Podcast Summary: Notes on the Week Ahead

Episode: Detangling Solution for the Economic Outlook
Host: Dr. David Kelly
Date: February 17, 2026

Overview: Main Theme and Purpose

In this episode, Dr. David Kelly, Chief Global Strategist at J.P. Morgan Asset Management, uses the metaphor of a “detangling solution” for his (once unruly) hair to frame the complex and sometimes confusing current state of the U.S. economy. He walks listeners through the main economic indicators—growth, consumer spending, jobs, business investment, profits, and inflation—untangling the “knots” affecting forecasts and offering a clear-eyed view of what to expect in 2026 and 2027. The episode aims to prepare investors with actionable insights and a reasoned outlook amid market noise.

Key Discussion Points & Insights

1. The Messy Outlook on Economic Growth

• GDP Forecasts for Q4 2025: Wide discrepancies remain—ranging from 2.6% (Kelly's forecast) to 3.7% (Atlanta Fed)—due to volatility in trade and inventories from 2025’s tariff increases.
  • “Even now at this late stage, there is a wide range of forecasts for this number…” [02:24]
• 2025 Year-End Real Growth: Expected to land around 2.5% (Kelly) to 2.8% (Atlanta Fed).
• 2026 Preview:
  • Q1 GDP starts sluggish (~1% annualized), speeds up to >3% in Q2/Q3 (tax refunds and stimulus), but returns to 1% in Q4.
  • Overall for 2026: About 2% annual growth.
  • 2027: Slower pace anticipated at 1.5%.
  • “We expect real GDP growth to start the year at just 1% annualized, speed up...and then slip back to 1% in the fourth quarter...” [07:42]

2. Consumer Spending

• Weather Effects: Harsh winter hurt January retail (e.g., auto sales down to 14.9 million units annualized from 15.7M).
  • “…tougher winter weather hurt light vehicle sales in January, cutting annualized sales…” [03:51]
• Tax Refunds: Sluggish so far (up only 2% YoY), but expected to surge in late February and March, boosting spending.
• Tariff Rebates: Expected push for one-time checks to households over the summer.
  • “We expect the administration to try to push through so called tariff rebates in the form of one time checks...” [04:39]
• Mixed Impacts: Wealth effect for affluent households (booming stock market); headwinds for mass consumer segment due to weak job growth and lower immigration.

3. Business Investment and Trade

• Tech & Infrastructure: Strong investment propelled by tax breaks and AI/data center infrastructure (especially among “hyperscalers”).
• Weak Spots: Construction outside of tech, inventory, and homebuilding lag behind.
• Trade: Impact is neutral as imports have leveled off post-tariffs.
• Government Spending: Constrained by federal cutbacks and weak state/local tax growth.

4. Labor Market: The Numbers Behind the Headlines

• January Jobs Report:
  • Seemingly strong headline (+130K jobs), but previous months revised down by 17K.
  • Annual benchmark shows a downward revision in December payrolls by >1 million jobs.
  • True average monthly job growth: just 30K over the past year.
  • “Job gains for November and December were revised down…and December payroll employment was revised down by over a million jobs…” [10:34]
• Population Adjustments:
  • 2026 will see slower working-age population growth (~85K/month vs. 191K previously), mostly from aging.
  • Implication: Limited labor supply; job growth will remain muted, even if growth accelerates mid-year.
• 2026 Outlook: Job growth around 60K/month, unemployment trends back towards 4%.
• 2027: If no fiscal stimulus, 1.5% GDP growth could still hold unemployment steady.

5. Corporate Profits and Earnings

• Strong Q4 2025 Earnings:
  • 79% of S&P 500 reported; 12% YoY growth; 79% beat expectations.
  • Double-digit earnings growth for a second straight year expected; analysts see this repeating.
• Tech Titans Dominate: MAG7 companies drove 50%+ of Q4 earnings growth, fueled by huge internal capital investment.
  • “...if tech company A buys $50 billion in equipment from tech company B… investors are getting nervous about the ever larger capital spending commitments of the hyperscalers...” [15:32]
• Investor Caution: Concern over sustainability of tech-led boom; earnings growth in slow economy unsustainable.
  • “In a slow growing economy, double digit earnings growth won’t be sustainable for long...” [17:21]
• Advice: Focus on valuations and individual prospects, not on market-wide growth.

6. Inflation: The Latest Trends

• CPI Update: January’s report showed a benign 2.4% YoY (vs. 2.5% expected).
  • Used car prices and gasoline receipts lowered the reading—both are likely temporary.
• Structural Decline: Shelter, health insurance, and auto insurance costs have been steadily slowing, now dragging official inflation measures down.
  • “...shelter inflation has been falling steadily while both health insurance and auto insurance costs are now falling…” [19:13]
• Measurement Issues: These lagging indicators may accelerate official inflation’s return below 2% into 2027.
• Short-term Spike: Expect CPI to bump above 3% in summer as tariffs flow through and consumer stimulus checks hit wallets.

7. Takeaway and Outlook for Investors

• “Detangling” Reality vs. Sentiment: Kelly notes the disconnect between gloomy consumer sentiment and elevated stock market but finds that, “when you detangle the data, the same moderate forecast emerges.”
• Forecast Recap:
  • “2024: 2% growth, zero recessions, inflation coming down to 2%, unemployment at roughly 4%.” [22:04]
  • Unless disrupted by shocks, expect mild, steady growth and falling inflation/unemployment.
• Investor Guidance: Prioritize asset valuations and portfolio balance over chasing broad market growth.
  • “Rather than just worrying about the big picture. They should focus on the valuations of prospects across a wide range of financial assets and whether their portfolios are appropriately balanced for where they are in life.” [23:06]

Notable Quotes & Memorable Moments

• Opening Analogy:

  • “Between taking a shower when I get up in the morning and another when I get home from running, I am a significant consumer of detangling solution… Today… it would be nice if it could gently seep into my scalp detangling some of the confusion beneath. This is particularly the case today when all the major economic trends…look tangled and distorted.” [00:31]

• On Corporate Earnings Cycle:

  • “In a slow growing economy, double digit earnings growth won’t be sustainable for long, making it more urgent that investors focus on individual corporate prospects and valuations…” [17:21]

• Cautious Optimism:

  • “Unless and until some shock hits the economy, the outlook remains one of mild and steady growth and moderating inflation and unemployment.” [22:56]

Timestamps for Important Segments

| Segment | Timestamp | |-----------------------------------------|-----------| | Opening Metaphor & Economic Tangling | 00:04 – 02:24 | | Q4 2025 GDP Divergence, Q1-4 2026 Views | 02:24 – 07:50 | | Consumer Spending Drivers | 03:51 – 05:53 | | Business Investment and Trade | 06:12 – 07:42 | | Labor Market & Jobs Data Critique | 10:34 – 13:24 | | Working-Age Population Concerns | 13:57 – 15:00 | | Earnings & Tech’s Rising Share | 15:32 – 17:21 | | Inflation: Recent Report & Outlook | 19:01 – 21:43 | | Summary Outlook & Investor Advice | 22:04 – 23:10 |

Conclusion

Dr. Kelly’s well-structured, metaphor-rich analysis breaks through market noise by methodically “detangling” economic data, creating a reasoned, moderate forecast for 2026–2027: steady but unspectacular growth, constrained job gains due to demographics, temporary inflation bumps from tariffs and stimulus, and a market where selectivity, not broad optimism, should guide investors. His advice: keep perspective, focus on valuations, and ensure portfolios are fit for the times, rather than swayed by headline anxiety.