Stocks closed lower for the week despite a record high for the Dow Jones Utility Average as investors have turned to under owned areas of the market such as utilities, real estate, materials and energy. The first two are also areas that may benefit from lower interest rates, a nod to Kevin Warsh being confirmed as the new Chair of the Federal Reserve.
- Mixed bag on economic data. We believe that the economic data this past week provides a good snapshot into the current state of the U.S. economy – stubborn, but falling inflation; a challenged housing market and a resilient labor market.
- According to the Journal of the American Medical Association, after a long-term observational study of approximately 132,000 adults, “higher caffeinated coffee intake was significantly associated with lower risk of dementia.” The study found that drinking two to three cups of caffeinated coffee daily was associated with a 14% to 18% reduction in the risk of dementia.
- Don’t move the goal post. As an investor, it is important that as long as your objectives don’t change, neither should the index that you benchmark your portfolio against. For most American equity investors, this is the S&P 500 and for bond investors the U.S. Bloomberg Aggregate Bond Index. We believe the U.S. Total Market Index offers the broadest look at the domestic equity market and the MSCI All-Country World Index (MSCI ACWI) for those with global exposure. The bottom line is that it is easy to chase the best performing index that may or may not be indicative of the broader market. However, that may come at the expense of an unintentional increase in exposure to risk or an undiversified portfolio.
It’s The Economy…”
- Inflation at the Retail Level as measured by the Consumer Price Indexrose 0.2% during January (2.4% y/y), after rising 0 3% during December. The CPI has fallen from a y/y high of 9.1% during June 2022 but is at its highest since January. Energy prices fell 1.5% during January (-0.1% y/y) after rising 0.3% in December. Food and beverageprices rose 0.2% (2.9% y/y) during January after increasing 0.7% in December. The cost of shelter rose 0.2% during January (3.0% y/y), after rising 0.4% during December. Excluding food and energy, the core CPI rose 0.3%, after rising by 0.2% during December. Over the past year the core CPI has risen 2.5%, well below the September 2022 peak of 6.6%. (Source, U.S. Bureau of Labor Statistics)
- Sales of Existing Homesplunged 8.4% to a Seasonally Adjusted Annualized Rate (SAAR) of 3.91 million units during January from 4.27 million during December (-4.4% y/y). This marked the lowest figure since September 2024. According to the National Association of Realtors (NAR) total housing inventory at the end of January was 1.22 million units, down 0.8% from December but up 3.4% y/y. Unsold inventory rose to a 3.7-month supply at the current sales pace, up from 3.5 months in December. The report also noted that the median price for all existing homes fell 2.00% to $396,800 in January (0.9% y/y) from $405,100. (Source, National Association of Realtors)
- Non-Farm Payrolls(approximately 80% of the U.S. workforce) rose by 130,000 during January after rising by 48,000 in December and by 41,000 in November. The January figure was well above the consensus estimate of 50,000. Over the past three months, the U.S. economy added 219,000 jobs and appears to be stabilizing after a lackluster 2025. Economists continue to wrestle with the impact of a lack of immigration on the labor market as well as advances in technology. Private Sectorcompanies added 172,000 jobs while the Public Sectorlost 42,000. Employment by the Federal Government has fallen by 327,000 since peaking in October 2024. Payroll data was positively influenced by outsized gains in health care (82,000), social services (42,000) and the construction sectors (65,000). The Unemployment Rateticked down to 4.3% during January from 4.4% in December. The Unemployment Rate had gotten as low as 3.4% in April 2023. Average Hourly Earnings rose 0.41% or $0.15 to $37.17 during January asAverage Weekly Earningsrose 0.70% or $8.85 to $1,274.93.The Average Duration of Unemploymentimproved to 23.9 weeks in January from 24.4 weeks in December, above the 20.6 weeks (SAAR) recorded one year ago. The Median Duration of Unemploymentfell to 11.1 weeks during January from 11.4 weeks in December, above 9.1 weeks (SAAR) one year ago. (Source, U.S. Department of Labor)
- According to the Department of Labor, the Employment Cost Index, a “measure of quarterly changes in compensation costs, which include wages, salaries, and employer costs for employee benefits for civilian workers (non-farm private and state and local government)” rose by 0.7% during the fourth quarter, after rising 0.8% during Q3-2025. The ECI has risen by 3.4% y/y. The wages & salaries component(70% ofECI)rose by 0.7% during Q4 vs. 0.8% during Q3-2025 and as compared to 3.3% y/y. The cost of benefits rose by 0.7% during the previous quarter, after rising 0.8% during Q3-2025 and by 3.4% y/y. (Source, U.S. Bureau of Labor Statistics)
- Retail Sales rose 0.0% in December (2.4% y/y), after rising 0.6% in November. Spending on Motor Vehicle & Partsfell 0.2% during December (-1.1% y/y) after rising 1.1% in November. Retail Sales Excluding Motor Vehicles & Partswere unchanged during December (3.3% y/y) after rising 0.4% during November. Two key components of this report, Sales at Gasoline Stationsrose 0.3% during December (1.6% y/y) after jumping 1.7% in November whileRestaurant and Drinking Place Salesslipped 0.1% during December (4.7% y/y) after rising 0.7% inNovember. Also of note was the 0.9% decline in furnishing & home furnishing sales (-5.6% y/y) as well as the 0.7% drop in clothing & accessory store sales (+5.1% y/y). (Source, U.S. Census Bureau)
Economic Reportsscheduled to be released this week, include the following – on Wednesday, December Housing Starts, December Orders for Durable Goods, January Industrial Production and January Capacity Utilization; on Thursday, Initial Claims for Unemployment Benefits, December Wholesale Inventories and the December Balance of Trade; and, on Friday, Q4 Gross Domestic Product, January New Home Sales, December Personal Income and Spending and, a Final Look at Consumer Sentiment from the University of Michigan.
Several potentially market moving companies are scheduled to report earnings, to includeMedtronic (MDT), Palo Alto Networks (PANW), Cadence Design (CDNS), CRH (CRH), Analog Devices (ADI), Booking Holdings (BKNG), Newmont (NEM), Deere (DE), Walmart (WMT), Alibaba Group (BABA), Constellation Energy (CEG), Southern (SO) and Quanta Services (PWR).