircraft. If you look at durable goods orders, excluding defense and aircraft, they rose for the sixth consecutive month. The headline, though, this includes those aircraft and bottle items, that did decline for the second time in the past three months. But that component that goes directly into GDP rose for the sixth month. And we saw orders on a lot of things AI related. So looking at computers, electronics, electrical equipment, these things are running between 7 and 8% on a year-over-year basis. Looking at machinery running 12% on a year-over-year basis. And then metals running about 10% on a year-over-year basis. So these are solid numbers that'll go into that input for fourth quarter GDP. We also got housing data, and we have been looking for some thawing in the housing data. And we saw this from the housing starts. And remember, we have an inventory problem in the US. Right now we are seeing that these housing starts rose to a five-month high. When you look at building permits, so this is the permits to eventually make break ground on construction, they also rose to a nine-month high. So good data ending the year from a housing perspective. It was primarily led by the multifamily housing units, so apartment buildings, and they did rise much more than the single-family homes. And then when you look from a regional perspective, it was the uh from the building permits, it was the Northeast, which saw a pretty big jump here in December. It's up 44%. When you look at the Midwest and West, also were strong. The South did see a decline in building permits, and then starts were concentrated though in that West and the Northeast. Now, the Fed came out at the end of the day. They released their meeting, their minutes from the January meeting. And remember, the January meeting, they remained on hold. And there was some uh the hawkish statement that was delivered by the Federal Reserve chairman, and we did see that carry over into the actual minutes. These do tend to be market moving because it gives us more indications of what the Fed was truly, how divisive the committee was, and what their true thoughts were there on the labor market and the inflation picture. What we saw was some of the comments from the this from the minutes were that several participated participants indicated they would have supported a two-sided description of the future interest rate decisions, reflecting that there could be an upward adjustment to the target range. So this is really the first time they've been very clear that interest rate hikes may actually be on the table. And that is if inflation remains at above target levels. The vast majority of the participants also judged that the downside risk to employment had moderated in recent months, while the risk of more persistent inflation remained. So this was a hawkish comment coming out of those meeting minutes. The market did have a really nice rally for most of the day with the decent data that we got in the beginning of the day, with really strong gains across the board. The markets did give the equity markets, did give some of that back with these hawkish meeting minutes. Um, and as we've said, that the we thought the markets this year have just been way too optimistic on what the Fed can do. Now, we're not in the camp to say that they're gonna have to raise rates yet. That's gonna be clearly dependent on the inflation um situation. But worth noting that the equities are still pricing in a very optimistic view on lower interest rates. That's all we have today. If you want a history of our podcast, you go to marketswithmegan.fm. Thank you.