by Gavyn Jensen-Schneider, Research Associate

The software slump continues, though lowered investor confidence has spread to other adjacent sectors. The S&P 500 finished the week down -1.39%, while the Nasdaq fell -2.10%. The 10-Year Treasury yield, an interest rate indicator, closed at 4.05%, down -16 basis points (bps) from last week. The 6-Month US Treasury, a favorite of our US Treasury strategy, fell -2 bps to 3.60%.

The “AI disruption” trade that smacked software stocks last week proliferated into neighboring industries. Companies that provide substantial technical infrastructure such as those in wealth management, financial services, freight and logistics, and database providers saw fund outflows. Freight and logistics companies were hit particularly hard by the release of SemiCab, an AI-powered platform that claims to increase freight volumes by over 300% without adding any additional human staff. The Russell 3000 Trucking Index fell -7% this week, with most of the impact occurring after Thursday’s SemiCab release.

Earnings season is beginning to wind down, with nearly three-quarters of S&P 500 companies having already reported their Q4 earnings. According to financial data provider FactSet, 74% of these companies have reported earnings per share (EPS) above Wall Street consensus, and 73% have reported revenue above consensus. EPS growth has thus far topped +13%, markedly above the historical average of around +7%. This is the fifth consecutive quarter of double-digit earnings growth. Revenue growth of 9.0% has thus far exceeded the pre-earnings estimate of 7.8%.

The January employment report, released on Wednesday, was surprisingly positive. Nonfarm payrolls, which measure total employment in the US economy, added 130k jobs, surpassing the Wall Street estimate of 70k. The unemployment rate fell 10 bps to 4.3%, driven by the new job additions and a slowdown in the growth of the US labor force. The positive labor data was subsequently followed by positive inflation data. Friday’s Consumer Price Index (CPI) inflation report was cooler than analysts’ expectations. Headline CPI was 2.4% year-over-year (y/y), while core CPI, which excludes volatile food and energy prices, was 2.5% y/y. Cooling inflation reflected slower growth in medical care costs, as well as used vehicle and fuel prices.

Preferred securities benefited this week from cooling CPI inflation and the “AI disruption” trade. Preferreds are “rate-sensitive” instruments, meaning that their price fluctuates in accordance with long-term US Treasuries. As the 10-Year Treasury yield falls, the fixed rate on a preferred stock becomes more attractive to investors, causing the price of the preferred to rise. This week’s softer-than-expected CPI report, as well as the “flight to safety” away from AI-exposed stocks towards defensive investments like bonds or Treasuries, lowered the yield on the 10-Year Treasury by 16 basis points. The S&P US Preferred Stock Index grew 0.32% this week while equity markets fell.

With only a quarter of S&P 500 companies left to report, earnings wrapping up, though Wall Street is still waiting for the world’s largest company, Nvidia, to report its earnings on February 25^th. Next Friday will be a busy one for economic data releases, with both the Personal Consumption Expenditures (PCE) inflation index and the preliminary reading of Q4 GDP slated for release. US markets, as well as our office, will be closed on Monday, February 16^th in observation of Presidents’ Day.

by Gavyn Jensen-Schneider, Research Associate

Software stocks weighed heavily on broader indices this week as advancements in AI capabilities tested investor confidence in the technology space. The S&P 500 finished the week down -0.10%, while the tech-heavy Nasdaq fell -1.84%. The 10-Year Treasury yield, an interest rate indicator, closed at 4.21%, down -4 basis points (bps) from last week. The 6-Month US Treasury, a favorite of our US Treasury strategy, fell -1 bp to 3.62%.

This weekend’s Government Shutdown was short enough to almost go unnoticed. After funding ran out this past weekend for six agencies—nearly 75% of the government—Congress quickly passed a bipartisan deal to reopen operations. Yearlong appropriations bills were passed for all but one of the agencies, the Department of Homeland Security (DHS), which was funded through February 13^th via a short-term continuing resolution. The funding fight continues into next week, as the legislative branch will have to cut an extremely contentious funding deal on DHS, or risk another partial shutdown.

Short as the partial shutdown was, it did result in delayed economic data releases. December JOLTS data was delayed from Tuesday to Thursday, while the December Employment Report was pushed back to February 11^th. Job openings were 6.5 million for December, over half a million short of Wall Street expectations, putting job openings at their lowest level since September 2020. The low openings number shouldn’t be interpreted as a slowing of the labor market, rather, it’s representative of the no-hire, no-fire market that has been ongoing for months. Many companies hired excessively coming out of the pandemic, and in recent months we have seen companies rebalancing their workforces, either through layoffs or by lowering their hiring rates. Next week’s Employment Report will provide some additional clarity on this front.

The S&P 500 Software index fell -19% in the last month, with nearly half of those losses occurring in the past week. Much of the blame for this slide is cast upon Claude Code and Claude Cowork, a suite of AI agents from Anthropic. Claude Code utilizes the data stored on a software engineer’s computer to create code for new initiatives and products. This tool gained traction around the turn of the new year, triggering the slide in software stock prices. The release of Claude Cowork, however, was a major catalyst for the recent losses. Cowork is a suite of ready-made AI agents, designed for a non-technical audience. Like Claude Code, Cowork uses context from the user’s computer to complete a range of tasks autonomously, from data analysis to marketing campaigns, customer support to legal compliance. The entirety of Claude Cowork was created just in a week and a half, demonstrating the sheer potential for AI to replace software programs for a variety of uses.

Software wasn’t the only part of the technology sector to be hit this week. Alphabet (Google’s parent company) and Amazon both fell this week after reporting their Q4 earnings, even though the companies’ respective cloud computing services—Google Cloud Platform (GCP) and Amazon Web Services (AWS)—grew at their fastest pace in over two years. Investors seemed to take issue with the companies’ capital expenditure (capex) guidance for 2026; Amazon estimated capex to be $200 billion for the year, a 50% increase from 2025, while Alphabet estimated capex in the $165 billion – $175 billion range, an increase of 80% to 90%. These massive expenditures are intended to increase data center and compute capacity for AWS and GCP, both of which are currently supply-constrained.

The slow march of quarterly earnings reports continues next week, with a shift in focus from technology companies toward consumer-related names. Economic data reports will be about as busy as they get, with both mainstay economic indicators for January—the Employment Report and the Consumer Price Index (CPI) inflation report—are scheduled for release on Wednesday and Friday, respectively.

by Gavyn Jensen-Schneider, Research Associate

Markets had little reaction to what was an eventful week for corporate earnings and the Fed. The S&P 500 finished the week up +0.34%, while the Nasdaq fell -0.17%. The 10-Year Treasury yield, an interest rate indicator, closed at 4.25%, up +2 basis points (bps) from last week. The 6-Month US Treasury, a favorite of our US Treasury strategy, remained unchanged at 3.63%.

The Federal Open Market Committee (FOMC) kept the policy rate unchanged at 3.50% – 3.75%, as was widely expected. The Committee’s statement, which articulates its view of the US economy, was more hawkish than at the previous meeting. Chair Powell described the economy as being on “firm footing” as economic activity expanded, the unemployment rate stabilized, and inflation remained at an elevated-but-stable level. It’s expected that the economic picture will remain largely the same through the next FOMC meeting on March 17^th – 18^th. According to CME FedWatch, analysts estimate an 87% chance of rates remaining unchanged.

In other Fed news, President Trump announced former Fed Governor Kevin Warsh as his nominee for Federal Reserve Board Chair. The long-awaited announcement comes four months before current chair Jerome Powell’s term expires. Warsh served at the Fed from 2006 to 2011, during the heart of the Great Financial Crisis. In that time, he was considered a hawk, pushing for higher interest rates even as the country struggled with the Great Recession. Since leaving the Fed, and especially in the months leading up to this announcement, he has appeared notably more dovish, arguing in favor of lower interest rates.

Congress may prove an obstacle to Warsh’s appointment as instating a new member to the Fed Board of Governors requires approval by the Senate. Senator Thom Tillis has stated that he will oppose Warsh’s nomination until the Department of Justice investigation into Chair Jerome Powell is resolved. As a member of the Senate Banking Committee, Tillis has the leeway to halt the Senate confirmation process, putting the appointment of Warsh at his mercy. Once the congressional logjam is resolved, Warsh is expected to fill the seat of Governor Stephen Miran—whose term expires at the end of January—before being promoted to Chair at the conclusion of Chair Powell’s term.

Speaking of congressional logjams, the legislative branch is quickly barreling toward another government shutdown. The Senate was slated to pass six appropriations bills this week that would fund around 75% of the government. The funding bills had been crafted in a bipartisan negotiation process over the past several months but were quickly halted in the aftermath of an ICE-involved shooting in Minneapolis. Lawmakers have seemingly cut a deal that will pass five of the six bills and implement a two-week stopgap measure for the remaining appropriations package to be renegotiated. This deal won’t be voted on until February 1^st at the earliest, after government funding has lapsed, though congressional leaders are hopeful that this shutdown will not last very long.

AI continues to drive earnings growth for hyperscalers. Meta and Microsoft both touted earnings per share for Q4 that exceeded Wall Street expectations. Both firms continue to invest in compute capacity by expanding their data center footprints. Additional compute allowed Meta to improve AI-augmented advertisement recommendation systems, which increased advertising performance in the quarter. Microsoft invested its compute in Copilot, its AI assistant, as well as increasing the capacity of its cloud computing service, Azure. Though both stocks saw strong top-line performance, the market responded differently to their earnings reports, with Meta gaining +10% and Microsoft falling -12%, demonstrating the volatility of investor sentiment.

Market sentiment toward AI and hyperscale spending will remain top of mind next week as Alphabet (Google’s parent company) and Amazon are set to report on Wednesday and Thursday, respectively. In addition, a fresh set of labor market data will be released, with JOLTS on Tuesday and both nonfarm payrolls and the unemployment rate on Friday.

by Gavyn Jensen-Schneider, Research Associate

Major market indices fell over 2% on Tuesday but clawed back most of those losses by week’s end, making for a noisy week of trading. The S&P 500 finished the week down -0.35%, while the Nasdaq fell -0.06%. The 10-Year Treasury yield, an interest rate indicator, closed at 4.23%, unchanged from last week. The 6-Month US Treasury, a favorite of our US Treasury strategy, rose +1 basis point (bp) to 3.63%.

Over the weekend, the President announced a new set of 10% general tariffs on eight European nations—Denmark, Norway, Sweden, France, Germany, the United Kingdom, the Netherlands, and Finland—which were scheduled to go into effect February 1^st. These newly announced levies were part of the Administration’s push to acquire the semi-autonomous Danish territory of Greenland. The territory has a strategic location for military applications and has a supply of rare earth minerals comparable to the United States. Those minerals are trapped under a layer of arctic ice, making the minerals on this ironically named island difficult to access.

Though markets recoiled after these new tariffs were announced, investor’s fears were assuaged on Wednesday, when President Trump and NATO Secretary General Mark Rutte reached a “framework” for a future deal on Greenland. Negotiations are ongoing, but in light of the diplomatic progress, the February 1^st tariff package was withdrawn.

The Core Personal Consumption Expenditures (PCE) Price Index rose 0.2% month over month in both October and November. On an annualized basis, Core PCE was 2.7% and 2.8% respectively, as inflation remains stubbornly above the Federal Reserve’s 2% inflation target. The final revised reading of GDP growth for Q3 beat analyst expectations, coming in at 4.4%, a strong showing considering that job growth was sluggish during the quarter.

The final week in January will be a busy one as some of the big tech companies—Microsoft, Meta, and Apple—announce their Q4 earnings. The Federal Reserve will meet on Tuesday and Wednesday next week to discuss interest rate policy, although the Fed is widely expected to leave the policy rate unchanged at 3.50% – 3.75% for now.