MARKET COMMENTARY

U.S. markets digested a Goldilocks scenario last week: strong jobs data paired with cooling inflation. This reinforced the soft-landing premise, leaving the Federal Reserve with little reason to rush rate cuts. Investors are recalibrating expectations for 2026 rate cuts, assessing how long rates might stay at current levels.

Equities swung sharply, however, as AI anxiety triggered a sharp rotation from tech favorites into cyclical and value plays. 

Here's how the major indices fared:

Stock Index Performance 

• The S&P 500 fell 1.39%.
• The Nasdaq 100 fell 1.37%.
• The Dow Jones Industrial Average fell 1.23%.

Key Market Drivers 

• Jobs and inflation align. January payrolls jumped by 130,000, beating expectations as unemployment dipped to 4.3%. Friday's Consumer Price Index (CPI) eased to 2.4% from 2.7%, with core inflation (which removes more volatile food and energy from the metric) at 2.5%. This reinforces that the soft landing remains on track: labor markets stay firm while inflation nears 2% without crushing demand.
• Sector divergence shows resilience. Job gains were concentrated in health care, social assistance, and construction, while federal government and financial activities shed workers. While the services economy seems to be absorbing public-sector adjustments, white-collar and institutional hiring continues to cool,
• The Fed can afford to wait. With inflation at 2.4% and unemployment at 4.3%, bond markets held steady, and pricing now reflects gradual easing later in 2026. The Fed is expected to stay patient with the interest rate in the mid-3% range, seeking clearer demand signals.
• AI fears turn systemic. AI-disruption concerns have spread beyond tech stocks into sector ETFs and broad indices as investors reassess earnings power across industries.

The Week Ahead 

• Key data arrives this week: Fed minutes from late January (Feb. 18), plus Q4 Gross Domestic Product (GDP) and January Personal Consumption Expenditures (PCE) (Feb. 20). Markets will scrutinize whether PCE inflation, the Fed•s preferred inflation gauge, nears 2% without growth concerns and if minutes reveal timing bias on cuts. Short-term rate and dollar reactions will signal whether the data bolsters risk assets and duration or confirms a later, slower easing cycle.
• Fed chair nominee Kevin Warsh's confirmation shifts from backroom negotiations to public hearings after Treasury Secretary Scott Bessent confirmed Senate progress. A smooth confirmation path keeps focus on fundamentals, while renewed political threats could lift volatility and term premiums if Fed independence comes into question.

On Monday, Feb. 16, U.S. stock and bond markets will be closed in observance of Presidents• Day. The macro picture supports patience, but market structure • concentrated positioning, technology disruption concerns, political noise • will drive near-term price action. A commitment to long-term investing can help Americans avoid rash, short-term decisions in such moments.