Week in Markets: SCOTUS Strikes Down Tariffs, GDP Misses, PCE Hits 3.0%

The Supreme Court struck down Trump's tariffs. GDP came in at half the forecast. And the Fed's preferred inflation gauge accelerated to 3.0%.

Last week we flagged the Geneva talks, the FOMC Minutes, and whether BTC could hold $65K. The Geneva talks stalled. The Minutes were hawkish. And BTC is still pinned in the same range. But the real story was a constitutional showdown over trade policy that could reshape the next decade of US commerce, a GDP miss that whispered "stagflation," and an inflation print that shut the door on early rate cuts.

Macro Pulse

GDP Misses by a Mile

The Bureau of Economic Analysis released its advance estimate for Q4 2025 GDP on Thursday, February 20.

Growth collapsed from 4.4% in Q3 to 1.4% in Q4. The government shutdown subtracted an estimated 1.0 to 1.15 percentage points from the headline number. Federal spending plunged 16.6%. Export growth swung from +9.6% to -0.9%.

Consumer spending held up at 2.4%, though decelerating from 3.5%. Business investment at +3.8% was driven by AI and intellectual property spending (+7.4%), the only bright spot. Full year 2025 GDP came in at 2.2%, down from 2.8% in 2024.

The question is whether the shutdown explains it all. Strip out the government drag and the underlying economy grew around 2.4%. Soft, but not alarming. Include it, and 1.4% next to 3.0% core PCE starts to spell a word no one wants to say: stagflation.

Core PCE Reaccelerates

Released alongside the GDP report on February 20, the Fed's preferred inflation gauge made the picture worse.

Core PCE accelerated to 3.0% year-over-year, the highest since April 2024. The monthly gain of 0.4% beat the 0.3% consensus. This is the metric the Federal Reserve watches most closely.

One week ago, the CPI print at 2.4% had revived rate cut optimism. Now PCE tells a different story. CPI and PCE measure different baskets. PCE gives more weight to healthcare and housing services, both of which ran hot in December.

The contradiction is stark. CPI at 2.4% says inflation is cooling. PCE at 3.0% says it is reaccelerating. Markets chose to believe the latter.

FOMC Minutes: A Three-Way Split

The January 27-28 FOMC Minutes, released Wednesday February 18, revealed an unusually fractured committee.

The vote was 10-2 to hold rates at 3.50-3.75%. Dissenters Waller and Miran preferred a 25bp cut. But the real surprise was deeper in the text. Several officials explicitly discussed the possibility of raising rates if inflation stays above target. This was the first documented rate hike discussion since the easing cycle began.

Markets read it as a hawkish pause. Treasury yields rose on the release. The 10-year climbed to 4.08-4.09% by Friday. Rate cut expectations shifted: Goldman Sachs pushed its next cut forecast to June 2026. CME FedWatch now shows a 94.1% probability of a hold at the March 17-18 meeting.

The Fed is stuck. GDP at 1.4% argues for accommodation. PCE at 3.0% argues for patience. The committee is split three ways: cut, hold, or hike.

Labor Market: Still Resilient

Initial jobless claims for the week ending February 14 came in at 206,000, the largest decline since November. The four-week average held at 219,000. Continuing claims rose slightly to 1.869 million.

The labor market refuses to crack. Despite weak GDP, shutdown disruptions, and federal layoffs, the claims data shows no sign of deterioration. This gives the Fed one less reason to cut.

PMIs and Philly Fed

Flash PMIs both missed. Manufacturing at 51.2 was the weakest in its seven-month expansion streak. Services at 52.3 was the softest in 10 months, with selling prices at a 7-month high and delivery times the longest since October 2022. Supply chain disruptions are re-emerging.

The Philly Fed was the outlier, beating expectations at 16.3 versus 8.5. The six-month forward outlook surged from 25.5 to 42.8, the highest since September. Regional manufacturing sentiment is diverging from national data.

Sources - Macro Pulse: BEA: GDP Advance Estimate Q4 2025 | Advisor Perspectives: Core PCE 3.0% | CNBC: Fed Minutes January 2026 | Bloomberg: Jobless Claims Drop to 206K | Federal Reserve: FOMC Minutes Jan 27-28 | CME FedWatch Tool | Philly Fed Manufacturing Survey

Geopolitics

SCOTUS Strikes Down Tariffs

The defining event of the week.

On Friday February 20, the Supreme Court ruled 6-3 in Learning Resources, Inc. v. Trump that the International Emergency Economic Powers Act (IEEPA) does not authorize the president to impose tariffs. Chief Justice Roberts wrote the majority opinion: "IEEPA contains no reference to tariffs or duties. Those two words cannot bear such weight."

The ruling immediately terminated all IEEPA-based tariffs, including the February 13 universal surcharge that had pushed the weighted average effective tariff rate to 13.5%, the highest since 1946. Importers are now seeking refunds on an estimated $133 billion already collected. Section 232 tariffs on steel and aluminum and Section 301 tariffs on Chinese goods were not affected.

Trump responded within hours. On Friday evening he signed an executive order invoking Section 122 of the Trade Act of 1974, imposing a 10% global tariff. By Saturday February 21, he raised it to 15%, the legal maximum under Section 122. No president had previously used this provision. It is capped at 150 days without Congressional extension. Exemptions cover critical minerals, metals, and energy products.

Markets rallied on the ruling. The S&P 500 closed up 0.69% on Friday, the Nasdaq gained 0.9%. Amazon rose 2.6%, Alphabet 3.7%, Home Depot 1.0%. But the rally carried an asterisk: Trump's immediate counter-move means tariff uncertainty did not decrease. It transformed.

The geopolitical implication is significant. SCOTUS weakened Trump's leverage ahead of the Trump-Xi summit planned for late March or April. The Section 301 tariffs on Chinese goods remain, but the mechanism of shock escalation via IEEPA is gone.

US-Iran: Hormuz Closure and Ultimatum

Three events compressed into five days.

On Monday February 17, Iran partially closed the Strait of Hormuz for Revolutionary Guard live-fire drills under "Operation Smart Control." It was the first announced Hormuz closure since the crisis with Washington began. Roughly 20% of global oil transit passes through the strait. Brent spiked to $68.50 intraday.

On Monday-Tuesday, the second round of indirect nuclear talks continued in Geneva, mediated by Oman. Iran's Foreign Minister Araghchi said there was "good progress" and "broad agreement on guiding principles." The White House countered that sides remained "very far apart." The core gap persists: the US demands zero enrichment and stockpile dismantlement; Iran insists on civilian enrichment rights.

On Wednesday-Thursday, Trump issued a 10-to-15-day ultimatum, warning that "bad things happen" if Iran does not agree. The US military buildup is now the largest since the Iraq invasion of 2003: two carrier groups (USS Gerald R. Ford and USS Abraham Lincoln), THAAD and Patriot systems, and over 50 F-35, F-22, and F-16 aircraft deployed to the region. Iran responded with a letter to the UN: "All US bases in the region are legitimate targets."

The ultimatum timeline aligns with the IAEA board meeting in Vienna on March 2.

Ukraine-Russia: Geneva Talks Without Breakthrough

The third round of US-brokered talks in Geneva on February 17-18 ended without a deal.

Military delegations reached near-agreement on a ceasefire monitoring mechanism involving US participation. Both the White House and Zelenskyy acknowledged "meaningful progress" on technical military questions.

The political track went nowhere. Russia maintained its demand for full Ukrainian withdrawal from Donetsk. Day two ended after just two hours. Zelenskyy accused Moscow of "dragging out" negotiations. No date for the next round was set.

Gaza: Phase 2 Under Strain

Israeli strikes killed at least 11 on February 15 in Jabalia and Khan Yunis. Additional airstrikes hit Jabalia and Qizan on February 21. The Phase 2 ceasefire framework is in place but without a concrete timeline on Hamas disarmament or Israeli withdrawal. Houthis suspended Red Sea attacks since October 2025 but issued renewed threats tied to the Iran-US standoff.

Sources - Geopolitics: Supreme Court: Learning Resources v. Trump | Tax Foundation: SCOTUS Tariffs Analysis | Al Jazeera: Trump Raises Tariff to 15% | NPR: Trump Warns Iran | PBS: Iran Hormuz Closure | Al Jazeera: Geneva Talks Liveblog | Yale Budget Lab: SCOTUS Ruling Update

Markets

Indices: A Short-Week Rally

Presidents' Day on Monday gave markets a four-session week. The Nasdaq snapped its five-week losing streak.

Tuesday opened with a "flash panic" on the Nasdaq, a temporary 3% intraday dip driven by algorithmic selling before buyers stepped in. Wednesday brought the hawkish FOMC Minutes and VIX spiked above 20. Thursday's GDP miss and PCE acceleration created confusion. Friday's tariff ruling resolved it: risk-on to close the week.

Yields and Dollar

The yield curve continued to steepen. The 10Y at 4.08% reflects hawkish Minutes and sticky PCE. The 2Y at 3.48% prices in a patient Fed. The 60bp spread is constructive for banks and signals the market expects normalization, not recession.

The dollar gained 0.8% despite the tariff ruling. Hawkish FOMC Minutes and hot PCE supported the greenback. The tariff ruling caused a brief dip to 97.4 on Friday before Trump's Section 122 counter-announcement brought it back.

Commodities

Gold broke back above $5,000 and pushed toward $5,100-$5,170 intraweek. Goldman Sachs maintained its $5,400 year-end target. Every macro driver is aligned: geopolitical risk, inflation hedge, de-dollarization, central bank buying, and policy uncertainty.

Silver outperformed gold again, driven by the dual role of safe haven and industrial demand. Oil surged on the Iran standoff. The Hormuz closure drills and Trump's ultimatum added a $4-$7 per barrel risk premium. In a full escalation scenario, BloombergNEF projects Brent at $91. In a deal scenario, WTI could fall to $57.

Sector Rotation: The Tangible Economy Strikes Back

The rotation from tech to value and cyclicals accelerated. Energy was among the best-performing sectors: ExxonMobil +26% YTD, Chevron +21.8%. Small caps outperformed large caps by roughly 4% in the first six weeks of 2026, with Russell 2000 earnings growth exceeding large-cap for the first time in 13 quarters.

Walmart reported Q4 FY2026 earnings on Wednesday. Revenue crossed $700 billion for the first time. EPS of $0.74 beat consensus. E-commerce growth of +27% YoY and advertising revenue of $6.4 billion (+46%) showed the retail giant's transformation into a tech-enabled platform.

Sources - Markets: Yahoo Finance: Stock Market Feb 20 | Advisor Perspectives: Treasury Yields | Fortune: Gold Price Feb 20 | Business Standard: Oil 6-Month High | CNBC: Walmart Q4 FY2026 | Seeking Alpha: Sector Rotation Feb 2026

Crypto

Price Action

Bitcoin held its range. Again.

BTC traded between $66,000 and $68,880 all week, a $2,880 range. The pattern is clear: compressed volatility within a narrowing band. Direction awaits a catalyst.

BTC and ETH are both recording their worst start to a year since at least 2013. ETH remains stuck below $2,000. SOL tested $80 support before bouncing to $85.

ETF Flows: Five Weeks of Bleeding

The fifth consecutive week of outflows. First time since March 2025. Total AUM across 12 spot BTC ETFs sits at roughly $83.6 billion. IBIT led outflows with -$164.1M on Wednesday alone before reversing to +$64.5M on Friday. The intraweek pattern suggests systematic rebalancing rather than panic exits.

ETH ETFs recorded -$110.8M in outflows, also their fifth consecutive negative week. The anomaly was Solana. SOL ETFs recorded +$2.4M in net inflows on February 18, the only crypto ETF segment in the green. Institutional rotation: reduce BTC/ETH exposure, add SOL.

Derivatives

Open interest at a 4-month low signals leverage has been flushed out. Funding rates turned negative. Spot trading volume dropped 59% week-over-week to its lowest since November 2023. The derivatives picture is one of capitulation. This is the setup that precedes range breakouts, in either direction.

On-Chain

Retail investors are accumulating: wallets holding less than 0.1 BTC increased their supply share to the highest level since mid-2024. Meanwhile, whales (10 to 10,000 BTC) reduced positions by 0.8% since October. The divergence explains the market's inability to sustain rallies. Retail provides a floor. Whales sell into every recovery.

USDT inflows to exchanges at $27M versus $616M in November 2024 confirm that new buying power is at minimum levels.

Sentiment

The Fear and Greed Index hit 7 on Friday, extending the Extreme Fear streak to 22 consecutive days. This is the longest sustained period of extreme fear since the Terra-Luna crash in mid-2022.

K33 Research noted "striking similarities" between current conditions and the September-November 2022 bear market bottom, calling it an accumulation zone for patient investors. Arthur Hayes published "This Is Fine," framing BTC as a "global fiat liquidity fire alarm" and warning it could break below $60K before the Fed reacts.

Regulation

SEC Chairman Paul Atkins delivered a keynote at ETHDenver on February 18, unveiling a strategic roadmap shifting from "enforcement by regulation" to "regulation by rules." Key elements: innovation exemption for tokenized securities on AMMs, updated custody rules, and a joint initiative with the CFTC ("Project Crypto").

The regulatory environment has never been more favorable for crypto in the United States. The market does not care. Prices fell through every positive headline. When markets ignore good news, the bearish trend is intact until something forces a reversal.

Notable Events

BlockFills suspended withdrawals after disclosing $75 million in lending losses. The Susquehanna-backed crypto prime broker is seeking a buyer. First visible institutional stress event of this cycle.

Bybit's $1.46 billion hack marked its one-year anniversary on February 21. Elliptic noted 2026 is already on pace to exceed 2025 in exploit volume.

Monad ecosystem continued building. The Nitro Accelerator ($7.5M program) launched. RaptorCast block propagation protocol deployed. The evm/accathon hackathon begins February 26 at ETHDenver.

Sources - Crypto: The Block: 5 Straight Weeks of ETF Outflows | CoinDesk: BTC, ETH, XRP ETFs Bleed, SOL Bucks Trend | CoinDesk: Bitcoin Steadies Near $67K | Fortune: BTC Worst Start on Record

Week Ahead

February 23-27

The week ahead is dominated by one event: NVIDIA earnings on Wednesday February 25. Consensus expects Q4 FY2026 revenue of $65-66 billion and EPS around $1.46-$1.52. This is a referendum on the $1 trillion committed to AI infrastructure globally.

If NVIDIA beats with strong guidance, the AI trade stabilizes, risk appetite recovers, and BTC could test $70K. If it misses, the risk cascade hits everything.

Consumer Confidence on Tuesday will confirm or deny the "growth scare" narrative. Trump's evening speech could add tariff escalation volatility. Unemployment claims on Thursday are a leading indicator for labor market cracking. PPI on Friday feeds into the next PCE calculation.

The Iran ultimatum countdown continues. The deadline aligns with the IAEA board meeting on March 2. The next FOMC meeting is March 17-18. Markets price a 94.1% probability of no change.

Key Questions for W10

1. Does NVIDIA validate or invalidate the AI capex thesis?

2. Will Trump escalate tariffs further under Section 122, or does Congress intervene?

3. Can BTC break above $69K or does it retest $63K-$65K?

4. Does the Iran ultimatum expire without a deal?

5. Is 1.4% GDP a shutdown anomaly or the start of a real slowdown?