Markets Navigate Fed Pause, Earnings Dispersion, and Rising Geopolitical Risk

Weekly Market Commentary | Week of Feb 2^nd, 2026

A Recap of Economic and Financial Trends from the Prior Week

By: Khadija Farooqi, The Quinnipiac University Global Economics Research Team

Last Week in Review

• Fed holds rates steady after prior easing; Warsh nomination sharpens focus on future policy direction amid weakening consumer confidence.

• Equity markets volatile with narrow leadership, earnings dispersion widens as AI monetization and margins drive sector outcomes.

• Geopolitical and policy risk intensifies; tariffs tied to Greenland elevate risk premia while yen weakens on Japan election uncertainty.

Economic Recap

U.S. economic data last week painted a mixed picture, but market focus centered on monetary policy. Consumer confidence weakened sharply, with the Conference Board index falling to 84.5 in January from 94.2 in December, its lowest level since May 2014, while labor market indicators remained relatively firm, as initial jobless claims came in at 209,000 and continuing claims declined to about 1.83 million, the lowest since September 2024.

Against this backdrop, after three consecutive rate cuts, the Federal Reserve held the fed funds rate unchanged at 3.50% to 3.75%, describing economic activity as expanding at a solid pace and inflation as somewhat elevated, while emphasizing a meeting-by-meeting approach to policy decisions. Chair Jerome Powell noted that rates did not appear to be significantly restrictive given the economy’s strength. Late in the week, President Donald Trump announced the nomination of former Fed governor Kevin Warsh to succeed Powell as chair when his term expires in May, a development closely watched by markets.

Outside the U.S., the eurozone economy grew 1.5% in 2025, exceeding expectations, with fourth-quarter GDP rising 0.3% sequentially, while Germany trimmed its 2026 growth forecast to 1.0%. The Riksbank held its policy rate at 1.75%, UK mortgage approvals fell to an 18-month low, and Japan data showed softer inflation momentum, with Tokyo-area core CPI rising 2.0% year over year in January.

Market Recap

Source: JPMorgan Asset Management, “Weekly Market Recap” (February 2^nd, 2026). (Chart © JPMorgan Asset Management. Chart used under fair use for educational commentary by The Quinnipiac Global Economics Research Team.)

U.S. equity markets experienced notable intraday volatility but ended the period with a narrow leadership profile. The S&P 500 Index advanced to a new intraday high above 7,000 before retreating, as large-cap value stocks outperformed growth peers, while small- and mid-cap stocks finished the week lower. Within the index, communication services and energy led gains, while health care lagged.

Earnings season continued to shape market dynamics, with 43.5% of S&P 500 market capitalization having reported and consensus now estimating year-over-year earnings growth of 10.1%. Sales growth contributed 6.6 percentage points to earnings growth, margins added 4.4 points, while share count detracted 0.8 points. Technology earnings accounted for roughly 66% of total earnings growth, with industrials posting 27% year-over-year earnings growth, while consumer and health care sectors faced margin pressure from rising costs.

Internationally, European equities were mixed, with the STOXX Europe 600 up 0.44% in local currency terms, while Germany’s DAX declined 1.45% and Italy’s FTSE MIB rose 1.55%. Japanese equities underperformed amid yen strength and political uncertainty, and mainland Chinese equities were little changed, as several provinces lowered 2026 GDP growth targets.

Market Themes

AI Earnings Reveal a Monetization Divide Within Big Tech

Recent earnings results highlighted a growing bifurcation across the technology sector as investors increasingly distinguished between companies demonstrating near-term returns on artificial intelligence investment and those facing rising costs with less immediate payoff. Meta shares surged more than 10% in a single session after reporting productivity gains tied to AI integration across advertising, commerce, and internal operations, while Microsoft declined following results amid concerns over slowing cloud growth and the scale of ongoing AI-related capital expenditures.

Similar pressure weighed on enterprise software names such as Salesforce and ServiceNow, as investors questioned whether AI could disrupt the traditional software-as-a-service model before meaningfully enhancing margins. At the same time, strength persisted across parts of the AI supply chain, particularly memory and storage, with Sandisk shares up more than 150% year to date after a strong earnings report and Micron up 52% following triple-digit gains in 2025. The dispersion underscores a broader market shift toward demanding clear evidence of AI monetization, even as Wall Street continues to view AI as a structural driver of the broader equity rally.

Tariffs, Greenland, and the Return of Geopolitical Risk Premia

Geopolitical risk resurfaced as a major market theme after the Trump administration announced new tariffs on eight European countries, including France, Germany, Sweden, Finland, the Netherlands, Denmark, the United Kingdom, and Norway, linking trade measures directly to diplomatic tensions surrounding Greenland. The proposed tariffs are set to begin at 10% in February and rise to 25% until a broader agreement is reached, reinforcing concerns that trade policy is increasingly being used as a geopolitical lever rather than a purely economic tool.

These developments contributed to a global risk-off tone, with heightened uncertainty weighing on risk assets and currencies and accelerating capital outflows from emerging markets, including foreign equity outflows of Rs 29,135 crore from India in January. Analysts noted that the potential use of the International Emergency Economic Powers Act framework and pending legal review by the U.S. Supreme Court add further uncertainty, reinforcing expectations that geopolitical and trade-related risks will remain an ongoing source of market volatility.

Yen Weakness Persists as Election Risk and Policy Uncertainty Dominate FX Markets

The Japanese yen came under renewed pressure this week as political risk overtook monetary policy as the dominant driver in currency markets. The yen fell for a fourth consecutive session, down 0.7% to 156.82 per dollar and more than 2% since January 30, as investors positioned ahead of Japan’s upcoming elections, which are expected to bolster Prime Minister Sanae Takaichi’s fiscal and defense-spending ambitions. Earlier optimism around potential Bank of Japan tightening, supported by inflation having risen toward 3.0% in recent months and expectations late last year that the BOJ could raise rates from 0.5% to 0.75%, faded as markets refocused on political messaging. Takaichi triggered a fresh yen selloff after highlighting the benefits of a weaker currency during a campaign speech, comments she later walked back, but which reinforced concerns about inconsistent policy signals.

At the same time, the U.S. dollar firmed modestly, supported by steady U.S. services activity in January and lingering uncertainty over delayed labor data following the government shutdown. The dollar index rose 0.24% to 97.63, while USD/JPY rebounded from January’s brief intervention-driven strength near 159. As a result, FX markets increasingly viewed yen performance less as a function of interest-rate differentials and more as a reflection of election risk, fiscal credibility concerns, and shifting confidence in Japan’s policy framework, leaving the currency the clear underperformer among major peers.

Chart of the Week

Source: BlackRock Investment Institute, “A valuation discount: Listed infrastructure vs MSCI World valuations, 2010–2025,” 2025. (Chart © BlackRock Investment Institute. Used under fair use for educational commentary by The Quinnipiac Global Economics Research Team.)

Infrastructure assets remain at the intersection of several long-term structural forces, including AI-driven capital investment, energy security priorities, and the low-carbon transition. The accompanying chart highlights that listed infrastructure equities are trading at nearly a 20% discount to their long-term average relative to global equities on an enterprise-value-to-EBITDA basis, levels comparable to those seen during the global financial crisis and the COVID shock.

This valuation gap has persisted despite continued evidence of robust demand for infrastructure across transport, energy, digital networks, and utilities, and reflects the pressure higher interest rates have placed on asset valuations more broadly. This disconnect matters because it suggests that market pricing is being driven more by macro financial conditions than by underlying demand fundamentals, leaving infrastructure particularly sensitive to shifts in interest rate expectations. As a result, infrastructure has become an important lens through which markets are expressing views on the durability of higher rates, the pace of AI-related capital spending, and the balance between long-term growth needs and near-term financial constraints.

Market Outlook

The near-term outlook remains defined by a balance between resilient activity data and emerging signs of demand fatigue, particularly on the consumer side. Markets continue to grapple with a Federal Reserve that has paused after earlier easing but remains unwilling to signal a clear path forward amid sticky inflation and tariff-related uncertainties. Earnings dispersion is likely to persist as investors differentiate between sectors and companies able to translate investment spending into measurable profit growth and those facing margin pressure. At the same time, heightened geopolitical risk and trade policy uncertainty suggest financial conditions may remain uneven, reinforcing a cautious tone across global markets as investors move further into 2026.

Calendar Events

Economic Data:

• Feb. 2 (Mon): S&P flash U.S. manufacturing PMI (Jan); ISM manufacturing (Jan)

• Feb. 3 (Tue): Job openings (Dec, delayed); Auto sales (Jan)

• Feb. 4 (Wed): ADP employment (Jan); S&P final U.S. services PMI (Jan); ISM services (Jan)

• Feb. 5 (Thu): Initial jobless claims (Jan. 31, delayed)

• Feb. 6 (Fri): U.S. employment report (Jan); Unemployment rate (Jan); Hourly wages (Jan); Consumer sentiment, preliminary (Feb); Consumer credit (Dec)

  
  

Major Corporate Earnings:

• Feb. 2 (Mon): Palantir Technologies (Q4 2025); The Walt Disney Company (Q4 2025)

• Feb. 3 (Tue): Advanced Micro Devices (Q4 2025); PepsiCo (Q4 2025); Pfizer (Q4 2025)

• Feb. 4 (Wed): Alphabet (Q4 2025); Qualcomm (Q1 2026); UBS (Q4 2025)

• Feb. 5 (Thu): Amazon (Q4 2025); Shell (Q4 2025)

• Feb. 6 (Fri): Toyota Motor Corporation (Q3 2026)

Sources

BlackRock Investment Institute. “Weekly Market Commentary and Global Outlook Archives.” BlackRock.https://www.blackrock.com/corporate/insights/blackrock-investment-institute/archives

J.P. Morgan Asset Management. “Economic Update.” J.P. Morgan Asset Management, https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/market-updates/economic-update/

J.P. Morgan Asset Management. “Weekly Market Recap.” J.P. Morgan Asset Management, https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/market-updates/weekly-market-recap/

MSN Money. Stock Market: Greenland, Trump Tariffs & Rs 29K Crore FPI Outflows in January — What’s Ahead? https://www.msn.com/en-in/money/topstories/stock-market-greenland-trump-tariffs-rs-29k-crore-fpi-outflows-in-jan-what-s-ahead/ar-AA1UzAlt

Reuters. Dollar Steady, Yen Wobbles Ahead of Japan Election. https://www.investing.com/news/economy-news/dollar-steady-yen-wobbles-ahead-of-japan-election-4483533

T. Rowe Price. “Global Markets Weekly Update.” T. Rowe Price Insights, https://www.troweprice.com/personal-investing/resources/insights/global-markets-weekly-update.html

Yahoo Finance. The Haves and the Have-Nots: Wall Street Sees Divide in Tech Stock Performance After Earnings Reports. https://finance.yahoo.com/news/the-haves-and-the-have-nots-wall-street-sees-divide-in-tech-stock-performance-after-earnings-reports-153043282.html