The Watchdog — Home and Abroad
Scott B. MacDonald, Ph.D. — February 9, 2026
Summary: 2026 continues to be a roller coaster ride for investors. Last week’s performance saw a memorable sell-off in AI-related assets due to concerns over the massive spending being thrown at its implementation. This cascaded into other more risky segments such as cryptocurrencies, especially Bitcoin. At the end of the week came a massive rally, with the Dow hitting a historic milestone – closing above 50,000 for the first time. Gold which dipped earlier in the week, came back. Although markets are likely to remain volatile with many variables being unpredictable, it appears that the main mantra remains “buy on the dip” to a backdrop of continued economic expansion.
Headlines – At Home
The upcoming week could be as choppy as the last as many of the same concerns remain - a softening labor market, inflation, earnings, the dollar’s direction, and geopolitical noise (with Iran front and center). The main focus will be the delayed January 2026 jobs report (which is expected to show 70,000 jobs and unemployment rate of 4.4%). Last week’s labor data, the Challenger, Gray & Christmas report, showed job openings in December at their lowest level since 2020. It appears that the low fire, low hire environment is shifting to more firing. However, a weaker labor market is likely to be offset by greater productivity from AI. Moreover, we should start to see the impact of fiscal stimulus and deregulation come into play through the One Big Beautiful Bill Act, keeping the economy on the growth track.
ISM Manufacturing Hits Positive territory – finally! One month does not make a trend. However, January 2026’s ISM Manufacturing PMI report was notable. Hitting 52.6% in January (50% and above indicates expansion), this was the first expansion in 12 months, preceded by 26 straight months of contraction. The expansion was driven by a pickup in new orders (57.1%), production (55.9%) and backlogs (51.6%). At the same time, employment remained in contraction (48.1%), feeding into the narrative that labor expansion is on a slower track. On a more positive note, inventories were low (38.7%), indicating that as long as consumer demand continues to be strong (which could be helped by tax refunds) new orders are likely to be strong.
What does Smith’s think? This is positive news, reflecting demand from new orders and exports (helped by a weaker dollar). We would like to see more months on this trajectory, which, if it holds up, could see manufacturing contributing to stronger real GDP growth. It is also important to see some improvement in the laggards, such as textiles, wood products and electrical equipment, still more vulnerable to higher imported input costs related to tariffs.
Bitcoin – trials and tribulations. Last week, Bitcoin had its worst crash since 2022, falling near $60,000 at one point before rallying back to a little over $70,000. This wiped out the gains Bitcoin had made since Trump’s 2024 re-election. It was also significantly down from over the high of $127,000 in October 2025. According to data from Coinglass, some $1.25 billion in Bitcoin positions were liquidated in just 24 hours from Thursday to Friday. The main drivers were a change in market sentiment (out of riskier assets), the forced liquidation of leveraged positions, and statements from US Treasury Secretary Scott Bessent indicating that the government had little inclination to bail out for crypto companies. The situation is not helped by institutional investor appetite for Bitcoin appears to be fading.
What does Smith’s think? While Bitcoin and other cryptocurrencies are most likely to remain part of the investment galaxy, the shine is gone, with the most likely path one of further downward in pricing, marked by some trading exchanges and other crypto-related funds struggling to keep their heads above the red ink. We would add that there is a bleaker view, one of terminal decline. As the Financial Times’ Jemima Kelly stated: “The fairy tales that have been keeping crypto afloat are turning out to be just that. People are beginning to wake up to the fact that there is no floor in the value of something based on nothing more than thin air.”
Headlines – Abroad
Iran-US talks – does the big stick loom? Last week the US and Iran held indirect talks in Oman, indicating the potential restart of nuclear negotiations. This was the first formal diplomatic discussions since President Trump ordered strikes on Iran’s nuclear sites in June 2025.
What does Smith’s think? The face-to-face meetings between the two countries are a good start. However, there are considerable differences in what the countries want from the talks. Iran wants a dialogue on its nuclear program, with nonstarters being US demands to end its uranium enrichment program or shipping its uranium abroad. For its part, the US wants to expand the talks to encompass Iran’s ballistic missile program, its support for armed groups in the region, and the theocratic state’s treatment of its own people. Considering the gap between what Tehran and Washington want, we think a show of US military force is still on the table.
An alliance for critical metals? US policy is increasingly driven by the need to break China’s dominance of critical metals production and refining. These materials are needed for everything from high tech to complex weaponry. Last week, the US proposed the creation of a preferential trade bloc for critical materials, which would include coordinated price floors. Fifty-five countries attended the meeting, including Australia, India, Thailand, Japan, Germany, South Korea and the Democratic Republic of Congo.
What does Smith’s think? Considering that many of the Trump administration’s trade policies have been antagonistic towards its allies, this is a welcome departure. It also relates back to the idea that economic security (including supply chains for key resources) equals national security. This must also be seen in the context of the Trump administration’s launching of Project Vault stockpiling plan with seed funding ($10 billion) from the US Export-Import Bank and $2 billion in private funding. The critical minerals include rare earths, lithium, uranium and copper.
Colombian-US relation in healing mode. President Trump welcomed Colombia’s president Gustavo Petro (that country’s first left-wing leader) to the White House. The long-delayed visit was significant in that Trump and Petro, both having prickly personalities and a love of social media, had exchanged verbal barrages against each other. For his part, Trump had called Petro a “drug dealer” and threatened high tariffs, while Petro was highly critical of the US intervention in Venezuela and likened US immigration policy to the Nazis. Key issues discussed included fighting narcotrafficking and Venezuela’s oil exports.
What does Smith’s think? This was an important development in Western hemisphere geopolitics. Colombia has long been a key US ally in the region, it has a strong economy, and borders Venezuela. If Trump wants good relations in the region, it is important to have Colombia on board. It appears that Trump took a page out of President Lyndon Johnson’s book, “Better to have your enemies inside the tent pissing out, than outside the tent pissing in.” It was a good sign that President Petro found the talks “constructive” and left holding a MAGA hat.
