Market Insights

Stocks held support last week, and the market could be pivoting toward potential rate cuts.

The S&P 500 fell 1.4 percent between Friday, February 6, and Friday, February 13. However, the index tested and closed above the 6,800 level where it bounced twice in the previous month.

Utilities, real estate and precious metals rallied. Those groups typically benefit from lower interest rates. Treasury yields also fell sharply. Those moves could reflect a belief that interest rates are headed lower.

The changes came despite better-than-expected job growth on Wednesday and strong manufacturing data the previous week. Inflation was slightly below forecasts, but most of the changes came before that report. What’s going on?

First, yields have eased after Japan’s elections triggered a spike on January 20. Second, there could be a quiet shift away from tariffs. The Financial Times reported on Friday that duties on steel and aluminum could be eased. That followed similar recent actions toward India and Taiwan. Opposition to tariffs is also growing in Congress.

It may be different from last spring, when trade wars drove up yields by hurting demand for U.S. Treasuries. Investors may expect further strength in rate-sensitive stocks ahead of potential easing by the Federal Reserve. (CME’s FedWatch tool shows a 67 percent chance of the overnight rate going down at least 25 basis points on June 17.)

AI Disruption

Financials were the worst-performing sector last week on worries that AI will disrupt established business lines. The group slid 4.8 percent, its biggest decline since last April. Those moves followed sharp declines in software companies in previous weeks.

Consumer discretionaries, technology and communications also fell. That continued the pattern of weakness in large growth stocks. Speaking of large growth stocks, Apple (AAPL) had its biggest weekly drop since April after Bloomberg reported that Siri’s AI enhancements were being delayed.

Commercial real-estate brokerage CBRE (CBRE) and insurance brokerage AJ Gallagher (AJG) had the biggest declines in the S&P 500.

Generac (GNRC) rose the most in the index after AI data centers boosted demand for generators.

Packaging company Smurfit WestRock (SW) had its biggest weekly gain since the pandemic after management outlined a plan to boost profit margins. The rally illustrated how investors are shifting toward value investing and materials companies.

Jobs and Inflation

Last week’s economic data was mixed, showing both strength and weakness. Retail sales failed to grow as expected, but job growth surprised to the upside and unemployment fell more than forecast.

Coming after strong manufacturing data the previous week, it appears that economic growth is shifting away from consumption in favor of business investment and industrial activity. That’s also consistent with the strength in industrials and materials.

Separately, FactSet reported that the earnings of industrial companies have had the biggest upside surprises this reporting season.

Continued slowing in shelter was probably the biggest takeaway from the inflation report. Shelter costs rose 3 percent year-over-year, the smallest increase since September 2021. It’s also down from a 4.4 percent rise 12 months prior. Shelter is important because it’s the largest component in the consumer price index.

Charting the Market

While the S&P 500 fell last week, it continued to hold support around 6,800. That suggests the index may be consolidating without breaking its uptrend.

Given the weakness in large growth stocks, investors may continue seeking opportunities in other parts of the market like value and global stocks, which have been making new highs.

The advance/decline (A/D) line hit new highs last week despite the overall index falling. That indicates more stocks are climbing, even as the biggest names struggle.

Declines in U.S. Treasury yields and the U.S. dollar may also support risk appetite overall.

The Week Ahead

This week has a few noteworthy events, but none seem likely to have a major impact on trading. Housing stocks may be active.

NAHB’s homebuilder sentiment index is this morning. Palo Alto Networks (PANW) reports earnings in the afternoon.

Tomorrow brings housing starts, building permits and minutes from the last Fed meeting.

Initial jobless claims and crude-oil inventories are on Thursday, along with earnings from Walmart (WMT).

Friday will bring the initial estimate for fourth-quarter gross domestic product. The Supreme Court also has an opinion day, meaning it could potentially issue a tariff ruling.

S&P 500, daily chart, with select patterns and indicators.