This edition of Market Factors starts with an unsettling number of trends pointing to lower stock prices. Section two discusses a situation at data centre financer Blue Owl Capital that I initially interpreted 180 degrees wrong. The diversion covers my love of trip hop music and as always we have quick hits at the end.
Traders work on the floor of the New York Stock Exchange during afternoon trading on February 20, 2026 in New York City.Michael M. Santiago/Getty Images
Equities
Negative trends adding up
BofA chief U.S. quantitative strategist Savita Subramanian identified five reasons why S&P 500 PE ratios should contract, and since that means a lower price per any amount of profits, this is not good news for investors. Lower Ps all around.
AI-related disruption is reason one. Technology stocks as a whole are now cheaper than industrials, staples and consumer discretionary and historically, once tech stocks are cheap they have continued to underperform for a significant period.
AI is already causing extreme valuation compression. The IT services sector traded at a 14 per cent premium to the S&P 500 before ChatGPT was announced. Now its forward PE is 23 per cent below the benchmark.
Lower demand for stocks is reason number two. Share buybacks supported PE ratios between 1997 and 2025 while the number of U.S. public companies declined by 55 per cent. BofA believes new stock issuance is set to surge while buybacks become less popular. A bigger supply of stocks and less demand implies lower prices.
The third reason is straightforward. In years when earnings growth is above average, price growth tends to be even faster. When stock prices outpace earnings, PE ratios climb automatically.
Dominant tech companies are less deserving of higher PE ratios and this is reason four. In the past, Ms. Subramanian repeatedly argued that the modern stock market deserved a higher multiple because it focused on easily scalable businesses based on intellectual property – like patents and proprietary software – instead of plant and equipment as in times past. Lately, however, the asset light companies in technology – index dominating firms like Microsoft, Meta Platforms, Alphabet and Oracle for example – have been shifting to owning hard assets through data centre investment. The investment is also raising debt levels, lowering balance sheet quality. More hard assets and higher debt implies a lower multiple for the market going forward.
Skepticism about private equity is the fifth reason lower valuations could be on the horizon. The strategist sees the potential for hiccups in private equity portfolios (like the Blue Owl funds mentioned below) to result in selling of equities. Fund managers of portfolios with both private and public assets might raise cash to assuage investor concerns and since private assets are famously illiquid, the public stocks would be sold.
Any one of these trends would constitute a significant drag on market returns. Five of them at once is a bit disquieting.
Market risks
Private equity, not AI, struggling lately
The gating of a large U.S. private equity fund run by Blue Owl Capital is still a major cause for concern but not for the reasons I initially thought. I had some things wrong about the story, 180 degrees wrong, and I think it’s worth discussing.
Blue Owl Capital announced that it had permanently suspended redemptions for its OBDC II fund when sell orders from retail investors significantly exceeded 5 per cent of assets. The fund is now being wound down – the business development loans are being sold and the proceeds distributed to unitholders.
My initial reading of the event was that data centre investment was collapsing. Blue Owl owns considerable interest in data centres, notably 80 per cent of the US$27-billion Hyperion joint venture with Meta Platforms in Richland Parish, Louisiana.
But, and this is a huge but, the gated fund holds no exposure to data centres. It is dominated by loans to software and digital services companies that are being disrupted by AI. The fund implosion doesn’t signal weakness in the AI investment story, it is the opposite. New AI tools were putting the future of software companies, and Blue Owls’ loans to them, at risk.
Furthermore, investor interest in the Blue Owl Digital Infrastructure Fund that is directly focused on data centres far exceeded the US$4-billion target, raising US$7-billion in 2025.
The experience was an important reminder to dig into any market moving story before forming any opinions.
British band the Sneaker PimpsThe Canadian Press
Diversions
New trip hop playlist
A random-ish Instagram account called nicksmusictaste popped into my feed and put a dent in my efforts to desert the app. Nick Fry described 10 trip hop albums that weren’t the seminal Dummy by Portishead or Mezzanine by Massive Attack. Man I love trip hop.
I saw the post early last week and I’ve been listening to the listed bands nonstop ever since. I knew about The Sneaker Pimps’ Becoming X before but the revisit was welcome. Breath From Another by Esthero was new to me and absolutely tremendous. The song Heaven Sent was a highlight but the whole album is great.
Hooverphonic’s A New Stereophonic Sound Specta was not entirely new to me but I listened more closely this time as Mr. Fry’s credibility was now growing with me. The album is really terrific. Mad About You was a song I’d heard before and liked a ton but Wardrope, which I don’t remember hearing before, is an immediate favourite.
The other bands listed are Tricky (the album with the cover of Public Enemy’s Black Steel which I had memorized at one point), unkle (the Psyence Fiction album specifically), Viva! La Woman by Cibo Matto, Lushlife’s Bowery Electric (Freedom Fighter is a great song), a country-tinged self-titled album by Baxter, Melting Moment by Poison Girl Friend and the superb Supreme Beings of Leisure self-titled album.
All are worth a listen if your music taste is anywhere close to mine.
The essentials
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Globe Investor highlights
Sam Sivarajan shares why boring investing strategies work best
Norman Rothery presents the Globe’s 20 best dividend-paying stocks of the year. Still can’t get enough income? National Bank has updated its 2026 “Dividend All-Stars” portfolio with four additions
Manulife isn’t a cheap stock - but David Berman still thinks there’s a good reason to give it a look
Bitcoin zero? Tim Shufelt on crypto evangelists running out of stories to tell
Some timely thoughts from Ken Fisher on why Canadian investors should not fear Trump’s tariffs
Quick hits
The Goldman Sachs trading desk thinks markets are too complacent about global economic growth. Abel Elizalde, co-head of the MarketStrats team in Banking and Markets, was quoted in the companies weekly Briefings newsletter. “Economic data is starting to turn soft, driven by Europe initially,” Elizalde says. He further noted surprising weakness in U.S. data releases in recent weeks, and this was before Friday’s weak U.S. GDP report.
My first reaction to the news that the U.S. Supreme Court had struck down Trump’s tariffs was that finally a check or balance had appeared in the U.S. political system that was allegedly designed around them.
I asked one of our AI overlords, Google Gemini, for the most searched investment terms by Canadians so far in 2026. No huge surprises: “AI Data Centers”, “U.S. trade policy”, “gold mining stocks”, “Canadian value stocks”, and “Canadian dollar forecast” figured prominently.
See our full earnings and economic calendar here