This week, as expected, President Trump’s shift toward affordability continued to shape market behavior. For most of the past year, volatility has been driven by familiar forces: inflation, interest rates, and expectations around Federal Reserve policy. This year, that framework has started to change. Markets have increasingly shifted their focus away from macro data and toward policy uncertainty, with headlines from the executive branch becoming a more dominant driver of short-term moves across multiple sectors.

Markets are adjusting to this new reality. Early in the week, there were renewed efforts to pressure the Federal Reserve on interest rates, but a proposal for a one-year, 10% cap on credit card interest rates drew a much more tangible market response. Financial stocks sold off as investors reassessed the economics of unsecured consumer lending. The issue for markets is not intent, but mechanics. The national average credit card rate is roughly 19.65%, while banks fund themselves near the Federal Reserve’s 3.50% rate. That spread helps explain why banks just reported strong earnings across the board.

That said, it is important to separate market reaction from legislative reality. A hard 10% cap on credit card rates is unlikely to pass as written. There does not appear to be broad support for a strict rate ceiling, particularly given the potential consequences for credit availability. This is why the selloff should be viewed as a repricing of risk rather than a forecast of inevitable outcomes. Markets often react first and sort out probability later.

One area that could actually help on the affordability front is electricity. The administration has floated proposals that would push large technology companies to help fund the construction of new power plants. The goal is to expand generation capacity and relieve grid strain caused by the rapid buildout of AI data centers. This proposal has a much better chance of gaining traction than other affordability measures. Electricity costs have been rising, and power constraints are becoming more visible. Not surprisingly, major tech companies sold off on the news. Over time, however, expanding power generation would help stabilize energy costs and support continued investment in AI infrastructure without pushing utility prices even higher.

Healthcare followed a similar pattern. A broad proposal outlined goals to lower prescription drug prices and redirect federal subsidies directly to consumers. While details were limited, healthcare stocks were volatile. With healthcare premiums rising and voter sensitivity increasing, this is an area where further policy action is likely.

Despite the policy-driven noise, the underlying earnings picture remains constructive. Lower regulation continues to support corporate profitability, and early earnings reports suggest little broad weakness in the banking sector. Under the surface, there has been a notable rotation. Small-cap stocks outperformed large caps for ten consecutive days, the longest streak since 1990. Much of this move has been driven by strength in energy, materials, and industrial stocks, with many smaller companies finally seeing inflows after years of underperformance.

One positive that hasn’t received much attention is that tax changes are beginning to flow through the economy. As tax season approaches, many households will see lower tax bills or higher refunds. That seasonal liquidity has historically supported consumption in late winter and early spring, even as higher fixed costs continue to weigh on parts of the economy.

The AI Split: Infrastructure vs. Software

This volatility isn’t just happening in small caps; we are witnessing a massive split in the technology market itself. While AI stocks grab headlines, traditional software companies are being left behind. The iShares Expanded Tech-Software Sector ETF (IGV) is down 6.98% so far this year, signaling that investors are scared. The fear isn’t that these companies won’t use AI, but that AI will replace them. We are entering an era of “software writing software,” where AI can build tools faster and cheaper than traditional companies.

This fear has created a confusing gap in how companies are valued. Investors are valuing the giant companies building the “brains” of AI—like OpenAI and Anthropic—at massive numbers, reportedly between $350 billion and $500 billion. The tools, however, are valued much cheaper. In sharp contrast, Meta recently acquired Manus—an AI tool I personally find superior for complex reasoning—for just over $2 billion.

Why is a tool as useful as Manus valued at a tiny fraction of its peers? Because Wall Street is currently obsessed with the infrastructure (the “picks and shovels” like chips, data centers, and power) rather than the tools (the apps we actually use). They believe the infrastructure is a sure bet, while the apps are risky and easy to copy. The selling in traditional software might be overdone. If high-quality, profitable software companies continue to drop in price simply because of fear, they may soon become a bargain for the patient investor.

We are likely to see this dynamic continue. Affordability has become a central policy theme, and additional initiatives aimed at pricing, credit, and consumer costs should be expected. Each new proposal introduces uncertainty around incentives and implementation. That does not signal a breakdown in the economic engine. It reflects an environment where policy risk plays a larger role. In this setting, sharp rotations are likely to continue. Money can flow into small caps quickly and reverse just as fast.

Have a great weekend!

Sources

Washington Post | Banks criticize Trump’s push for 10 percent credit card interest rate cap (Jan 10, 2026)
Bankrate | Current Credit Card Interest Rates: Weekly National Average (Jan 14, 2026)
Finviz / Mexico Business News | Abercrombie Cuts Sales Outlook, Flags Weak Holiday Demand (Jan 13, 2026)
The Tech Buzz | US Strikes $250B Taiwan Chipmaking Deal to Challenge China (Jan 15, 2026)
Investopedia | Stock Indexes End Lower After Flurry of Bank Earnings (Jan 14, 2026)

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