Domestic indices took a leg backwards this month amid concerns about artificial intelligence’s role in the decline of the software industry, which would impair private equity firms that have invested in those companies. For February, the Nasdaq Composite was down -3.91%, while the S&P 500 was down -1.39%. The Dow Jones Industrial Average was the outperformer, losing only -0.87%. Notably, the 10-year U.S. Treasury yield has fallen to 3.94%, the lowest level since October. Market participants rushed to the U.S. Treasury to play defense and protect their portfolios. Year-to-date, the S&P 500 is holding above breakeven at +0.48%. The Dow Jones is up +1.90%, while the Nasdaq Composite is down -2.46%.
This past month brought a surge in the factory PMI, particularly in the new-orders component, which is an early sign that U.S. manufacturing activity is starting to reaccelerate rather than a statistical quirk. Capital spending is increasingly directed toward strategic sectors such as aircraft, primary metals, electronics, and energy, while production of more traditional consumer goods has been relatively soft. Retail inventories remain about 12% below their pre-pandemic level relative to sales, and manufacturers and wholesalers are also running lean, implying that firms will eventually need to step up output or rely more heavily on imports. Since last April’s “Liberation Day” tariffs, real inventories have continued to drift lower even as demand held up, suggesting stockpiles have been cushioning consumers from the full impact of higher trade costs. At the same time, a construction boom in electronics, semiconductors, chemicals, and transportation equipment is adding capacity in industries with high domestic value added, consistent with policy efforts to reshore critical supply chains. Taken together, lean inventories, stronger new orders, and targeted factory investment point to a sustained upswing in production led by strategic industries rather than broad-based consumer-goods manufacturing. We are constructive on the industrial sector this year and are positioning accordingly.
Producer price data for January point to firm inflation pressures building along the supply chain. Headline PPI rose 0.5% on the month, and core PPI climbed 0.8%, both above prior readings, with core running 3.6% year over year versus 3.3% previously. Services were the main driver, as trade margins jumped 2.5%, suggesting that wholesalers and retailers are increasingly passing through earlier cost shocks rather than absorbing them. On the goods side, prices for manufacturing components and private capital equipment continued to rise, adding to upstream cost pressures that can filter into finished goods over time. Transportation and warehousing costs also rose, reflecting higher costs of moving both people and freight through the system. Several categories that feed directly into the core PCE index, such as physician services, portfolio management fees, and airfares, registered solid gains, implying a non-trivial boost of roughly 0.11% to that key inflation gauge in January. This development raises the risk that the Fed might not be able to cut rates as much as initially thought.
Please see the following updates on existing positions held at the firm:
CF Bankshares (Ticker: CFBK)— CF Bankshares reported strong profitability metrics, with Q4 return on average equity of 12.6% and return on average assets of 1.1%, while net interest margin expanded 28 bps year-over-year and the cost of funds declined 45 bps. The efficiency ratio improved to 49.2% in Q4 versus 53.2% a year earlier, and book value per share increased to $27.87, supported by a Tier 1 leverage ratio of 11.4% and total capital ratio of 15.0%. On the balance sheet, core deposits grew by $47 million in 2025, and commercial loan fundings reached $369 million, helping to offset elevated payoffs from successful CRE projects while management highlighted a strong commercial pipeline entering 2026. On that note, we have started to sell down some of our position. The run-up in the bank’s stock is certainly welcomed (for most clients, +50% to +60% over the last 24 months), but we believe the price appreciation is premature considering the operating fundamentals.
EOG Resources (Ticker: EOG)— EOG Resources delivered a strong full-year 2025, generating $4.7 billion in free cash flow and returning 100% of it to shareholders through an 8% dividend increase and $2.5 billion in share repurchases, reducing the outstanding share count by approximately 10% since 2023. The company exceeded its original oil and total volume production targets while simultaneously cutting average well costs by 7%, showcasing exceptional operational discipline that positions it for continued margin expansion. Looking ahead, the 2026 capital plan targets 5% growth in oil production and 13% growth in total production, with an estimated $4.5 billion in free cash flow at current strip pricing. With $3.3 billion remaining under its share repurchase authorization, a pristine balance sheet, and exciting new international exploration prospects in the UAE and Bahrain, EOG is well-positioned to sustain high returns
Cheniere Energy (Ticker: LNG)— Cheniere Energy appreciated to a four‑month high after Q4 results that doubled attributable net income to $2.3B ($10.68/share) and delivered a 24.5% Y/Y jump in LNG revenue to $5.31B, on roughly 11% more cargoes (185) exported. Adjusted EBITDA surged to $2.05B vs. $1.58B a year ago, with distributable cash flow of $1.49B beating expectations and underscoring the cash‑generation power of the platform. Management reinforced its long‑term bull case with 2026 guidance of $6.75B–$7.25B in consolidated adjusted EBITDA and $4.35B–$4.85B of DCF, backed by Corpus Christi Stage 3 reaching 94% completion and set to add ~10 mtpa of capacity. On top of record 670 cargoes shipped in 2025 and a new 1.2 mtpa long‑term SPA with Taiwan’s CPC through 2050, the company boosted its buyback authorization to more than $10B through 2030, signaling high confidence in sustained free‑cash‑flow growth and intrinsic value.
As the year continues, we are very pleased with our outperformance so far. We will continue to monitor the deterioration in software and private credit markets and act accordingly.
Best regards,
Stash J. Graham