- Market Struggles Continue: Last week and last month were challenging for markets, with growth stocks—especially AI names—leading declines. Investor confidence took another hit, with consumer sentiment at its weakest since August 2021 and individual investor sentiment at its most bearish since 2009 (excluding a brief dip in 2022).
- Looking Ahead: Markets will be watching Friday’s jobs report for signs of labor market strength, while tariff discussions could create further uncertainty. Earnings from Target and Costco will also provide insight into consumer health.
- Keeping Perspective: While concerns over slowing growth are valid, context is key. The Atlanta Fed’s GDPNow model is reacting to early, noisy data, and factors like lower interest rates and energy prices could provide support moving forward. Investors should stay diversified and focus on the broader picture rather than short-term volatility.
Looking Back
Despite a solid close last Friday—helped in part by month-end rebalancing—it was a tough week and a tough month for the markets. At its lowest point last week, the overall stock market had given back all its 2025 gains. Growth stocks led the way down, with AI stocks hit particularly hard. The NASDAQ dropped roughly 4% for both the week and the month, marking its worst monthly decline since April 2024.
Investor sentiment continued to decline last week. The Conference Board’s consumer confidence index fell to its lowest level since August 2021, posting its largest monthly decline in three years. Meanwhile, the American Association of Individual Investors (AAII) sentiment survey hit its most bearish reading since September 2022. If we exclude that brief period, it was the lowest level since March 2009—which was the bottom of the Great Financial Crisis bear market.
The key reason for the drop? Rising concerns over slowing economic growth, or what some are calling a “growth scare.” The economic momentum that carried us into the year appears to be cooling, and investors are beginning to worry that we could be approaching recessionary conditions. That concern was evident in commodity markets, which fell 4% last week, and in the 10-year Treasury yield, which dropped sharply to around 4.2%. We also saw weaker consumer spending data, as January’s personal consumption expenditures (PCE) report showed a decline instead of the expected growth.
The risk-off trade was also on full display last week. Bitcoin dropped another 10%, and AI stocks experienced their fastest 10% pullback from all-time highs. Nvidia’s earnings were stellar, but the stock still sold off sharply—suggesting that the recent weakness in AI stocks is more about sentiment than fundamentals. It is important to remember that AI’s long-term growth story is driven by secular trends, not just short-term economic cycles.
One encouraging report last week was the Fed’s preferred inflation gauge, the core PCE index, which met expectations and showed its lowest level of inflation in seven months. Lower inflation supports the case for rate cuts later this year, which should help provide a tailwind for the economy.
Looking Ahead: Jobs, Tariffs, and Consumer Strength
This week’s big headlines will likely revolve around tariffs and trade policy. As of now, 25% tariffs on imports from Canada and Mexico are expected to go into effect on Tuesday, along with a 10% tariff on Chinese imports. There are also discussions about potential 25% tariffs on European goods. Any shifts in these policies could impact market sentiment. The President is also speaking on Tuesday.
Friday’s jobs report will be another key event. Payroll growth is expected to come in between 145,000 and 160,000, while the unemployment rate is projected to be in the 4.0%–4.1% range. Given the market’s recent focus on economic slowing, any surprises in the labor market data could move markets.
Earnings reports from Target and Costco will also be closely watched. With consumer spending under scrutiny, these reports will help gauge whether consumers are still holding up or if spending is starting to wane.
Growth Scare: Keeping Perspective
One of last week’s biggest headlines was the sharp drop in the Atlanta Fed’s GDPNow estimate for Q1 growth, which plunged from 2.3% to -1.5%. That is the biggest one-week drop since March 2020, at the height of the COVID panic.
Before jumping to conclusions, let us put this in perspective. The GDPNow model is a purely quantitative tool, reacting to recent economic releases without any qualitative overlays. Right now, it is mostly reflecting January data—there is still a lot of the quarter left to unfold.
Two key factors drove the sharp drop:
- A surge in imports. With tariff uncertainty looming, businesses may have pulled forward imports, temporarily distorting trade data. This trend should normalize.
- Weaker consumer spending. The 0.5% month-over-month decline in real personal consumption expenditures for January was the weakest since February 2021. Consumer spending has been a critical pillar of economic strength, so this will be an important trend to watch.
Final Thoughts: Stay Diversified and Keep Perspective
While markets have been volatile, it is important to stay focused on the long-term picture. Lower interest rates and falling energy prices should provide some support to the consumer going forward.
The recent pullback is a reminder of why diversification matters. Instead of chasing what’s hot, staying disciplined across asset classes can help investors weather these kinds of market swings.
As always, stay invested, stay diversified, and stay disciplined by keeping an eye on the long-term.
if you have any questions, please don’t hesitate to reach out to us at strategists@brinkercapital.com or at rusty@orion.com. Thank you for your time and trust.