The Dividend Cafe - Monday - February 23, 2026

Episode Date: February 23, 2026

Today's Post - https://bahnsen.co/40qp47X Snowed in New York recording opens with a sharp selloff (Dow -822; S&P -1%+; Nasdaq -1.1%). Weakness tied more to AI valuation and pressure in tech and financials than tariffs. The 10-year yield fell to ~4.03%; defensives led. AI capex for 2026 is pegged at $650B across five firms. Nvidia’s $30B OpenAI investment is expected to cycle back via chip orders. The Supreme Court ruled 6–3 that IEEPA cannot be used to impose tariffs; Congress retains tariff authority. Refund mechanics remain unclear. Possible alternatives include Section 122 (150-day limit) and the more complex 301 and 232 routes. Strategas estimates a net $70B tariff reduction even if some measures return. Refunds could total $120–130B, potentially stimulative, though implementation may be uneven. July’s USMCA review approaches amid improving U.S.–Mexico ties and rising U.S.–Canada tensions. Q4 GDP was 1.4%; 2025 growth seen at 2.2% vs. 2.8% in 2024. Housing is softening, with markets pricing in 2–3 Fed cuts toward ~3%. 00:00 Snowed In Intro 01:15 Market Selloff Snapshot 03:24 AI Capex Reality Check 04:52 Supreme Court Tariff Ruling 06:33 Section 122 Workaround 08:06 Other Tariff Pathways 09:40 Economic Impact Estimates 10:44 Refunds and USMCA Fallout 12:56 GDP Housing and Fed Cuts 15:25 Geopolitics and Wrap Up Links mentioned in this episode: DividendCafe.com TheBahnsenGroup.com

Welcome to the Dividend Cafe, weekly market commentary focused on dividends in your portfolio and dividends in your understanding of economic life. Well, hello and welcome to the Monday Dividend Cafe where I did not think I would be here in the New York office today recording, but flights have been canceled galore. I will not be able to make it back to California this week now. So stuck here in New York City where it has been a fascinating snowstorm. and lots of action going on. But that doesn't mean that we're not here to bring you the Div Cafe and it will be like a normal week.

Most of you around the country won't even know what's going on. But this is a special divin Cafe because Friday was a day for the ages with the Supreme Court announcing, and I would add, as expected, and I would add correctly, that the use of the international emergency

Economic Powers Act to implement tariffs was, in fact, unconstitutional. And so what that did is immediately provoke a lot of questions as to what will happen with the tariffs, what will happen to the U.S. importers that have been paying them, and not only some of the legal, but economic ramifications. I want to walk through all of that today. Let's quickly, though, because it did end up being a pretty big down day in markets. Let's also discuss some of the market stuff before we go and pivot to the Supreme Court and tariff conversation. The Dow was down 822 points today, which is 1.66%. The S&P was not down as much, but still over 1%.

And the NASDAQ was down a little over 1.1%. If you hear that a lot of this market response today was related to President Trump announcing he's going to try a different rationale for tariffs, please understand that he did that on Friday and the markets were up Friday. And then it was pretty well known that they were still looking for various other ways to try to squeeze some other backdoor tariff things here and there over the weekend. And the markets actually opened flat today, went up for a little bit. And then it pivoted later.

So I am much more in the camp of believing that what drove markets down today was related to the same things that have been weighing on markets or certain parts of the market, I should say, for several weeks, if not since the beginning of the year, which is AI-related, valuation-related, software-related, the financial sector has some issues of its own, and just this ongoing, really very company-specific and sub-sector, specific concerns about impact. So look, you see the bond market today rallying as the 10-year dropped another five basis points.

It's literally down to 4.03%, barely holding it a forehandle on the 10-year by a whisker. So you see financials down 3.5%, 3 and a quarter percent today. Consumer staples leading the way at 1.5. Healthcare right behind Staples is the second. performing sector. So the defenses continue to do well, and it's financials and tech and even certain elements within tech that are the most vulnerable. Just anecdotally, because I'm anxious to get to the tariff stuff, AI CapEx alone now is going to be $650 billion from just five companies in 2006. And Torsten-Slock, chief economist at Apollo, had a report over the weekend,

pointing out that $650 billion from five companies, this is the total GDP size, Sweden, Argentina, Singapore. It's more than the combined military spending of Germany, France, the UK, Japan, Italy, Canada. This is just an incomprehensibly high number from five companies. Now, speaking of which, you recall the report from NVIDIA that they were going to be investing $100 billion in Open AI a few months ago. It was announced over the weekend that in fact, it's going to be $30 billion, and that the use of those funds is committed as part of the deal that Open AI is getting $30 billion from NVIDIA, and NVIDIA will be receiving the $30 billion back from Open AI in the form of a change.

ship order. So more to say and daily recap tomorrow on the software sell-off, the financial sell-off, specific things happening with alternative asset managers, but on to our special tariff issue. So as mentioned, the ruling came in, Spring Court. Aipa is not going to cut it as a rationale for the tariffs. The ruling ended up being 6-3, and I've long believed that this was coming. Not only have I believed it ought to, but that this would be what the ruling was. I do truthfully believe that there was a chance that could have been a 9-0 ruling. I'm disappointed it wasn't,

but it should be pointed out that in the 6-3 ruling, two of the three judges that President Trump himself appointed were in fit behind the Supreme Court ruling about this particular tariff rationale being unconstitutional. Now, keep in mind, there is nothing the Supreme Court can do to stop tariffs. If Congress wants to pass the law, The Supreme Court did not rule that tariffs are unconstitutional.

The Supreme Court ruled that the power to tax is in the Constitution. To do that, one need to read the black and white language of Article 1, Section 8. There is plenty of ability to implement tariffs, but what we're doing now, instead of talking about how it could be universally done, broad-based, whatnot, all kinds of flexibility. in the policy by simply having congressional approval, what we have now is we have to go through a kind of alphabet soup of various ways that we're going to see some of this play out instead. There are questions unanswered. The Supreme Court did not offer specificity on refund eligibility for those who have paid these tariffs that have now been ruled to be unconstitutional. I'm going to talk more about that in a moment. But right now, let's go to what the president did say.

10% on Friday and 15% today to utilize Section 122, which has never been used before itself. Short-term emergencies is the language in the Act from 1974. And it is called the Balance of Payments Act. And so the idea was that if an emergency in the balance of payments materialized, which most certainly does not exist here at all, People can talk about balance of trade if they want, but not a balance of payments. All of those things are being perfectly squared.

Then they can hold this for 150 days, but then it would require some rationale for extension and likely courts and Congress and other things. So there's 150-day limit for a reduced rate. It does add to a lot of uncertainty. And it does little to provide the economic stability for kids. Tapax and just for broad business decision making that, of course, markets are looking for. The statute was created to protect the currency, and I don't think anyone would argue that there is a currency, emergency, playing out right now. So I actually think that this itself could end up going to the Supreme Court as well.

But none of the Cs say tariffs can't happen. I just want to reiterate that if that were the objective, it could be done by, Congress approving it. Now, how are they going to go about outside of Section 122? Some of the tariffs already on and then some that they're going to try to move Section 301. The U.S. Trade Representative has to run a process country by country and essentially determine that the U.S. has been a victim of unfair trade policies. And there's cure provisions and so forth. And then they can impose tariffs. And in fact, at whatever rate they want. 301 is much harder, much more cumbersome and provides a lot less flexibility.

And also, I think there's a lot of these IEPA tariffs that would have no path to using 301. But then there's also Section 232, which is the national security rationale. That's where the steel and aluminum tariffs come for those who believe that Canada's selling of steel to us is a national security concern. And the rationale used here has also been used. with auto imports. Some countries pay 25%, some pay something different. Lumber tariffs are all over the map, depending on the country and the particular lumber product. Pharma imports, pharmaceuticals, were going to be done under this, but then that's been delayed and a million exemptions have been

issued. So there's a lot of complexity. But whether it's 301, 232, the former IEPA tariffs at the Supreme Court ruled unconstitutional. All of these also have this presidential discretion around it. And that's what I mean by markets not really knowing what to expect. Our friends at Straticus research did, I think, some really, really meticulous analysis to say that even if the administration gets all the tariffs on that they want to replace the IEPA tariffs thrown away, they believe net net you're looking at a $70 billion reduction in tariff costs. So I view that as a 70 billion increase to the economy. The portion of IEPA tariffs that had been exerted so far was 130 billion.

So I guess what Chategas is implying is roughly half of those tariffs they'll be able to get back in. But about half, they won't. I'm rounding a little bit here. A big issue is Mexico and Canada that the new rate would not apply to them under U.S. MCA. And so all that to say, this tariff reduction, it helps with some of the Asian export countries that have supply chain infrastructure and Europe. Japan's obviously part of this. Okay, the refund issue. My friend Scott Linussocombe from the Cato Institute, who is for my money, the best trade economist is a trade lawyer that we have to offer, believes very firmly that they could generate the

refunds quite easily, that the U.S. Customs and Border Protection could do so with the push of a button because the refund process could go out the way it came in with an electronic process. And there's a quote in dividend cafe.com today that reiterates some of this. I would assume that the administration will try to make the refund process as cumbersome as possible and that there will be an awful lot of paperwork and in some cases lawsuits. But there's plenty of importers that have already proactively gotten ready for this moment. And I think you're going to see the ones that are more well-heeled and resource very much fight to get these refunds. And that that would be a stimulus to the economy.

If all 120, $130 billion went back into the private economy, this would be a real gift to capital spending, capital expenditures, capital investment, the things that the economy needs right now. It would also be a boom for hiring, and yet, obviously, politically, the administration has said that they do not want that. So we'll see. But I think it's smaller importers. They're going to be least likely to go about getting some of those refunds. What will happen in Canada, Mexico is going to be particularly important here because they're doing a full USMCA, the so-called NAFTA 2.0 that was passed during the first Trump administration. They're doing a review of that in July. And I believe the way things are being set up right now that they may end up deciding to unilaterally negotiate with Mexico and leave Canada out of it.

The U.S. Mexico relations seem to be on an uptick and U.S. Canada relations seem to be on a downtick. So five months from now is a long time until U.S.MCA is up for negotiation. Block can happen between now and then. but if it would be done tomorrow, that would be my forecast. So as I talked about the Friday Dividing Cafe, the real GDP number for Q4 came in well below expectations at 1.4%, which brought the full year number for 2025 in at 2.2%. And that number, of course, is subject to revision.

In 2024, the economy grew at 2.8%. So you had a reduction in growth, But again, it is certainly true that some of the Q4 number was contracted by first. The government shutdown, a reduction of spending of 0.9%, but then also the higher than expected deflater, meaning the nominal number was higher, but the real number lower because of the higher inflation that PCE used. Bottom line, though, that capital expenditures were barely contributing half of us. percent, most of that was an intellectual property. Consumption added 1.6. But I think that those who

are predicting 5 percent or some even saying 7 percent, it was always insane. And you're in this position now where the economy seems soft enough to rationalize a couple of the Fed rate cuts you're likely going to get when the new chairman comes in, but not enough that people would argue that there's cover to do something crazy with the price level where it is. Now, speaking of the price level and my firm desire to see some relief in housing affordability, the single-family resident sales volume declined again in December, 1.7%. Median prices for the year were down 2%. That's not going to cut it, but again, there's a lot of moving targets here around housing

and the different metrics by which we want to gauge it. We're only at an 18% chance of another Fed rate cut before Chairman Powell leaves, and then expectations in the futures market are for two to three rate cuts between May and the end of the year. So that really implies the terminal Fed funds rate right at 3%, which sounds about right to me. We're sitting between 350 and 375 right now. If you do end up somewhere around 3%, I think the day, They're likely going to leave it there, but they'll take a couple meetings to get there reaching out in the end of the year.

So with that said, it was a wild Friday reaching GDP, inflation and the Supreme Court ruling. It's been a wild weekend. There's still this talk of what is going to happen with U.S. action against Iran. The President of the United States, Donald Trump, will be addressing the nation in the state of the Union tomorrow night. and I will be watching not for what the White House, the president, or some of the senior spokesmen say about the tariffs. I'll be watching for what exemptions, carve outs, and walkbacks actually happen. My own view is that this would be a gift to administration to allow some of these to roll off, but that they will most certainly not say such.

and then what they actually do remains to be determined, but they most certainly appear to be trying to dig their heels in at least as much as possible. But there's no question that the Supreme Court's ruling will limit the amount of tariffs that can be charged and therefore increase some of the money that will stay in the private sector of the economy. I will leave it there.

I would welcome your questions. If you're anywhere in the Northeast dealing with the snow and storm and whatever, please stay warm, stay safe. to reach out to us at the dividend cafe, questions at the bonson group.com. In the meantime, I'm here in New York all week and look forward to being with you in Friday's Dividendon Cafe and some of the daily recaps between now and then. Thanks for listening. Thanks for watching. And thank you for reading the Dividing Cafe. The Bonson Group is a group of investment professionals registered with Hightower Securities LLC member FINRA and SIPC and with Hightower Advisors, a registered investment

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