From the desks of Stanley Katz & Lauren Madera
HAPPY SUPER BOWL SUNDAY! HERE’S TO A GOOD GAME, A GREAT HALFTIME SHOW, EXCEPTIONAL COMMERCIALS, AND A FULL BELLY!
The Dow Jones Industrial Average shattered a historic milestone this week, closing above 50,000 for the first time in its 130-year history as investors rotated aggressively into value and industrial stocks (DJIA: +2.50%, S&P 500: -0.10%, Nasdaq: -1.84%). However, the celebratory tone masked a starkly divergent market underneath. The Nasdaq fell 1.84% as technology investors reassessed the risks of widespread AI adoption, sparked by concerns that artificial intelligence tools—including new workplace automation capabilities—could render entire software and services industries obsolete. Meanwhile, a weak JOLTS report (Job Openings and Labor Turnover Survey) revealed job openings plummeted to 6.5 million in December (versus expectations of 7.2 million). This marks the lowest level since September 2020. Also concerning, the ratio of job openings to unemployed workers fell below 1.0 for the first time since the pandemic.
Schwab strategists argue that current dynamics reflect healthy breadth rather than weakness. The broadening-out trend is gathering genuine momentum: over the past month, more than 50% of S&P 500 constituents have outperformed the index, and all but one sector now has at least 50% of stocks trading above their 50-day moving average—a rare occurrence that signals broad-based participation. Critically, earnings growth is genuinely spreading beyond the “Magnificent Seven” mega-cap tech companies. The “cultivate phase” of AI is now underway, with companies across industries (banks, healthcare, retailers) accelerating their adoption of AI tools and seeing measurable margin expansion as a result. Schwab also notes that Fed sentiment remains orthodox despite political pressure, with the labor market emerging as the single largest driver of Fed policymakers’ focus—much more so than inflation concerns. While the bond market remains calm, this shift in Fed attention to employment weakness could become policy-relevant if labor conditions continue deteriorating.
Capital Group offers important nuance on the economic backdrop and Fed independence. The firm notes that Kevin Warsh’s appointment may ultimately prove more dovish than markets initially feared, as both the Fed and the Trump administration are currently aligned on supporting labor market health. However, Capital Group emphasizes that Fed independence remains on watch. While the current Fed board structure offers protections (regional Fed presidents were unanimously reappointed to five-year terms), the incoming administration’s ability to appoint additional governors could gradually shift the Fed’s policy orientation over time. Critically, mortgage rates have remained virtually flat despite all the Fed’s rate cuts—a sign that long-term yields are driven by fiscal and inflation expectations, not Fed funds rates. If inflation remains sticky or productivity disappoints, the Fed may face an awkward dilemma: maintaining near-zero short-term rates while long-term rates rise, potentially cushioning some sectors (financials benefit from a steep yield curve) while pressuring others (housing, where mortgage rates are stuck around 6%).
Below are links to a number of third-party research reports that we have read and analyzed over the past week. We hope you will find the information interesting, useful, and worthwhile.
Schwab:
Capital Group:
Argus:
J.P. Morgan Asset Management:
James Investments:
Stanley Katz & Lauren Madera, Financial Advisors
ClientFirst Financial Strategies, Inc.
937-293-5500
Source for weekly stock market returns: Barron’s.
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