S&P erases year-to-date gains amid broad market pullback

Last week in markets

Markets moved lower last week as an AI-driven selloff weighed on technology and software stocks. Investors also digested mixed signals from the labor market alongside fresh inflation data.

The January jobs report surprised to the upside, but significant downward revisions to prior-year data raised questions about underlying momentum. Inflation came in below expectations, while January home sales declined. The S&P 500 fell 1.35% for the week, effectively erasing its year-to-date gains. The 10-year U.S. Treasury yield declined 18 basis points to 4.04%, its largest weekly drop since August 2025.

Mixed signals from the labor market

January’s employment report presented a more nuanced picture than the headline number suggested. Employers added 130,000 jobs, well above consensus expectations of 55,000 and the strongest monthly gain in more than a year. The unemployment rate edged down to 4.3%, with hiring concentrated in health care and construction.

However, annual benchmark revisions significantly altered the broader narrative. Total job growth for 2025 was revised down from 584,000 to 181,000. The March 2025 payroll level was also lowered by nearly 900,000 jobs.

Taken together, the data point to a labor market that appears stable in the near term but entered 2026 with less underlying strength than previously understood. Hiring continues, but momentum may be more fragile than earlier estimates suggested.

Inflation eases

The January Consumer Price Index showed headline inflation easing to 2.4%, its lowest level in nearly five years and below expectations. That compares with 2.7% in December. Lower energy prices and declining used vehicle costs drove much of the moderation. Core inflation slowed to 2.5%, its most moderate pace since early 2021.

Even so, price pressures have not fully resolved. Falling commodity prices are offsetting the initial effects of new tariffs, but costs for electronics and appliances may rise as lower-cost inventories are depleted. Households also continue to absorb the cumulative impact of roughly 25% price growth over the past five years. Inflation is cooling, but purchasing power remains a central concern.

The week ahead

Markets will turn to several key data releases this week, culminating in a closely watched Friday. The advance estimate for fourth-quarter 2025 GDP is expected to show growth moderating to approximately 3.0%, down from 4.4% in the third quarter. On the same day, the Core PCE Price Index, the Federal Reserve’s preferred inflation measure, will provide further insight into underlying price trends.

Earlier in the week, the release of the FOMC meeting minutes will offer additional clarity into policymakers’ thinking. Investors will also monitor Empire State Manufacturing data and Housing Starts for signals on how higher borrowing costs continue to affect industrial activity and real estate. As markets weigh moderating growth, cooling inflation, and evolving labor conditions, the central question remains whether disinflation can continue without a sharper slowdown in employment.