CWS Market Review – February 24, 2026

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For the 44th trading day in a row, the S&P 500 closed within 1.5% of 6,900. It doesn’t seem to matter what the news is – the S&P 500 can’t get the strength to stray very far from 6,900. While on the surface, the market appears to be calm, that can be misleading. There are strong currents just below the surface.

The most important change is that since late October, defensive stocks have started to act much better, especially compared with the overall market. By defensive stocks, I mean companies whose businesses tend to prosper no matter what the rest of the economy is doing. Principally, I think of consumer staples and healthcare stocks as the best examples of defensive stocks.

When times get tough, defensive stocks hold up much better. Or, more accurately, defensive stocks tend to fall the least in bear markets. Before October, defensive stocks got absolutely clobbered by traders. Beginning in April 2025, the market soared, but our defensive friends barely budged. The gap between defensive stocks and everybody else grew enormously wide.

I knew something had to give, and it finally happened.

Since October 29, the S&P 500 Consumer Staples ETF (XLP) is up by 17.6% and the S&P 500 Healthcare ETF (XLV) is up by 10.4%. Meanwhile, the S&P 500 ETF (SPY) is up by a scant 0.3%.

As a general rule, defensive stocks will slowly lag the market for a long time; then all of a sudden, they massively outperform. Think of defensive stocks as the lifeboats of stock picking.

The time to buy defensive stocks is when the economy gets wobbly. The big question is, if defensive stocks are leading the market, does this mean that Wall Street is worried about the economy? Utilities are also defensive and they also do well when the economy is weak and rates are coming down.

The U.S. Economy Hit a Small Bump Last Quarter

On Friday, the Commerce Department finally released its long-delayed Q4 GDP report. Bear in mind that this is dated info. Q4 began five months ago and ended two months ago.

Unfortunately, the news wasn’t very good. According to the government, the U.S. economy grew in realized annualized terms of 1.4% during Q4. That was well below economists’ estimate of 2.5%. Some folks were expecting 3% or more.

The Commerce Department said that the government shutdown shaved about 1% off growth for Q4.

Consumer spending increased at a slower pace for the period while government spending tumbled sharply in a quarter marked by the record-length shutdown. The department estimated that the shutdown subtracted about 1 percentage point from growth, though it added that the exact impacts “cannot be quantified.”

For the full year in 2025, the U.S. economy grew at a 2.2% pace, down from the 2.8% increase in 2024.

The shutdown ran for most of the first half of Q4. Except for Covid, last year the U.S. economy had the worst year for economic growth of the last nine years. I think it’s interesting that nominal GDP grew by 44% over the last five years. Of course, inflation had a lot to do with that, as did the sharp rebound from Covid.

There were some positive details within the report:

Another key Fed metric, called final sales to private domestic purchasers, posted a 2.4% increase for the quarter, half a percentage point lower than the prior quarter but still indicative of solid underlying demand in the $31.5 trillion U.S. economy.

Also, gross private domestic investment rose 3.8% after being flat in Q3. On the downside, government spending and investment slid 5.1%, slammed by a 16.6% tumble at the federal level that was only partially offset by a 2.4% increase from state and local entities.

We also got the PCE data which is the Fed’s preferred measure for inflation. During December, the PCE rose by 0.4%, and it’s up by 2.9% over the last year. That was a little higher than expected. In December, the core PCE rose by 0.2%, and it’s up by 3% over the last 12 months.

Where does this leave the Federal Reserve? Probably no change. The Fed doesn’t meet again for another three weeks and it’s very doubtful the Fed will make any changes to interest rates at its March or April meetings. There is a decent chance, although far from absolute, that the Fed will make a move in June. Of course, this would be after May when Jerome Powell’s tenure comes to an end.

If you want to see a sneak preview of what the Fed is up to, checking out the two-year Treasury is often a good predictor. If you look at the chart below, the blue line (the two-year yield) often runs just ahead of the Fed’s policy (the red line).

The Fed currently has interest rates pegged between 3.5% and 3.75%. The two-year Treasury is currently at 3.47%. This tells me that the Fed probably won’t make any big moves soon.

Stock Focus: Graco

If you’ve followed me for a long time, then you know I’m big fan of little-known stocks that have great long-term track records. I’m always amazed that investors waste so much energy trying to find the “next Nvidia” instead of the current Church & Dwight (CHD).

This week, I want to bring Graco (GGG) of Minneapolis to your attention. I can’t say that Graco is completely unknown, but it isn’t well known. Graco turns 100 years old this year.

The company describes itself:

Graco Inc. supplies technology and expertise for the management of fluids and coatings in both industrial and commercial applications. It designs, manufactures and markets systems and equipment to move, measure, control, dispense and spray fluid and powder materials. A recognized leader in its specialties, Minneapolis-based Graco serves customers around the world in the manufacturing, processing, construction, and maintenance industries.

Sexy, right? Management of fluids! Sure, I know it’s a little boring, but look at the stock. According to this chart, shares of GGG are up 70-fold over the last 40 years.

That doesn’t include dividends. If we add in dividends, then GGG is up more than 440-fold over the last 40 years. Not bad for managing fluids.

But there’s another reason why I like Graco. I love to follow the Dividend Aristocrats. These are companies that have increased their dividends every year for at least 25 years. There’s an ETF focused on the the Aristocrats (ticker symbol: NOBL).

One pet peeve I have is that too many Dividend Aristocrats give their dividends a token increase just so they can keep their dividend streaks going.

That’s where Graco comes. First, GGG can’t officially be a Dividend Aristocrat because it’s not in the S&P 500. It’s in the Mid-Cap S&P 400. What I like about Graco is that the company consistently raises its dividend by sizable amounts. It’s rare that you’ll see Graco hike its dividend by less than 7%.

From Graco’s Investor Relations page, you can see a long history of Graco’s dividends. Not many companies provide that level of detail. The current quarterly dividend is 29.5 cents per share. Over the last 20 years, Graco has increased its dividend at an average rate of 9.5% per year, and that comes on top of a healthy increase to its stock.

As much as I like Graco, the company has missed its earnings forecast several times recently. I can’t say I’m a buyer yet – I’d prefer to wait on Graco until its business improves. That’s the great thing about investing. We can wait and wait and wait until we get the patch we want.

That’s all for now. The next jobs report will be due out on March 6. I’ll have more for you in the next issue of CWS Market Review.

– Eddy

Posted by on February 24th, 2026 at 6:36 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.