Davos and data

Last week in markets

Markets turned volatile last week as policy risk briefly took center stage. On Tuesday, following the Martin Luther King Jr. holiday, the S&P 500 fell more than 2% amid renewed fears of a global trade war. Those concerns were triggered by threats of new U.S. tariffs on several European countries and the United Kingdom, tied to Greenland-related negotiations.

Risk assets steadied as the week progressed. Tariff rhetoric softened, investor sentiment improved, and volatility eased, though not enough to fully offset the early decline. The S&P 500 finished the week down 0.3% and remains up 1.1% year to date. The 10-year U.S. Treasury yield ended the week unchanged at 4.24%.

Davos

The 2026 World Economic Forum in Davos highlighted a growing divide between U.S. economic nationalism and a broader coalition of middle powers. President Trump delivered a defiant address, framing recent policy outcomes as an economic success driven by deregulation, tax cuts, and domestic investment. He reaffirmed an America First agenda, defending tariffs as both a revenue source and a negotiating tool, promoting fossil fuel development, and rejecting climate policy initiatives.

Comments asserting Greenland as a U.S. national security interest dominated headlines and unsettled global leaders. However, the administration later stepped back from earlier threats involving military action and tariffs.

Canada’s Prime Minister Mark Carney led the international response, arguing that the rules-based global order is under strain and calling on middle powers to pursue greater strategic autonomy. European leaders echoed that message, emphasizing the need for a more self-reliant European Union through integrated defense and deeper capital markets. China positioned itself as a defender of globalization, while Ukraine pressed Europe to accelerate defense commitments.

Data

Last week’s most notable data point came Thursday, when the Bureau of Economic Analysis released an updated GDP estimate showing the U.S. economy grew at a 4.4% annualized pace in the third quarter of 2025. That figure was modestly higher than prior estimates and above consensus expectations. Consumer spending, exports, and business investment drove the acceleration, while imports softened.

Core PCE inflation held near 2.9%, signaling that underlying price pressures remain persistent even as headline inflation stays more contained. Markets responded favorably to the stronger growth narrative, with equities rising following the release.

On Friday, S&P Global’s flash PMI readings for January pointed to continued expansion in both manufacturing and services, with index levels remaining above the 50 threshold. Some subcomponents showed modest moderation from December, but the surveys continue to suggest steady momentum as the economy moves into February.

Final January data from the University of Michigan showed consumer sentiment weaker than expected. Both expectations and current conditions edged lower, while inflation expectations remained elevated relative to pre-pandemic norms.

The week ahead

Early in the week, durable goods orders and regional Federal Reserve surveys will help shape expectations around business investment and manufacturing activity. Strong readings would reinforce the soft-landing narrative and maintain upward pressure on yields. Weaker data could revive growth concerns.

Midweek, housing data and consumer confidence will test whether higher rates are beginning to weigh more meaningfully on activity. Signs of softness would support the case for easier financial conditions later this year, while continued resilience would keep the Federal Reserve constrained.

Wednesday is the focal point, with PMI data and mortgage applications released alongside the FOMC decision and Chair Powell’s press conference. Markets are less focused on the rate decision itself and more on guidance around inflation persistence, labor market balance, and the timing of potential cuts.

Late in the week, updates on trade, productivity, and producer price inflation will round out the data calendar. Sticky producer prices or weak productivity would challenge bonds and risk assets, while more benign readings would support equities and tighter credit spreads.