Your Portfolios in Brief
This week, we didn’t really have a choice, we had to talk about Microsoft. And for good reason: despite a solid quarter, the stock got hit by very specific concerns (Azure growth, AI spend, margins, reliance on OpenAI). After posting results that came in above expectations, the stock still pulled back.
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2025 Highlights
We’re talking about the quarter ended December 31, 2025 (FY2026 Q2), reported in late January 2026.
• A solid quarter
• Revenue: $81.27B (≈ +17% YoY)
• EPS: $4.14 (above expectations)
• Azure: still very strong—but this is where the market focused
• Azure growth was around +39% YoY.
• But for the next quarter, Microsoft guided 37%–38% (constant currency).
So yes, it’s strong growth—but it didn’t send a clear “re-acceleration” signal.
• AI: good traction … but a big bill
• Copilot: roughly 15 million paid commercial subscriptions.
• At the same time: massive investment into AI data centres.
• Capex around $37.5B for the quarter.
And that’s where the question keeps coming back: what’s the cost, and when does it show up in profitability?
• Margins: that’s where the anxiety comes from
When you invest at this pace, the market becomes extremely sensitive to the margin trajectory. Even a modest miss on margin expectations gets punished.
• Backlog: impressive … but viewed as too concentrated
• RPO ~ $625B
• The conversation quickly turned to how much of that is tied to OpenAI.
That’s not “bad” by itself—but the market doesn’t like seeing one major engine dominate the visibility.
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Why This Stock Is Worth Watching
1) A recurring, enterprise-grade model
Microsoft 365 and Azure are “must-have” spend items for most organizations.
2) AI is being layered where customers already pay
Copilot inside Microsoft 365 and AI inside Azure: it’s a highly monetizable strategy without having to build a brand-new market from scratch.
3) Azure remains the key swing factor
The question isn’t “is it growing?”—it’s: does it surprise to the upside, or is it starting to level off? That’s what moves the stock.
4) The backlog provides visibility—but it has to be “clean”
Diversified, convertible into revenue, and not overly dependent on one customer.
5) The pullback forces a more disciplined read through
The market wants proof that AI will pay off—not just the promise.
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Conclusion
Microsoft delivered a solid quarter. What weighed on the stock was less the quality of the results themselves and more the surrounding context: Azure growth that came in as expected but without upside surprise, AI investments that continue to ramp quickly, and some market discomfort around the concentration of the backlog.
That said, we believe Microsoft continues to deserve its place in our portfolio, despite the short-term negative reaction. The business model remains exceptionally strong, built on recurring revenues, a dominant enterprise footprint, and an AI strategy that is being embedded directly into products that are already widely adopted. Recent volatility does not change the underlying investment thesis.
In this context, the pullback gave us the opportunity to add to the position at more attractive levels, while maintaining the same medium- to long-term view. Microsoft has the scale, the financial capacity, and, most importantly, the distribution to turn AI into durable growth and, over time, into sustained profitability.
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Market Brief
Monday
• S&P 500 : +0.50% to 6,950.23
• Dow Jones : +0.64% to 49,412.40
• Nasdaq : +0.43% to 23,601.36
• S&P/TSX : -0.16% to 33,093.32
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Canadian Dollar
The loonie firmed modestly as the U.S. dollar stayed choppy and investors continued to recalibrate positioning around political risk. The Canadian dollar traded around US$0.7298, up versus Friday.
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Monday’s tape delivered a clear takeaway: equities pushed higher, but the market’s demand for protection remained elevated. In portfolio terms, investors leaned into the upside—led by mega-cap tech ahead of a packed earnings slate—while simultaneously adding “insurance” through real assets, notably precious metals.
1. Trade Risk Is Back: Visibility Gets Marked Down
Trade headlines resurfaced with renewed tariff threats aimed at Canada. Even without an immediate market shock, this kind of messaging tends to grind away at sentiment by increasing uncertainty around supply chains, corporate margins, and forward growth assumptions. From a portfolio construction lens, it’s not just the headline—it’s the cumulative impact on the risk premium.
2. U.S. Fiscal Noise: A Volatility Accelerant
Investors also tracked Washington tensions as shutdown risk re-entered the conversation. These episodes can quickly create friction: higher volatility, faster sector rotations, and a renewed bias toward quality exposures.
3. Fed: This Week’s Strategic Pivot Point
The Federal Reserve delivers its decision Wednesday. A hold is broadly priced in, but the market is focused on messaging—how the Fed frames the inflation path, the growth outlook, and what conditions would be required for potential easing later this year. In a politically charged backdrop, even subtle wording changes can become market-moving.
4. Economic Data: Investment Demand Still Showing Resilience
Durable goods orders came in stronger than expected, reinforcing the view that the U.S. economy is still absorbing higher rates. For markets, that matters: the more activity holds up, the more “higher for longer” remains a live scenario—and the more valuations need to be supported by real earnings delivery.
5. Gold and silver:
Gold pushed to new highs, briefly above US$5,100/oz—and settled around US$5,082.50/oz. Silver’s move was even more dramatic. Strategically, this looks like a market that still wants growth exposure, but doesn’t want to be uncovered amid political, fiscal, and geopolitical risk.
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Stocks in Brief
• USA Rare Earth (USAR): +7.87% — A fast rerating following news of federal support, putting critical minerals back in focus.
• GameStop (GME): +4.44%—Tactical upside driven by Michael Burry’s disclosed buying; a high-volatility name where flows can dominate near-term pricing.
• Cisco (CSCO): +3.24%—Lifted by favourable analyst revisions tied to enterprise recovery, AI-related tailwinds, and margin expansion.
• Apple (AAPL): +2.97%—Positioning ahead of earnings, with investors leaning back into demand durability and cost discipline.
• Meta Platforms (META): +2.06%—Pre-earnings positioning, with attention on monetization and AI investment intensity.
• Microsoft (MSFT): +0.93%—Constructive tone ahead of results, with cloud/AI execution as the key driver for multiples.
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Sector Performance
• Leaders: Technology and communication services (pre-earnings positioning), and materials (powered by precious metals).
• Laggards: Energy, as crude softened to around US$60.63/bbl, limiting TSX upside despite strength in mining-linked names.
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Tuesday
• S&P 500: +0.41% (record close at 6,978.60)
• Nasdaq: +0.91% (to 23,817.10)
• Dow Jones: -0.83% (to 49,003.41)
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Canadian Dollar
The Canadian dollar held firm versus the U.S. dollar, as the market continued to balance risk appetite (led by technology) against pockets of sector-specific stress (healthcare/insurance).
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Tuesday’s tape was a textbook example of a two-speed market. On one side, the S&P 500 printed a fresh high on continued leadership from mega-cap technology, fuelled by earnings anticipation and more importantly expected commentary on AI investment intensity (opex, capex, and monetization pathways). On the other side, the Dow absorbed outsized pressure, dragged down by the sharp drawdown in UnitedHealth, which spilled over across the broader managed-care complex.
The key healthcare catalyst was the proposal for a very limited increase in Medicare Advantage payments for 2027, which forced a rapid reset of assumptions around premium growth and profitability. When a sector is priced for a favourable normalization and a regulatory signal breaks that narrative, markets tend to respond with high conviction: multiple compression, repositioning, and immediate risk reduction.
From a cycle perspective, another major input was the sharp deterioration in consumer confidence, the weakest reading since 2014. This kind of data point doesn’t automatically trigger a near-term regime shift, but it reframes the playbook: greater uncertainty around demand momentum, higher sensitivity to macro surprises, and more emphasis on corporate guidance quality.
Finally, markets remained in event-management mode ahead of the Fed’s first decision of the year. The base case remained an immediate hold, but the incremental value sat in the messaging: the implied timing of future cuts and the Fed’s read on key risks (inflation, growth, and financial conditions). In the background, political noise (budget brinkmanship and trade tensions) continued to act as a friction factor, without fully derailing momentum as long as earnings delivery holds.
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Stocks in Focus
• UnitedHealth (UNH): ~-20%—sector shock on unfavourable reimbursement parameters; knock-on impact across managed care.
• Humana (HUM): ~-21%—sharp compression following the Medicare Advantage proposal.
• CVS Health (CVS): ~-14%—meaningful pullback alongside insurers and benefit managers.
• Microsoft (MSFT): ~+2%—supported by AI positioning into earnings; focus on spending discipline and monetization.
• Apple (AAPL): ~+1%—pre-earnings strength; market remains centred on AI strategy and product execution.
• General Motors (GM): ~+9%—favourable reaction to strong results and shareholder value actions (higher dividend + buyback).
• Boeing (BA): ~-3%—profit taking and a more mixed read through on the details despite positive elements.
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Sector Performance
• Technology / Communication Services: leading—driven by mega-cap earnings setup and “AI execution capability” positioning.
• Healthcare: lagging—regulatory shock perceived as a direct headwind to growth and profitability for insurers.
• Broader market: selective rotation—preference for franchises with visible earnings delivery and credible capital allocation, in a macro environment that is turning more demanding.
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Wednesday
• S&P 500: 6,978.03 (-0.01%) — Briefly cleared 7,000 pt intraday (7,002.28) before fading into the close.
• Dow Jones: 49,015.60 (+0.02%)
• Nasdaq: 23,857.45 (+0.17%)
• S&P/TSX Composite: 33,176.07 (+0.24%)
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Canadian Dollar
• CAD: ~US$0.7369 (mid-73¢ US)—modestly stronger versus Tuesday.
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Wednesday’s session was a textbook “event-day” tape: strong optics early (the S&P 500 tagging 7,000 for the first time), followed by a controlled fade as the market shifted from celebration to risk governance. The close tells you this was not a broad, conviction-led breakout. It was a milestone print, then a repricing exercise into two overlapping catalysts: a Federal Reserve that communicated patience and a market that was consciously de-risking ahead of mega-cap tech earnings.
On the Fed, the decision itself was expected, rates held at 3.50%–3.75%, but the tone mattered. The central bank leaned into a “solid growth” narrative and signalled comfort sitting tight with inflation still not fully back to target. From a portfolio-management lens, that’s a meaningful messaging pivot: it reduces the market’s ability to pull forward aggressive easing assumptions and increase sensitivity to incoming data. When policy sits closer to “neutral,” equity multiples and duration react faster to incremental surprises, and investors become less willing to pay up for stories that require perfect execution.
That dynamic showed up clearly in market internals. Early strength was powered by AI/semiconductor-linked names on upbeat demand signals, but the rally never really broadened. As yields firmed modestly and the market’s focus moved to earnings execution risk, breadth softened and the index drifted back toward flat. This is consistent with a late-cycle, high-valuation setup: the index can still grind higher, but the marginal buyer becomes more selective and requires confirmation through earnings quality, guidance credibility, and broader participation beyond one leadership pocket.
The other macro signal worth underwriting was the move in commodities—especially precious metals. Gold’s surge reinforced that investors are actively paying for diversification and protection, even while equities sit near highs. In practical terms, it’s a reminder that institutional positioning is balancing “stay invested” with “own hedges,” reflecting policy uncertainty, currency chatter, and elevated geopolitical noise.
Canada tracked the same theme with a calmer expression: the TSX finished higher and the loonie firmed, consistent with support from commodity-sensitive segments and a steadier risk tone. Net-net, the setup reads as “keep exposure, tighten underwriting” rather than “chase beta.”
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Stocks in Brief
• Seagate (STX): +19%—an earnings-driven reset higher, with AI data-centre storage demand improving the forward visibility narrative.
• Intel (INTC): +11%—sharp sentiment repricing tied to longer-dated strategic optionality in advanced manufacturing/foundry narratives.
• AT&T (T): +4.7% — results and outlook supported a defensive cash-flow bid on a day when investors preferred delivery over debate.
• ASML (ASML): -2% — profit-taking and positioning effects dominated despite supportive demand signals.
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Bank of Canada Holds the Policy Rate at 2.25%
The Bank of Canada kept its policy rate unchanged at 2.25%. The core message is straightforward: the current level is still considered appropriate, so there is no immediate need to move.
The tone is cautious and execution focused. Inflation is hovering close to the 2% target, and the economy is showing signs of softer momentum, with the labour market no longer as tight as it was. In that setup, the Bank is choosing to let past rate cuts continue to work through the system rather than adding new policy action right now.
A key theme is uncertainty. Unpredictable U.S. trade policy is creating planning risk for businesses, complicating investment decisions and supply-chain adjustments. The upcoming USMCA review is also flagged as a meaningful risk factor for Canada’s economic outlook.
Looking ahead, the Bank is not committing to a clear path for the next move. There is no guidance on timing or direction. In practical terms, the next decision will stay data-dependent, with inflation, employment, consumer demand, and growth trends driving the playbook. The Bank is keeping optionality: ready to pivot if the outlook shifts materially.
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Fed Decision: Hold, Signal Management, And the Independence Message
The Federal Reserve stayed the course by keeping the policy rate in a 3.50% to 3.75% range at its first decision of 2026. After cutting a total of 0.75 percentage point late in 2025, the Fed is now clearly in a “pause-and-assess” phase. The takeaway is straightforward: they’re not restarting the easing cycle until the inflation and growth setup are clearer.
The vote also highlighted a less unified committee than usual. Two officials, Stephen Miran and Christopher Waller, dissented in favour of an additional 25 bps cut. That divergence underscores the core internal trade-off: one camp wants faster easing to support activity, while the other prioritizes inflation credibility and optionality for later.
On the substance, the Fed leaned on two pillars. First, the economy remains resilient, so there’s no immediate need to add stimulus. Second, inflation is still running above target and progress isn’t consistent enough to justify a rapid sequence of cuts. Jerome Powell pointed to inflation around 2.8% in November and likely 2.9% in December. In plain terms: the Fed doesn’t want to ease too early and risk reigniting price pressures.
On the labour market, the messaging shifted slightly toward stabilization, with a more neutral read on near-term risks. Operationally, that reinforces a data-dependent posture: next moves will be driven by incoming prints and financial conditions, not a preset timetable.
The political overlay was more visible than usual. Powell emphasized keeping monetary policy insulated from partisan pressure as President Trump continues to push publicly for lower rates. He also defended the institution’s independence and addressed legal/political noise around Fed governance. The governance message is clear: the Fed is protecting its autonomy because credibility is a balance-sheet asset. Once it’s impaired, it’s expensive to rebuild.
From a market perspective, the hold was largely in line with expectations. The base case shifts toward later easing: cuts can come back into focus further out if disinflation resumes and demands cools more convincingly.
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Meta Surprises on the Upside, And the Market Buys the Story, Even with AI Spending Ramping
Meta’s earnings release landed as a clear “risk-on” datapoint inside a market that’s been increasingly unforgiving on execution. The company delivered a better-than-expected quarter, with EPS of $8.88 and revenue of $59.89B (up 24% year over year). The real catalyst, though, was the forward view: Meta guided Q1 revenue to $53.5B–$56.5B, which came in meaningfully ahead of what the Street had been modelling going into the print. That guidance shift is what reframed the conversation from “capex is too high” to “the core engine is still compounding.”
The stock reaction reflected that reset. Meta shares popped more than 10% on the session, with the price pushing into the high-$700s (around $738) as investors leaned into the idea that Meta can keep growing at scale while funding a major AI build-out. In a tape where big tech is getting repriced on “prove it” fundamentals, Meta managed to check the boxes that matter right now: strong topline delivery, credible forward revenue momentum, and a market that’s willing to keep underwriting the model.
On the call, management leaned hard into an “AI acceleration” narrative, but what made it investable is that Meta isn’t pitching AI as an abstract initiative. The market read it as AI already being operationalized inside the advertising stack: better targeting, better conversion, and improving monetization across the family of apps. That’s why investors were willing to look through higher costs. There’s still a cost headline to manage, including ongoing losses in Reality Labs, but the core message was that the ad business is generating enough performance and cash-flow to fund the next phase without derailing the earnings trajectory.
The main debate going forward is the spending path. Meta guided 2026 capex to $115B–$135B, up from $72B in 2025, which is a large escalation and will keep margin sensitivity on the radar. The market’s current stance is basically: “spend aggressively if the payback is visible.” Meta earned a higher level of investor patience because it’s showing strong revenue momentum and it has a clear distribution channel to monetize AI improvements at scale.
What we’ll be watching next is straightforward. First, whether Meta can sustain this growth rate while keeping operating leverage intact as infrastructure ramps. Second, whether AI keeps translating into measurable ad performance gains (not just higher compute). Third, how disciplined management remains around cost growth as the capex cycle intensifies. Bottom line: this quarter was a sentiment shift for Meta, not because they spent less, but because they made it easier for the market to believe the spending has a credible earnings conversion path.
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Thursday
• S&P/TSX (Toronto): 33,016.13 (-0.48%)
• Dow Jones: 49,071.56 (+0.11%)
• S&P 500: 6,969.01 (-0.13%)
• Nasdaq: 23,685.12 (-0.72%)
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Macro Analysis
Thursday had the feel of a market that’s still constructive on the big picture, but far less forgiving on execution. We saw sharp intraday swings, and the close near flat on the S&P 500 doesn’t reflect how active the de-risking was during the session.
The catalyst was Microsoft. The market didn’t dispute the quarter; it reacted to the forward setup: cloud growth deceleration, plus margin sensitivity while the AI investment cycle remains heavy. In this tape, investors are effectively running a tighter underwriting process: capex is fine, but the path to cash-flow and margins must be credible and visible. When one of the largest index weights reprices this hard, it tightens risk budgets across the complex.
That’s why the weakness didn’t stay contained. Software traded like a single factor. The drawdown was broad enough that the main software ETF effectively slipped into bear-market territory on the day’s move, another sign this was a multiple reset, not a stock-specific story.
Two other macro cross-currents mattered:
• Fed: rates held at 3.50%–3.75%, as expected. The practical takeaway is that policy isn’t going to “carry” equities here; markets are back to earnings quality and margin delivery as the main levers.
• Washington: shutdown risk moved back onto the dashboard, with the funding deadline approaching Saturday, 12:01 a.m. ET. Markets treated it as a near-term volatility input, but it adds friction to sentiment, especially with positioning already concentrated.
Outside equities, the risk tone was mixed. Bitcoin sold off more than 5%, touching its lowest level in almost two months, consistent with investors trimming higher-beta exposure. Meanwhile, crude did the opposite: it priced in a geopolitical risk premium quickly.
On oil, the move was meaningful: prices jumped more than 5% at the peak, with Brent trading up through $70 and hitting roughly $71.89, while WTI pushed to about $66.48. The Iranian headlines matter because of both production risk and the Strait of Hormuz chokepoint (a key corridor for global crude flows). The bid was also supported by additional supply noise (Kazakhstan disruptions at Tengiz, temporary U.S. weather impacts), plus a softer dollar backdrop.
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Stocks in Brief
• Microsoft (MSFT): -9.99% — A classic “good quarter, tougher forward bar” reaction. Cloud growth and margin trajectory became the focal points, and the stock’s weight turned it into a market event.
• ServiceNow (NOW): ~-10% — Sold off even with better results, reinforcing that software was being repriced as a group.
• Salesforce (CRM): ~-6% / Oracle (ORCL): ~-2% — Continued software pressure as investors reduced duration and paid up only for clearer earnings conversion.
• Meta (META): +10%+ — The offset within mega-cap tech: strong results and stronger revenue outlook were enough to keep investors underwriting the model despite ongoing AI spend.
• Tesla (TSLA): ~-3% — Market stayed cautious; the bar remains high on profitability and forward visibility.
• Bitcoin: -5%+ (intraday) — Risk appetite cooled further as crypto slid to a multi-week low.
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Sector Performance
• United States (S&P 500): Market breadth held up better than the index suggests, but leadership was fragmented. Mega-cap tech split sharply (MSFT down hard vs. META up strongly), while software was the clear laggard as multiples compressed.
• Canada (S&P/TSX): The TSX finished lower, tracking the global risk tone, while energy pricing provided some insulation at the macro level even if it didn’t fully translate into index-level support on the day.
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Friday
• S&P 500: lower by ~0.3%
• Nasdaq: lower by ~0.4%
• Dow Jones: lower by ~175 points (-0.4%)
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Markets opened lower on Friday as investors weighed a combination of earnings, firmer inflation data and the official nomination of Kevin Warsh as the next Federal Reserve chair. Despite the softer tone at the open, the broader backdrop remains constructive, with the S&P 500 still on pace to close January in positive territory.
The Fed story is central this morning. Warsh’s nomination is being interpreted as a stabilizing signal for monetary policy credibility. Markets see him as a conventional and experienced candidate, which has helped ease concerns around political interference at the central bank. While he may ultimately support lower rates, the immediate takeaway is continuity and institutional discipline rather than an abrupt policy shift.
That shift in perception has had clear cross-asset effects. Gold and silver are seeing sharp pullbacks, unwinding part of the risk premium that had built up earlier this week. Gold fell more than 6% in early trading, after being down as much as 8% intraday, while silver dropped roughly 14% after touching losses north of 17%. The move reflects a combination of profit-taking and reduced demand for hedges tied to fears over Fed’s independence.
Treasury yields moved higher following a stronger-than-expected producer price report, adding short-term pressure to equities, particularly rate-sensitive growth stocks. Core PPI came in well above expectations, reinforcing the idea that disinflation remains uneven and that policy easing is unlikely to accelerate in the near term.
Risk appetite remains selective. Crypto assets also moved lower, consistent with a broader trimming of crowded and higher-beta trades. Equities, meanwhile, continue to rotate internally rather than break down, with investors increasingly focused on earnings quality, margin visibility and balance sheet discipline.
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Stocks in Brief
• Apple (AAPL): lower by ~1% — Shares slipped despite strong quarterly results, as valuation and positioning took precedence following a strong run.
• SanDisk (SNDK): +20% — Strong guidance triggered a sharp rerating, standing out as one of the session’s early winners.
• Visa (V): -1% — Solid results, but expectations were already elevated.
• KLA (KLAC): -8% — Weaker margin guidance weighed on the stock.
• Exxon Mobil (XOM): -2% — Shares eased despite an earnings beat, as commodity volatility kept investors cautious.
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Conclusion
This week, the market sent a pretty clean message: AI spending is still acceptable, but the execution bar just moved higher. Microsoft put up a solid quarter, and the stock still took a hit because investors immediately shifted to the forward setup: Azure momentum, the size of the AI bill, margin sensitivity, and the OpenAI concentration question.
Meta showed the other side of the trade. Same “spend big” posture, but the market leaned in because the revenue outlook stayed strong and investors can actually see AI translating into better monetization inside the ad engine.
On the macro front, the Fed’s pause kept the spotlight on earnings quality, not narratives. And Friday’s Warsh nomination was treated as a credibility signal on Fed’s independence. You could see it in positioning: gold and silver unwound hard, yields firmed after hotter PPI, and risk appetite stayed selective rather than broad-based.
