Stocks ended the first week of February little changed as investors digested corporate earnings from Big Tech companies, a hotter-than-expected January jobs report, and continuing updates on President Trump's tariff policies.
For the week, the S&P 500 (^GSPC) was roughly flat, while the Nasdaq Composite (^IXIC) and Dow Jones Industrial Average fell about 0.4%.
In the week ahead, inflation will take center stage, with the Consumer Price Index (CPI) set for release on Wednesday morning. Updates on wholesale inflation and retail sales will also be closely tracked.
On the corporate front, 78 S&P 500 companies, including McDonald's (MCD), Coca-Cola (KO), Super Micro Computer (SMCI), and Airbnb (ABNB), are set to report earnings.
The January jobs report released on Friday showed continued signs of resilience in the labor market as the unemployment rate unexpectedly fell, wages grew more than expected, and December's monthly job gains were revised higher to show the US labor market exited 2024 on an even better footing than previously reported.
This prompted economists to argue the Fed likely won't be cutting interest rates anytime soon. And if anything, it puts more pressure on inflation data to show cooling before the central bank brings down borrowing costs.
"The more recent data are indicative of a labor market that has regained its footing," Wells Fargo senior economist Sarah House wrote in a note on Friday. "This suggests that the tail risk of a sharp deterioration in the labor market has diminished, and as a result the FOMC can wait to see how the Q1 inflation data and economic policymaking play out before taking further action on the federal funds rate."
Stocks rebounded after dropping initially on Monday as President Trump's 25% tariffs on Mexico and Canada were delayed at least a month. But what exactly happens with tariffs remains an overhang on markets as investors debate the potential impact on inflation and, subsequently, monetary policy.
On Friday, Trump said he would announce a plan on reciprocal tariffs on American imports. The comments were made during a meeting with Japan’s Prime Minister Shigeru Ishiba. Trump said tariffs on Japan were an option.
In a research note on Friday, BlackRock Global Fixed Income chief investment officer Rick Rieder said it would likely take two weak jobs reports to prompt discussion about the Fed resuming its interest rate cutting cycle. But he added that the risks surrounding Trump's policies, including tariffs and an immigration crackdown, muddle the outlook.
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"While we and the Fed are keeping our eyes focused on these payroll (and inflation) reports, we also have to closely watch the news flow, and then the reverberations around these events, to get a sense for when the Fed and market makers can feel confident in rates coming down closer to a long-run neutral level," Rieder wrote.
With investors' focus now squarely back on inflation data for hints of interest rate cuts, a fresh update on the pace of price increases is slated for release on Wednesday.
Wall Street economists expect January's CPI to show headline inflation of 2.9% in January, flat from the month prior. Prices are anticipated to rise 0.3% on a month-over-month basis, per economist projections, below the 0.4% increase seen in December.
On a "core" basis, which strips out food and energy prices, CPI is expected to have risen 3.1% over last year in January, below the 3.2% seen in December. Monthly core price increases are anticipated to clock in at 0.3%, above the 0.2% seen the month prior.
The first monthly retail sales report of 2025 is set for release on Friday. Economists estimate retail sales were flat over the prior month during January. But the control group of retail sales — which excludes several volatile categories like gasoline and feeds directly into gross domestic product (GDP) — is also expected to have risen by 0.4%, down from the 0.7% increase seen in December.
With more than 62% of S&P 500 companies done reporting earnings, the year-over-year growth rate for the index keeps moving higher. As of Friday, the S&P 500 was pacing for earnings growth of 16.4% compared to the year prior. This would mark the fastest pace of growth in three years and is well above the 11.8% earnings growth analysts had expected at the start of January.
While earnings have been beating expectations, macro factors have continued to create stop-and-go market action as stocks have failed to find clear direction. On Friday, stocks slipped lower after the latest University of Michigan consumer sentiment survey showed respondents' one-year inflation expectations hit their highest level since November 2023.
One-year inflation expectations jumped to 4.3% in February from 3.3% last month, marking the the fifth time in 14 years that the survey reported a rise of 1 percentage point or more in year-ahead inflation expectations.
The release noted that the jump in inflation expectations was "in part due to a perception that it may be too late to avoid the negative impact of tariff policy."
Stocks reversed course on the news, with all three major averages flipping from green to red. And while that constitutes just a small sampling of the market action, it's a reminder that what tariffs mean for inflation is squarely in focus for markets ahead of a week that's expected to provide updates on both fronts.
Economic data: New York Fed one-year inflation expectations, January (3% previously)
Earnings: McDonald's (MCD), Monday.com (MNDY)
Economic data: NFIB small business optimism, January (104.7 expected, 105.1 prior)
Earnings: BP (BP), Coca-Cola (KO), DoorDash (DASH), Humana (HUM), Lyft (LYFT), Marriott International (MAR), Shopify (SHOP), Super Micro Computer (SMCI), Upstart (UPST), Zillow Group (Z)
Wednesday
Economic data: Consumer Price Index, month over month, January (+0.3% expected, +0.4% previously); Core CPI, month over month, January (+0.3% expected, +0.2% previously); CPI, year over year, January (+2.9% expected, +2.9% previously); Core CPI, year over year, January (+3.1% expected, +3.2% previously); Real average hourly earnings, year over year, January (+0.7% previously); MBA Mortgage Applications, week ending Feb. 7 (+2.2% previously)
Earnings: Albermarle (ALB), Biogen (BIIB), CVS Health (CVS), Cisco (CSCO), Dutch Bros (BROS), Generac (GNRC), Kraft Heinz (KHC), MGM Resorts (MGM), Reddit (RDDT), Robinhood (HOOD), The TradeDesk (TTD)
Economic data: Producer Price Index, month over month, January (+0.2% expected, +0.2% previously); PPI, year over year, January (+3.2% expected, +3.3% previously); Initial jobless claims, week ending Feb. 8 (219,000 previously);
Earnings: Airbnb (ABNB), Applied Materials (AMAT), Coinbase (COIN), Crocs (CROX), Datadog (DDOG), Duke Energy (DUK), DraftKings (DKNG), John Deere (DE), Palo Alto Networks (PANW), Roku (ROKU), Sony (SONY), Twilio (TWLO), Wynn Resorts (WYNN)
Economic data: Retail sales, month over month, January (+0% expected, +0.4% previously); Retail sales ex-auto and gas, January (+0.3% previously); Import price index, month over month, January (+0.4% expected, +0.1% prior); Export prices, month over month, January (+0.3% expected, +0.3% previously); Industrial production month over month, January (+0.3% expected, +0.9% prior)
Earnings: Moderna (MRNA)
Josh Schafer is a reporter for chof360 Finance. Follow him on X @_joshschafer.
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