By Jack Kraft, CFA, Vice President, Investment Strategist
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U.S. equities endured a volatile week as traders digested corporate earnings reports, the state of the artificial intelligence (AI) trade and U.S. central bank developments. Traders in precious metals cleaned their hands and locked in profits as the complex rallied all week until the space took one of the biggest plunges on record Friday. Gold and silver slipped 8% and 28%, respectively. In the past 20 years, gold has seen one-day declines by more than 5% just 12 times and on average was up 4.0% three months later. Given the demand for gold from global central bank purchases, look for the yellow metal to find support following Friday’s washout.
The nomination of Kevin Warsh as Federal Reserve (Fed) Chairman signals a change in tone for U.S. monetary policy. At the age of 35, Warsh became the youngest ever Governor of the Federal Reserve and was known to be an inflation hawk during his Fed tenure. More recently, however, his views appear to have evolved, aligning more closely with the Trump Administration’s preference for lower interest rates. Warsh has increasingly emphasized the disinflationary effects of productivity gains and advances in AI, suggesting greater policy flexibility. That shift opens the door to earlier rate cuts, but if inflation remains sticky or the labor market reaccelerates it would likely constrain the Fed’s ability to lower rates, as the overall data-driven process of the central bank is unlikely to change.
Where Warsh may leave his biggest policy impact, however, is on the Fed’s balance sheet. He has been critical in the past of the Fed’s massive asset holdings, viewing large‑scale bond buying as a policy tool that creates market distortions and blurs the line between monetary and fiscal policy. Under a Warsh chairmanship, investors can expect a push toward a smaller, leaner Fed balance sheet, even if policy rates are moving lower. Additionally, Warsh has been critical of the Fed’s approach to financial regulation and the costs it imposes on smaller banks. This view aligns with the current administration’s push for financial deregulation.
That combination of rate cuts without quantitative easing is a shift from prior policy that is aimed at not letting financial conditions get too loose. Ultimately, that perceived tighter liquidity questions if traders can rely on a “Fed put,” which was an understanding by the markets that the Fed will step in quickly and protect markets if the economy is in trouble. The market saw more momentum areas sell off following the Warsh nomination, with broad selloffs in the precious metals complex, cryptocurrency and high-beta stocks. Importantly, Warsh is widely viewed as independent‑minded and data‑driven, suggesting he is unlikely to bend policy to political pressure, even when nominated by a sitting administration that has been criticized for compromising Fed independence.
Elsewhere, the January Federal Open Market Committee (FOMC) meeting also gained attention with the takeaway being “signs of stabilization” in the labor market, leaving the Committee to keep rates steady while assessing incoming economic data. Policy rates were characterized as “loosely neutral” or “somewhat restrictive” as the Committee looks for signs of stabilizing inflation amid tariff effects fading in 2026. According to CME Group’s FedWatch tool, markets are pricing in two 25-basis-point cuts for the year with a neutral policy rate in the range of 3.00%-3.25%.
In equities, the Dow Jones Industrial Average finished the week up 0.4%, while the S&P 500 ticked up 0.1%. The tech-heavy Nasdaq posted a loss of 0.4% during the five-day trading stretch. Despite the muted moves in the major averages, seven of the 11 S&P 500 sectors ended the week in positive territory, with energy, communication services and utilities rallying mor than 1.0%.
Earnings season has been robust to start the year with roughly half of the S&P 500 having issued fourth-quarter 2025 results. Earnings growth is tracking at nearly 12%, above estimates of 8.3%, and if the current rate holds it would mark the fifth consecutive quarter of double-digit earnings growth. This strong run in earnings growth is reflected by the multiple on the S&P 500, which is trading at 22.2 times the next 12 months’ (NTM) earnings. That indicates the market is trading at about a 10% premium to its five-year average of 20.0 times NTM earnings. This is something to keep in mind—the market is trading at an expensive valuation but this is likely a function of strong economic and corporate growth by U.S. companies. In fact, analysts are forecasting for the trend of double-digit profit growth to continue into 2026, with consensus estimates accelerating to 14% earnings-per-share growth.
Analysts are watching closely the developments of AI investment and use cases by companies this earnings season. Consensus estimates for 2026 investment by AI hyperscalers have been revised higher by $21 billion to $561 billion, as Microsoft and Meta Platforms continue to ramp up capital expenditures for AI infrastructure buildout. Furthermore, AI adoption has also been a theme on earnings calls with Meta Platforms saying, “We’ve seen a 30% increase in output per engineer with the majority of that growth coming from the adoption of agentic coding.” Other companies have also noted productivity gains across logistic companies, financial institutions and software companies.
While commentary around AI remains optimistic given its potential to drive productivity gains, investors are increasingly scrutinizing the scale of corporate AI spending amid limited evidence of near‑term returns. More recently, The Wall Street Journal reported that the widely cited $100 billion investment in OpenAI is likely to be significantly lower, adding to uncertainty around the sustainability of the AI trade. Elsewhere, Oracle will likely come under pressure after announcing its largest capital raise in its history, as the cloud computing company looks to raise $45-$50 billion through a combination of debt and equity. The company stated the capital is being raised to build additional capacity to meet contracted demand for its largest customers, including AMD, Meta, Nvidia, OpenAI and others.
Looking ahead, investors face a jam-packed week of corporate earnings and economic data. The highlight on the economic calendar will be the U.S. employment report for January, which is expected to show continued weakness, with forecasts calling for just 55,000 jobs added. The Institute for Supply Management (ISM) manufacturing and services data will also be released on Monday and Tuesday, respectively. On the earnings front, results from several of the world’s largest companies will be in focus, including Amazon, Google and Eli Lilly midweek, along with reports from AMD, Qualcomm, Chipotle, Merck, Amgen, AbbVie, O’Reilly Auto Parts, Monster and PepsiCo.
Economic Calendar Week of Fe. 2 – Feb. 6
| Time (ET) | Report | Period | Median Forecast | Previous |
| MONDAY, FEB. 2 | ||||
| TBA | Auto sales | Jan. |
16.1 million |
|
| 9:45 AM | S&P flash U.S. manufacturing PMI | Jan. | 51.9 | |
| 10:00 AM | ISM manufacturing | Jan. | 48.40% | 47.90% |
| TUESDAY, FEB. 3 | ||||
| 10:00 AM | Job openings | Dec. | 7.1 million | 7.1 million |
| 9:45 AM | S&P final U.S. services PMI | Jan. | 52.5 | |
| 10:00 AM | ISM services | Jan. | 53.50% | 54.40% |
| WEDNESDAY, FEB. 4 | ||||
| 8:15 AM | ADP employment | Jan. | 45,000 | 41,000 |
| THURSDAY, FEB. 5 | ||||
| 8:30 AM | Initial jobless claims | Jan. 31 | 212,000 | 209,000 |
| 10:50 AM | Atlanta Fed President Raphael Bostic speaks | |||
| FRIDAY, FEB. 6 | ||||
| 8:30 AM | U.S. employment report | Jan. | 55 | 50,000 |
| 8:30 AM | U.S. unemployment rate | Jan. | 4.40% | 4.40% |
| 8:30 AM | U.S. hourly wages | Jan. | 0.30% | 0.30% |
| 8:30 AM | Hourly wages year over year | 3.60% | 3.80% | |
| 10:00 AM | Consumer sentiment (prelim) | Feb. | 54 | 56.4 |
| 3:00 PM | Consumer credit | $8.0B | $4.2 billion |
Links to previously published commentaries can be found at Latest Investment Insights