Markets Begin February Amid Lingering January Uncertainty
As the calendar turns to a new month, markets remain focused on the events of January. From a new president taking office to mixed economic data, investors are still seeking clarity on what February might bring. Despite last month’s volatility, the S&P 500 managed to post a 2.93% gain, outperforming the historical January average return of 0.82%.
Recap of Last Week:
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Federal Reserve Decision: The Fed kept interest rates unchanged, emphasizing inflation risks resurfacing on the horizon.
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PCE Inflation Report: December’s 2.6% YoY inflation reading remains above the Fed’s 2% target, reinforcing concerns about future rate policy.
- Tech Earnings: Meta, Apple, Tesla, and Microsoft all reported earnings, but their stock movements remained largely muted following mixed results.
Looking Ahead: Key Events in February’s First Week
The market’s primary focus will shift toward labor market data and earnings from major tech firms. The Fed closely monitors two key economic factors: inflation and labor market strength.
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Labor Market Concerns: The impact of high interest rates is becoming evident, as the U.S. unemployment rate has climbed from 2.5% to 4.1% over the past six months. While not yet alarming, a further increase toward 5% could raise recession fears. This week’s job report is expected to show stability, with no major changes anticipated.
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Tech Earnings Spotlight: Amazon and Google are set to report earnings, drawing significant investor attention.
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Key focus areas for both companies will include:
- AI Investments
- Cloud & Energy Costs
- Ad Revenue (for Google specifically)
Given their influence on the market, any significant movement in Amazon or Google’s stock prices could ripple through the broader tech sector. With inflation, labor trends, and earnings in the spotlight, February begins with plenty of catalysts that could shape market sentiment in the weeks ahead.
Last but not least, to add to all this, the tariff wars heated up this weekend as Trump implemented 25% tariffs on Mexico and Canada, with both retaliating with measures of their own. Economists fear that higher tariffs will re-spark inflation. While the changes won’t impact prices right away, investors will look at inflation reports closely in the future to measure how much inflation is impacting the producer and consumer price index.