Economic Outlook and Market Update

Market Recovery and Tariff Concerns

Stocks initially rebounded from a DeepSeek-driven sell-off but fell under pressure on Friday due to worries about President Trump's tariff plans. Trump enacted tariffs on Canada, Mexico, and China on Saturday, effective Tuesday, February 4. These tariffs include 25% duties on Canada and Mexico and 10% on China, primarily concerning fentanyl and illegal migration.

Strong Start to Year, Tariff Impact Assessment

Stocks are evaluating the impact of these tariffs after a strong start to the year. In January, the S&P 500 gained 2.7%, the Nasdaq Composite rose over 1.6%, and the Dow Jones Industrial Average led the way with a 4.7% increase. Investors anticipate updates on Trump's tariff strategy, the January jobs report, and numerous corporate earnings reports in the coming week.

Tariff Talk in Focus

Tariff discussions will dominate the market narrative in the upcoming week. Economists have expressed concerns that tariffs could fuel inflation. Canada, Mexico, and China are expected to announce retaliatory measures, as indicated by Canadian Prime Minister Justin Trudeau on Saturday.

Fed Holds Rates Steady

The Federal Reserve maintained interest rates on Wednesday, awaiting clarification on inflation and potential tariff implications. The January jobs report, due on Friday morning, forecasts 150,000 jobs added, down from December's 256,000. The unemployment rate is projected to remain at 4.1%.

Earnings Scorecard

The S&P 500 is currently on track for 13.2% year-over-year earnings growth in Q4, the fastest rate in three years. Companies surpassing Wall Street's earnings estimates have seen their stocks rise an average of 1.5% in the following days.

Bullish Signals

Deutsche Bank strategist Binky Chadha has observed that earnings estimates have been trimmed less than usual this quarter. Despite noise surrounding tariffs, inflation, and monetary policy, strong earnings trends continue to support market optimism.

Manufacturing Sector Poised to Recover

The Institute for Supply Management's ISM Manufacturing PMI is expected on Monday. Economist Aditya Bhave believes the manufacturing sector may be turning around, with the index likely to exceed 50 in January. This is a positive sign for stocks, as per Fundstrat's Tom Lee.

Weekly Calendar

Monday

- Economic data: S&P Global US Manufacturing PMI (expected 50.1), Construction spending (expected 0.2%), ISM Manufacturing (expected 49.3)
- Earnings: The Clorox Company, Palantir, Tyson

Tuesday

- Economic data: Job openings (expected 8.01 million), Factory orders (expected +0.5%), Durable goods orders
- Earnings: Alphabet, AMD, Amgen, Apollo, Chipotle, Electronic Arts, Enphase, Estée Lauder, Ferrari, Juniper Networks, Merck, PayPal, PepsiCo, Pfizer, Snap, Spotify

Wednesday

- Economic data: MBA Mortgage Applications, ADP Private Payrolls (expected +153,000), S&P Global US Services PMI, ISM Services Index
- Earnings: Disney, Aflac, Arm Holdings, Aurora Cannabis, Boston Scientific, Ford, Novo Nordisk, Qualcomm, Toyota, Uber, Viking Therapeutics

Thursday

- Economic data: Challenger Job Cuts, Initial Jobless Claims
- Earnings: Amazon, Eli Lilly, Affirm, e.l.f. Beauty, Bristol Myers Squibb, ConocoPhillips, Hershey, Peloton, Pinterest, Phillip Morris International, Roblox, Tapestry, Yum! Brands

Friday

- Economic calendar: Nonfarm Payrolls (expected +150,000), Unemployment Rate (expected 4.1%), Average Hourly Earnings, Annual Revisions to Employment Establishment Survey
- Earnings: Canopy Growth, Newell Brands