Comments based on information available as of 6:00 am CT on 2/6/2026
Growth: Cyclical or Structural Upswing?
After a year of contracting, the January Institute for Supply Management Manufacturing Index indicates the manufacturing sector is getting a bounce in its step. With new orders increasing, this could be more than just a flash in the pan. With productivity increasing, this could be more than just a cyclical upswing: it could be a structural improvement in growth where we get stronger growth without inflationary pressures.
Inflation: Don’t Stop Believing
Inflation remains stubbornly stuck above target, with Core CPI holding at 2.6% in late 2025, but the drivers are shifting. The service sector, typically a source of sticky inflation, may be seeing a “reverse the curse” dynamic where artificial intelligence adoption boosts efficiency enough to bring about services disinflation if not eventually outright deflation. This race between structural productivity gains and sticky core prices will determine if the Fed can successfully cross the finish line to 2% and when.
Policy: Musical Chairs?
Chair Powell’s term as chair is up at the end of May. If nominee Warsh isn’t confirmed by then, the Vice Chair (Phillip Jefferson) will take the seat temporarily. This game of musical chairs may be confusing, but it’s not a reason for concern. It’s how the institution was designed and it will continue to function. This safeguard ensures that the Fed remains fully operational regardless of legislative delays.
Looking Ahead: Marching to the Beat of a Different Drummer
Investors must remember the critical distinction that the S&P 500 is not a direct proxy for gross domestic product (GDP). While macroeconomic data provides a picture of what the economy was doing in the past, asset prices are driven by a complex mix of sentiment, liquidity, and future earnings expectations. Markets can rally even amidst tepid economic growth; or, as lately, they can correct during periods of expansion. Recognizing that these two forces march to different beats is essential for maintaining a balanced investment perspective.
