Outlook The jobs report released last week presented a striking "tale of two markets." While the current hiring numbers for January 2026 were surprisingly resilient, the annual benchmark revisions fundamentally rewrote the narrative of 2025, revealing a year that was much weaker than originally reported.1 Either way, jobs growth is relatively slower than prior periods though still positive. Further, initial jobless claims for unemployment benefits remain low.2 This describes a slow-hiring-slow-firing environment, which could be the result of companies' hesitation to terminate employees given the post-pandemic challenges of finding qualified labor. It may also be the result of immigration policies that have limited the supply of labor - possibly muting hiring and firing decisions. Either way, we remain positive on the employment situation and believe it has largely stabilized. Inflation remains reasonable and the wealth effect of higher asset prices, we believe, will continue to promote healthy earnings for 2026.
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U.S. equities finished the week with a cautious tone as markets balanced slightly cooler inflation readings against a still resilient but moderating labor backdrop and persistent concerns surrounding AI-related disruption across multiple sectors. The January CPI report showed headline inflation rising 0.2% m/m (2.4% y/y), slightly softer than expected, while core CPI increased 0.3% m/m (2.5% y/y), broadly consistent with forecasts.3 Although supportive of the ongoing disinflation trend, the data did little to shift overall sentiment, as investors continued to focus on earnings quality, cost guidance, and the sustainability of profit margins. Labor indicators continued to reflect current period stability, but revisions suggested weaker underlying momentum in prior months.4 January’s nonfarm payroll gain of 130,000 alongside a dip in the unemployment rate to 4.3% led markets to temper expectations for near term Federal Reserve rate cuts.5 At the same time, December retail sales were flat versus expectations for a 0.4% increase, underscoring a more cautious consumer, particularly among lower- and middle-income households, despite easing price pressures.6 Beyond macro data, AI-related disruptions continued to shape sector performance, driving de-risking beyond technology and into broader cyclical and service industries, including financials, transportation, and real estate. This contributed to a narrower market breadth and a defensive tilt as investors reassessed potential impacts on cost structures, competitive dynamics, and long-term earnings trajectories. Overall, last week’s combination of softer inflation, steady but moderating labor growth, pockets of consumer weakness, and elevated AI-driven uncertainty kept risk appetite in check. We remain focused on how these forces converge, particularly upcoming inflation releases, Federal Reserve communication, and corporate earnings guidance.
[1] https://www.bls.gov/news.release/pdf/empsit.pdf [2] https://fred.stlouisfed.org/graph/?g=1RSTa [3] Consumer Price Index Summary - 2026 M01 Results [4] Employment Situation Summary - 2026 M01 Results [5] FedWatch - CME Group [6] U.S. Census Bureau Economic Indicators
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