Weekly Market Recap: Markets Rebound as Inflation Persists and Growth Slows
Market Overview
Markets closed out the holiday-shortened week on firmer footing, demonstrating resilience despite a steady drumbeat of inflation, tariff, and geopolitical headlines. The S&P 500 rose 1.1%, the Nasdaq Composite gained 1.5%—snapping a five-week losing streak—and the Dow Jones Industrial Average added 0.3%. Importantly, the S&P 500 reclaimed and closed above its 50-day moving average, a constructive technical signal.
Performance reflected renewed buying in mega-cap technology and communication services names. Semiconductors and select AI-linked leaders stabilized after recent weakness, while software continued to lag. Cyclical sectors—including industrials, financials, and energy—contributed meaningfully to the advance. Defensive areas such as consumer staples and health care underperformed as investors rotated back toward growth and economically sensitive groups.
Small- and mid-cap stocks participated, highlighting improving breadth. Meanwhile, energy markets remained volatile, with oil prices elevated amid escalating U.S.–Iran tensions before stabilizing into week’s end.
In fixed income, Treasury yields moved modestly higher. The 2-year yield rose to 3.48% and the 10-year yield climbed to 4.09%, reflecting tempered expectations for near-term Federal Reserve rate cuts. International equities were mixed, with strength in parts of Europe offset by quieter trading conditions in Asia.
Federal Reserve Insights and Economic Roundup
The week’s economic data painted a nuanced picture: slowing growth alongside persistent inflation.
Advance fourth-quarter GDP rose just 1.4%, well below expectations and down from the prior quarter’s 4.4% pace. However, inflation pressures remained firm. The Q4 Chain Deflator registered 3.6%, while December core PCE—the Fed’s preferred inflation gauge—rose 0.4% month over month and held at 3.0% year over year. Personal spending outpaced income in December, suggesting consumers remain active but increasingly stretched.
January FOMC minutes carried a mildly hawkish tone, with some policymakers acknowledging that further tightening could be appropriate if inflation stalls. While markets initially reacted cautiously, expectations for rate cuts later this year remained largely intact.
Labor market data continued to signal resilience. Weekly jobless claims declined to 206,000, reinforcing the narrative of a low-firing environment. Manufacturing and industrial production data surprised modestly to the upside, though housing indicators remained mixed amid affordability pressures and elevated mortgage rates.
On the policy front, a Supreme Court ruling struck down certain tariff measures under IEEPA authority, briefly lifting trade-sensitive sectors. However, subsequent commentary regarding potential new tariffs under alternative provisions tempered enthusiasm and underscored ongoing policy uncertainty.
Overall, the data reflect an economy that continues to expand, albeit at a slower pace, with inflation still high enough to keep the Federal Reserve cautious.
The Week Ahead
Monday: Markets reopen with focus on global developments and positioning ahead of key earnings.
Tuesday: Consumer confidence and housing data offer insight into the strength of the U.S. consumer.
Wednesday: NVIDIA earnings headline the week, alongside durable goods orders.
Thursday: Initial jobless claims and housing updates provide further labor and real estate signals.
Friday: PCE inflation and personal income/spending data take center stage as investors assess the rate outlook.
With earnings season progressing and inflation data remaining pivotal, markets will continue balancing resilient corporate results against a Federal Reserve that is not yet ready to declare victory over inflation.
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