Stocks Slide Despite Strong Economic Data; Bonds Gain

Good morning, and congratulations to the Philadelphia Eagles and their fans for winning (no, dominating) the Super Bowl.

The Dow (-0.5%), NASDAQ (-0.5%), and S&P 500 (-0.2%) each fell modestly for the week.  Meanwhile, taxable bonds and tax-free municipal bonds gained 0.4% as the 10-year Treasury yield fell 0.06% to end the week at 4.49%.

Economic data last week was fairly strong.  The Institute of Supply Management (ISM) manufacturing sector rose to 50.9, eclipsing the mark (50) that is considered expansion.  It has been in contraction territory since October 2022.  The forward-looking New Orders component also surged.  The ISM services sector fell slightly but remains in expansion territory.  The January labor report showed that the US economy added 143,000 jobs in January, slightly less than expected, but the prior two months were revised upward.  Meanwhile, the unemployment rate fell to 4.0%, better than expected.

The strong labor market and ISM manufacturing data suggest that the US economy remains on solid footing.  The drop in the overall markets last week were mainly driven by the Magnificent 7 artificial intelligence (AI) stocks, as the broader markets fared well.  Corporate earnings reports were strong, but some companies are pointing to slower growth, which put pressure on their stock values.  Volatility existed as the markets were responding to tariff threats that were subsequently eased.  There may come a time that the markets begin to ignore the headlines and rumors, and spend more time focusing on the important topics – the economy and corporate earnings.  Those have remained strong, which should provide investors with optimism.

Have a great day and terrific week!

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