Fundamentals in Focus: Fed Clarity, Earnings Strength, and Market Signals

1. Federal Reserve Leadership and Data Signals Markets have now cleared a key source of uncertainty with the appointment of Kevin Warsh as the next Federal Reserve Chair. While Warsh was not initially viewed as the frontrunner and is generally considered more hawkish than other candidates who were perceived as more dovish, the more important takeaway is clarity. We expect under his leadership, the Fed’s balance sheet will continue to shrink, and should productivity continue to remain strong, it paves the way for future rate cuts – but not many. We await Congressional approval, but with the decision now made, investors can move past speculation and refocus on policy execution rather than personnel risk.

Recent economic data continues to point to underlying strength in activity and productivity. Factory orders rose 2.7%, while durable goods orders increased 5.3%, underscoring solid demand across the industrial complex.¹ Productivity was reaffirmed at a robust 4.9% in the third quarter, alongside a 1.9%² decline in unit labor costs, a powerful combination that supports growth while easing inflationary pressure. On the manufacturing front, the Chicago PMI came in at 54 vs 43 expectations — a signal that the industrial side of the economy is picking up steam. While the Producer Price Index did come in hotter than expected, it was driven primarily by higher services prices. Importantly, the Bureau of Labor Statistics attributed most of the increase to wider trade service margins, particularly in machinery and equipment wholesaling, rather than a broad-based acceleration in cost pressures, suggesting inflation dynamics remain manageable.

2. Earnings Momentum Earnings season has begun on a strong footing, with 33% of the S&P 500 having already been reported. EPS growth is running at 15.3%, while revenues are up 7.4%³, reinforcing the view that earnings momentum remains intact. Several big names reported last week, including Apple, Meta, and Microsoft, which together represent approximately 13% of the S&P 500. Among the group, Meta stood out as the clear positive, with results confirming that monetization is accelerating after investor concerns last quarter around spending and returns on investment. Meta saw fourth quarter revenues at $59.89 billion, up +24% year-over-year, and operating income of $24.75 billion, +5.9% year-over-year.⁴ But the monetization is key, and the company saw 18% growth in advertising impressions with Family of Apps generating 24% revenue growth and price/ad growth of 6%. More broadly, earnings strength continues to widen beyond mega-cap technology, signaling a healthier and more durable profit cycle.

3. Commodities and Cross Currents Commodity prices, particularly gold, silver, and copper, have surged in the past year (up 90%, 250%, and 35% respectively), which reversed on Friday. Whether it’s Central Bankers tweaking their asset allocations, inflation hedgers, and/or stronger global growth, there is significant speculation in these markets, and we expect further volatility as a result. The good news is that, as prices reverse, it should help with input cost inflation. This bears watching.

4. Fixed Income The U.S. Treasury curve steepened over the week, supported by a mix of global developments, the January FOMC decision, and Friday’s announcement of Kevin Warsh as President Trump’s nominee for Federal Reserve Chair. By the close on Friday, the 2-year yield had declined 7 basis points, while the 10- and 30-year yields rose 1 and 5 basis points, respectively.⁵

The FOMC left the policy rate unchanged at its January meeting. Policymakers upgraded their characterization of both labor market conditions and overall economic momentum, describing growth as “solid” rather than “moderate” and noting early signs of stabilization in the unemployment rate. Jerome Powell’s press conference maintained a measured tone, emphasizing a balanced policy outlook. He avoided political commentary and underscored that the current policy stance remains well positioned to manage risks on both the inflation and employment fronts.

Credit markets weakened modestly last week, with spreads drifting wider across both investment-grade and high-yield sectors. Investment-grade spreads widened by 2 basis points to +104, while high-yield spreads moved 10 basis points wider to +325. Credit quality also softened, as the major rating agencies issued 32 downgrades against 22 upgrades.⁶ The Materials sector accounted for the largest share of downgrades, whereas Health Care saw the highest number of upgrades. In the municipal market, tax-exempt yields lower by 1-3 basis points across the curve.

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Return for Selected Indices⁷

Sources:

1. Bloomberg: As of January 29, 2026 ↩︎
2. Bloomberg: As of January 29, 2026 ↩︎
3. Bloomberg: As of February 1, 2026 ↩︎
4. Bloomberg: As of February 2, 2026 ↩︎
5. Bloomberg: As of February 2, 2026 ↩︎
6. Bloomberg: As of February 2, 2026 ↩︎
7. Source: Bloomberg. As of February 1, 2026. ↩︎

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