Economic Update 2-9-2026

Economic data for the week included ISM manufacturing moving back into expansion, ISM services staying in expansion, some improvement in consumer sentiment, but weaker job openings and claims data. Another partial government shutdown paused the release of the January employment situation report until this coming week.

Equities saw a volatile week, but ended mixed, with gains in U.S. value and small cap, as well as international. Bonds saw gains across the board along with the stock market’s volatility and lower rates. Commodities saw gains in precious metals but declines elsewhere.

U.S. stocks were mixed last week, with strong returns from value, where the S&P 500 Value Index gained over 2%, while growth stocks lost an equivalent amount. Sector results reflected that, with gains of 4-6% in consumer staples, industrials, and energy; these offset negative returns 4-5% returns in communications (Meta and Alphabet) and consumer discretionary (Amazon and Booking Holdings). As a sub-group, software suffered its worst week in about four years, down close to double-digits.

A partial government shutdown began the prior weekend, when budget resolutions and associated policies couldn’t be agreed upon, but Congress resolved things by late Tuesday. More importantly, also early in the week, negative sentiment surrounding software-as-a-service stocks continued. This was as investor concerns again flared over feared impacts on revenues from AI tools that could potentially replicate and replace their highly profitable business models. In particular, a new tool from AI startup Anthropic that was designed to automate some document work (including legal specifically) created concern around information providers in that segment. There continues to be a good deal of market uncertainty over the future effects of AI, including the issues of whether: (1) AI will deliver the magical productivity benefits first promised, (2) capex spending ends up being too high for hyperscalers and others to earn a profit on it, and/or (3) AI will inflict too much damage to existing companies in software, business services, media, and education (which were punished by markets last week). Many tech experts still believe it’s still too early to tell, and stocks rebounded strongly on Friday due to the realization of software’s demise being exaggerated. On the health care front, both in the U.S. (Eli Lilly) and internationally (Novo Nordisk), concerns over future profits in popular weight-loss GLP-1 drugs have generated volatility, both due to industry competitive pressures and a political push from the U.S. government to cut consumer drug prices.

For earnings, another quarter of S&P 500 companies reported, bringing the total to almost 60%, per FactSet. The blended year-over-year earnings growth rate has ticked up again from 11.9% last week to now to 13.0%, with revenue growth up to 8.8%. For context’s sake, earnings growth is running at roughly twice the long-term multi-decade average, although it’s still concentrated in technology, industrials, and communications, with growth in other sectors well under that of the broader index, mostly in the low single-digits. Companies with higher foreign revenue exposure have outperformed domestically-focused companies, although some of that exposure is convoluted a bit by the more complex nature of cross-border technology supply chains. While premature, Q1-2026 estimates growth estimates have fallen a few percent to around 11%.

Foreign stocks gained across the board in developed markets, despite the normal headwind of a stronger U.S. dollar. Japanese stocks led the way, with hopes high for the upcoming election (yesterday), where the popular prime minister’s policies are expected to carry through to political wins. The ECB left policy rates unchanged at 2.0% for the fifth straight meeting, in a “broadly balanced situation” as it was described between growth and inflation. The Bank of England also stayed on hold at 3.75%, despite a weaker economic environment, and several dissents which pointed to potential future cuts. Emerging markets fared negatively overall, but were led by Mexico and India, due to the former’s exposure to natural resources and the latter after the U.S. administration announced reciprocal tariffs being reduced from 25% to 18%, after India’s agreement to cut Russian oil imports. These offset -4% returns in China for the week, with mixed economic data and software industry concerns.

Bonds saw gains last week in the U.S., along with equity volatility and interest rates falling back by a few basis points. Treasuries and investment-grade corporates fared similarly, while floating rate bank loans fell back a bit. A stronger dollar held back developed local bonds, while emerging market debt gained regardless, both in local and USD terms.

Commodities were mostly negative last week, along with a stronger dollar, with energy and industrial metals down several percent, although precious metals gained nearly 5%. Crude oil prices fell over -2% last week to $64/barrel, as diplomatic talks between the U.S. and Iran replaced more immediate military tensions. Natural gas corrected by a dramatic -22% last week, as U.S. weather warmed a bit and production ramped up. Gold and silver have experienced far greater than average short-term volatility, to some degree as sharp gains in recent months have resulted in traders adjusting speculative positioning, as well as questions about how ‘dovish’ or ‘hawkish’ the future Fed will be on rates policy, as well as U.S. policy uncertainty that has underpinned gold’s rise for several years.

Sources:  LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research.  Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends.  Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.  All information and opinions expressed are subject to change without notice.  Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.