“Unrealized” Capital Gains Tax is Economic Suicide | WAYT?
Watch on YouTube ↗  |  February 17, 2026 at 23:16 UTC  |  1:09:15  |  The Compound News
Speakers
Josh Brown — CEO, Ritholtz Wealth Management
Ben Carlson — Director of Institutional Asset Management, Ritholtz Wealth Management

Summary

  • The "Revenge of the 493": While the "Mag 7" stocks are down ~6% YTD, the remaining S&P 493 are up ~4%. This marks a significant rotation where the equal-weight S&P (RSP) and Industrials are outperforming the mega-cap tech cohort.
  • Earnings Reality Check: Despite fears of AI CapEx waste, corporate earnings are robust. S&P 500 earnings grew 13.2% in Q4 (vs. 8.3% expected). Industrials led with 26% growth, signaling a shift from intangible software to tangible "real economy" assets.
  • The "HALO" Trade: Josh Brown introduces the "HALO" acronym (Heavy Assets, Low Obsolescence) to describe the current market leadership—companies with physical moats that cannot be easily disrupted by generative AI (e.g., Industrials, Materials, Utilities).
  • International Renaissance: The spread between US and International performance is the widest (negatively for the US) since 1995. Japan, Europe, and Emerging Markets are significantly outperforming the S&P 500 to start the year.
  • Apple as the AI Sleeper: Brown predicts Apple could be the "Stock of the Year" by leveraging "Agentic Siri" to integrate AI across apps, effectively commoditizing standalone chatbots into mere plugins.
Trade Ideas
Ticker Direction Speaker Thesis Time
XLI /CAT /DE /MATERIALS
LONG Josh Brown
CEO, Ritholtz Wealth Management 		"Industrials [earnings growth] 26%... This is your earth movers... heavy equipment... building data centers... It's not just a rerate. There is something happening here with capex that's leading to higher revenue." The "HALO" (Heavy Assets, Low Obsolescence) thesis suggests capital is rotating out of asset-light software into asset-heavy companies building the physical infrastructure for AI and energy. These companies have tangible moats and are currently delivering the highest earnings growth in the market. LONG Industrials and heavy machinery stocks as the primary beneficiaries of the infrastructure boom. A slowdown in global CapEx spending or a recession curbing construction demand. 67:50
RSP /S&P 493
LONG Ben Carlson
Director of Institutional Asset Management, Ritholtz Wealth Management 		"The Mag 7 is down over 6% this year. The 493 is up almost 4%... the equal weight S&P, that's RSP, is up almost 6%." The market is broadening. Investors are no longer waiting for Tech to recover; they are actively diversifying into the "average" stock. If this spread continues, it will force passive flows and advisor allocations away from market-cap weighted concentration into broader exposure. LONG Equal Weight S&P 500 to capture the rotation into the broader market. A resurgence of Mag 7 dominance reversing the rotation. 17:41
NON-US EQUITIES /JAPANESE EQUITIES /GERMANY / EUROPEAN EQUITIES
LONG Ben Carlson
Director of Institutional Asset Management, Ritholtz Wealth Management 		"We are looking at the worst start to the year for US stocks versus MSCI World since 1995... European stocks, Pacific stocks... are just smoking the S&P." A combination of a potentially weakening dollar, "Sell America" sentiment due to political/AI risks, and attractive valuations abroad is driving capital overseas. The momentum is now self-reinforcing as these markets hit multi-year highs. LONG International Equities (Developed and Emerging) to chase the momentum and valuation gap. A sudden strengthening of the US Dollar or global geopolitical instability. 40:54
AAPL
LONG Josh Brown
CEO, Ritholtz Wealth Management 		"Apple could be the stock of the year... They are going to launch an Agentic Siri this year... telling Siri to go into the hundreds of apps on your phone and do things across those apps." Apple has underperformed due to a lack of "AI hype," but they own the distribution (2 billion devices). By launching an "Agentic" AI that controls other apps, they make standalone LLMs (like ChatGPT) features rather than platforms. They avoided massive CapEx spend and are positioned to capture the consumer AI interface. LONG Apple as a contrarian AI play with a major catalyst (Agentic Siri) expected in May or September. If the AI launch underwhelms or Siri remains "useless" compared to competitors. 0:57
SOFTWARE SECTOR /IGV
AVOID Josh Brown
CEO, Ritholtz Wealth Management 		"The valuation of the software industry has undergone a sharp correction. PE topped out a year ago at 51 times earnings and now it's 27... The vertical software companies... this is the Pincer move from above [and below]." Software is "Ground Zero" for AI disruption. Vertical SaaS is being squeezed by frontier models (Anthropic/OpenAI) offering capabilities for free, and cheap AI startups undercutting pricing. Despite lower valuations, the obsolescence risk is too high. AVOID Legacy SaaS and Vertical Software stocks lacking proprietary data or "system of record" status. Software stocks could rebound if they successfully integrate AI to reduce costs and boost margins. —
ENERGY
WATCH Josh Brown
CEO, Ritholtz Wealth Management 		"Energy is the best performing sector on the year so far... no fundamental benefit whatsoever. That's pure multiple... The market's looking forward toward either higher oil prices or increased demand for electricity." Energy stocks are rallying on sentiment (AI power demand) rather than current earnings (which are flat). While the momentum is strong, the lack of fundamental earnings growth makes this a momentum trade rather than a value trade currently. WATCH Energy for confirmation of earnings growth to justify the multiple expansion. Oil prices falling or the "AI power demand" narrative fading. 2:53