Macro crosscurrents move markets

Last week in markets

Markets were volatile this past week as investors grappled with signs of a cooling labor market, shifting growth expectations, and renewed scrutiny of technology-led capital spending. Labor data raised fresh questions around the durability of the soft-landing narrative. Equity volatility intensified midweek, led by technology and crypto-linked assets, reinforcing a broader repricing across risk assets rather than a wholesale risk-off move. On Friday, the Dow Jones Industrial Average surged over 1,100 points, topping 50,000 for the first time ever on the day. The S&P 500 finished the week down 0.09%, bringing its year-to-date return to 1.36%. By the end of the week, the 10-year U.S. Treasury yield compressed by 0.09% to 4.22%.

Labor market softens, sentiment stabilizes

Markets grew uneasy on Tuesday as labor-market data more directly challenged the soft-landing narrative. Initial jobless claims rose to 231,000, the highest level in two months, while private-sector hiring slowed materially, prompting an early pullback in risk assets. By midweek, attention shifted to broader early-2026 labor trends, with data showing the weakest labor-market performance since the Global Financial Crisis and January 2026 marking the highest layoff announcements for that month since 2009. What unsettled markets was not the absolute level of employment, but the speed and breadth of deterioration, suggesting firms are cutting labor faster than expected as financing costs remain restrictive.

On Friday, consumer sentiment data added nuance rather than relief. The University of Michigan’s preliminary February index rose to 57.3, beating expectations, but respondents continued to cite job security and inflation as primary concerns. The juxtaposition of stabilizing sentiment and deteriorating labor conditions reinforced uncertainty around the near-term growth outlook and kept markets on edge.

Monetary easing expectations rise

By midweek, growth fears translated into a rally in Treasurys. Yields moved lower across the curve, led by the front end. The move reflected caution rather than a decisive shift in policy expectations, with Fed officials continuing to emphasize patience amid unresolved inflation pressures. The Michigan survey showed one-year inflation expectations declining, offering some near-term relief, though longer-run expectations ticked modestly higher — a nuance closely watched by policymakers. Markets priced in higher odds of eventual easing but lacked strong conviction for near-term cuts.

Tech volatility amplifies repricing

Equity volatility intensified midweek, particularly on Wednesday and Thursday, as technology and other growth assets absorbed the brunt of the risk-off move. Semiconductor and software stocks sold off following weak guidance from companies like Qualcomm and renewed scrutiny of AI-driven business models. Investor focus also shifted sharply to the scale and persistence of digital infrastructure investment, with Amazon outlining roughly $200 billion in expected capital expenditures for 2026, largely tied to data centers and AI capacity. While management emphasized long-term demand, the spending outlook weighed on shares as investors reassessed free-cash-flow trajectories and capital discipline. Risk sentiment deteriorated further on Thursday, when bitcoin experienced a dramatic intraday drop (~13% on the day); the asset is roughly 27% lower year-to-date, which amplified losses in crypto-linked equities and reinforced the unwind of speculative positioning across tech and software-exposed credit. By the end of the week, U.S. equities rebounded as investors stepped back into large-cap stocks after the recent pullback, viewing the selloff as overdone amid stabilizing interest rates.

The week ahead

Next week represents a high-stakes moment for markets, as a concentrated slate of economic data is set to clarify the trajectory of inflation and the labor market. Wednesday will be the focal point, with the simultaneous release of the Consumer Price Index (CPI) and the delayed January Employment Report. Together, these releases are likely to shape expectations around the Federal Reserve’s next policy steps. Earlier in the week, Tuesday’s Retail Sales and Employment Cost Index (ECI) will provide insight into consumer demand and wage pressures, while Thursday’s Producer Price Index (PPI) will offer an update on wholesale inflation dynamics. Given that several of these reports were previously delayed, the volume and sequencing of data heighten the risk of outsized market reactions.

Globally, attention turns to GDP updates from the UK and Eurozone, which will serve as an important check on European growth momentum. In Asia, China’s inflation data will be closely watched for signs of domestic demand stabilization, while Japan’s economic indicators could influence expectations around further rate hikes. These developments, alongside OECD unemployment figures, round out a consequential week for global economic sentiment.