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The Great Rotation: Navigating the Warsh Era · The SPY Trader

• 0:00
  Good morning everyone and welcome to Spy Trader .
• 0:03
  I am your host Sunny Side and it is exactly 5 am on Tuesday , February 17th , 2026 , Pacific time .
• 0:12
  I hope you all had a wonderful President’s Day holiday .
• 0:15
  We are back at it this morning , and the markets are waking up with a bit of a hangover .
• 0:19
  As we look at the futures , the Nasdaq100 , or the QQQ , is leading the decline , down about zero point eight percent .
• 0:28
  The S&P 500 , our favorite SPY , is down point four percent , while the Dow Jones , or DIA , is off by zero point two percent .
• 0:37
  This follows a pretty tough week where the Nasdaq shed over two percent , mostly because investors are getting nervous about AI disruption in the software sector .
• 0:46
  Even the fear gauge , the VIX , has climbed to 20.60 .
• 0:51
  We are definitely in a period of rotation .
• 0:54
  On the macro side , we are entering the Warsh era .
• 0:58
  With Kevin Warsh nominated to succeed Jerome Powell as Fed Chair , the market is bracing for a shift that might prioritize shrinking the balance sheet .
• 1:07
  For now , the Fed is in a datadependent pause with rates at three point five to three point seven five percent .
• 1:14
  We probably won't see another cut until July .
• 1:17
  The good news is that inflation cooled to two point four percent in January , and our labor market is still holding steady .
• 1:24
  Looking at the sectors , the winners are the folks making real things .
• 1:29
  Energy , through the XLE , jumped over fourteen percent in January thanks to global tensions .
• 1:36
  Industrials and Materials are also showing strength .
• 1:39
  On the flip side , traditional software is feeling the heat from new AI tools like Anthropic’s Claude Cowork , which is putting legacy business models at risk .
• 1:48
  This is causing big outflows from the Technology Select Sector SPDR , known as XLK .
• 1:55
  Today , keep your eyes on Palo Alto Networks , or PANW , as they report after the close .
• 2:02
  It is a huge test for cybersecurity .
• 2:05
  Later this week on Thursday , Walmart , ticker WMT , will report .
• 2:10
  It has been hitting new highs as a classic value play .
• 2:14
  And of course , the big date on the calendar is February 25th when NVIDIA reports .
• 2:20
  For our trading strategy , I am recommending a barbell approach .
• 2:24
  You want to balance defensive value with highconviction hardware .
• 2:28
  First , your core should be the Vanguard S&P 500 ETF , ticker VOO , for broad exposure at a tiny cost .
• 2:37
  For sector rotation , I like the Health Care SPDR , or XLV , as a defensive hedge .
• 2:43
  For a specific value play , Walmart is successfully using AI logistics to gain market share .
• 2:48
  If you want to stay in tech , focus on hardware through the VanEck Semiconductor ETF , SMH , which includes heavyweights like NVIDIA and TSMC .
• 2:59
  For some stability , the iShares twenty plus Year Treasury , TLT , offers good income now that yields are stabilizing .
• 3:07
  Lastly , look abroad with the Vanguard Total International Stock ETF , VXUS , to take advantage of a weaker U.S.
• 3:16
  dollar .
• 3:17
  To wrap things up , we are seeing a shift away from highpriced software like Salesforce or Adobe and into real economy giants like Caterpillar or Walmart .
• 3:28
  My actionable step for you today is to consider reducing exposure to highmultiple software ETFs like IGV and moving that capital into Health Care or International markets .
• 3:40
  Stay sharp and I will see you in a few hours for the next update .