Following a sharp reversal on Friday, U.S. stock markets saw the Dow Jones Industrial Average close above 50,000 points for the first time, while the S&P 500 and Nasdaq Composite indexes each surged 2% in a single day, partially recovering from earlier weekly losses. However, the tech-heavy Nasdaq still ended the week down nearly 3%, marking its fourth consecutive weekly decline. Persistent investor concerns about the potential impact of artificial intelligence (AI) on the software industry dominated sentiment for much of the week, with massive spending announcements from companies like Microsoft (MSFT.US) and Google (GOOGL.US) further fueling worries about the extended return cycle for AI investments by tech giants. The S&P 500 also closed lower for the week, its third weekly decline in the past four. Year-to-date, the Dow and S&P 500 remain in positive territory, but the Nasdaq has now erased all its gains for the year.
Market turbulence extended to other assets. The cryptocurrency market experienced sharp swings, with Bitcoin briefly falling below $70,000. Beyond weak market sentiment, the ongoing influence of the Digital Asset Market Structure Act (CLARITY Act) continued to affect market movements. Meanwhile, U.S.-Iran tensions kept international oil prices volatile. Although Iranian and U.S. officials held nuclear talks in Muscat, Oman on February 6, no substantive agreement was reached. Former President Trump described the talks as "very good" and indicated further discussions would occur this week.
Looking ahead, markets face a critical data window. On Tuesday, the U.S. Commerce Department will release December retail sales figures. The January nonfarm payrolls report, delayed from last week due to a brief government shutdown, is scheduled for Wednesday. Economists forecast the addition of 70,000 jobs last month, with the unemployment rate expected to hold steady at 4.4%. Key inflation data will follow on Friday, as the Bureau of Labor Statistics releases the Consumer Price Index (CPI) report. Market expectations point to a 0.3% monthly increase and a 2.5% annual rise.
This jobs report, delayed by five days due to the government shutdown that ended on February 3, comes amid signs of instability in the U.S. labor market. ADP data showed the private sector added only 22,000 jobs in January, roughly half of economists' forecasts. Furthermore, JOLTS job openings data released last Thursday indicated openings fell to their lowest level since the peak of the pandemic in 2020. Data from Challenger, Gray & Christmas showed January corporate layoff announcements hit their highest level for that month since 2009.
Cory Stahle, senior economist at Indeed, commented via email on Thursday that the "low hiring, low firing" dynamic that characterized the labor market for most of the past year largely continued in December, with the layoff rate remaining low and the unemployment rate even declining slightly. However, he noted that some previously strong areas supporting the market appear to be fading quickly.
Notably, the January jobs report will include annual benchmark revisions in addition to the usual monthly employment and unemployment figures. External estimates suggest the revisions will show U.S. job growth was significantly lower than initially reported for the year ending March 2025. Barclays indicated that based on the latest QCEW data, the March 2025 nonfarm payroll level could be revised downward by approximately 1 million, implying monthly job gains were overestimated by 80,000–90,000 over the past year. Citi warned from a data "quality" perspective that even if January's report appears strong, it might result from residual seasonality and model bias rather than indicating labor market stabilization. True signals of a downward trend are more likely to emerge concentratedly during the spring and summer.
This suggests that while markets are still speculating on the strength of the January report, what could truly reshape the employment narrative is a systematic reassessment of 2025 employment levels. Currently, traders see less than a 20% chance of a Fed rate cut next month, after policymakers decided in January to maintain the benchmark rate in the 3.5% to 3.75% range.
On the corporate earnings front, well-known companies including Coca-Cola (KO.US), McDonald's (MCD.US), Cisco (CSCO.US), and ON Semiconductor (ON.US) are set to report their latest results this week.
In Asian markets, Sunday's polls indicated that the Liberal Democratic Party, led by Prime Minister Sanae Takaichi, secured a supermajority of over two-thirds of the seats in the lower house alone. This outcome pushed the yen close to the 160 per dollar level again. The result paves the way for Takaichi to pursue further fiscal stimulus, increasing pressure on Japanese bonds while potentially boosting stocks.
Tim Waterer, chief market analyst at KCM Trade, stated that the clear election result provides a clearer path for Takaichi's economic stimulus policies, which is positive news for the Nikkei index. However, he noted that with the LDP's fiscal stimulus plan effectively approved, the yen could face greater depreciation pressure.
Despite Friday's strong rebound, the week overall remained challenging for stocks, with markets hitting a low in both price and sentiment on Thursday. Steve Sosnick, chief strategist at Interactive Brokers, wrote in a client report that it was another down day with widespread weakness across mainstream financial assets. He noted that unlike previous declines driven by sector rotation, this was a broad-based sell-off. Sosnick pointed out that declining stocks significantly outnumbered gainers within the S&P 500 on Thursday, whereas gainers had outnumbered decliners in the first three trading days of the week.
Michael Toomey, equity trader at Jefferies, stated plainly that in his career, he had never seen such poor sentiment across any sector and believed the software sector was poised for a strong rebound. Friday's rally was robust but may only mark the beginning of this period of intense volatility. The iShares Expanded Tech-Software Sector ETF (IGV.US) fell 8.7% for the week, widening its year-to-date loss to 23%. While Nvidia (NVDA.US) gained nearly 8% over the week, major tech giants like Amazon (AMZN.US), Google, and Meta (META.US) weakened during Friday's trading. Over the past two weeks, these three companies, along with Microsoft, announced plans to invest a combined approximately $650 billion in AI-related initiatives during their earnings calls. Despite these heavy bets, investors believe the AI-driven transformation of industries and its impact on the strategic plans of these market leaders is still in its early stages.
Kyle Rodda, analyst at Capital.com, stated that the key theme across all tech earnings is capital expenditure (CAPEX). He noted growing investor concern over whether each new dollar of capital expenditure will generate sufficient returns to justify current valuations.
Mirroring the software sector, the cryptocurrency market experienced a significant correction last week, with bulls facing repeated setbacks before stabilizing on Friday. Between Wednesday and Thursday, Bitcoin plunged 12%, erasing all gains since the Trump administration, with intraday lows briefly falling below $65,000. Cryptocurrency-related stocks like Strategy (MSTR.US), Robinhood (HOOD.US), and Coinbase Global, Inc. (COIN.US) also saw double-digit declines before rebounding sharply on Friday. Compounding the pressure, Strategy reported a first-quarter operating loss of $174 billion, far exceeding the $10 billion loss a year earlier, further dampening sentiment. Robinhood and Coinbase Global, Inc. are scheduled to report earnings this week, with their results expected to further impact the cryptocurrency market.
Although Bitcoin rebounded strongly on Friday, reclaiming the $70,000 level, overall crypto sentiment remained aligned with views circulating earlier in the week. Richard Farr, chief market strategist at Pivotus Partners, stated his firm had lowered its Bitcoin price target to $0, arguing that Bitcoin has failed as a hedge against dollar risk and remains a purely speculative asset. Farr wrote that this target was not for sensationalism but based on data analysis, noting Bitcoin's high correlation with the Nasdaq and its failure to become a widely accepted medium of exchange, with no serious central bank holding an asset whose circulation is influenced by Michael Saylor.
Interactive Brokers' Sosnick noted in a client memo that as Bitcoin fell, prices of precious metals like gold and silver surged significantly. He suggested that when investors saw market weakness, they sold Bitcoin, triggering its sharp decline. Sosnick reiterated his view that Bitcoin has become an asset for retail investors, with the post-election crypto rally driven not by committed holders but by retail investors chasing gains through ETFs. As the rally faded, they rotated into precious metals, a "crazy sector rotation" meeting its inevitable outcome.
Regarding the future of Bitcoin and other digital currencies, Andy Baehr, managing director of CoinDesk Indexes, suggested that prices could experience significant volatility if the U.S. Congress passes the CLARITY Act. The bill, which aims to establish a clear regulatory framework for digital assets, passed the House in July 2025 and is currently under review by Senate committees. The next round of U.S. White House consultations with crypto firms on stablecoin revenue is reportedly scheduled for February 10. Baehr said the bill's passage "would be a major positive catalyst for the crypto market, perhaps the biggest," but "market expectations for its final enactment are currently not high."
However, with Prime Minister Sanae Takaichi's historic election victory, risk assets may continue to recover this week. Driven by expectations of looser fiscal policy under Takaichi, the yen softened slightly on Monday, and Asian stocks were poised for a higher open. According to NHK, the ruling LDP secured a supermajority of over two-thirds of the lower house seats alone. Following the news, the yen fell to 157.74 against the dollar. Stock index futures indicated gains for Japanese and Hong Kong benchmarks. U.S. futures also opened stronger on Monday. Gold prices rose back above $5,000 per ounce, while Brent crude oil fell up to 1.5% as Middle East tensions eased.
Analysis suggests the Japanese election outcome reinforces expectations for easier fiscal policy, maintaining pressure on the yen as investors prepare for the so-called "Takaichi trade" to dominate markets on Monday. The result also sets a positive tone for global assets at the week's start, extending the risk-on mood fueled by resilient U.S. data and a Wall Street rebound.
Tony Sycamore, analyst at IG in Sydney, said traders are using the early-week sell-off to buy cheaper stocks, extending the rotation from tech to cyclical sectors. He added that tailwinds from Wall Street and the Takaichi trade mean "at least for the very short term, we will see a good risk-on trading session for Asian equities."
However, in her first policy comments after the vote, Takaichi struck a cautious note on fiscal policy and consumption tax cuts, despite her party's expected overwhelming victory. She emphasized the importance of fiscal sustainability, seeking to ease investor concerns about her spending plans. Takaichi told reporters the government would accelerate discussions on consumption tax cuts and submit related reform bills to the Diet if consensus is reached. On a television program, she noted that the LDP's campaign pledge for a two-year temporary exemption on food consumption tax, financed without relying on new government bonds, had public support, and the government would proceed on that basis. She stated the consumption tax is an extremely important issue, and the government would remain flexible, listen to various opinions, and strive to reach a final plan quickly. Japanese Finance Minister Satsuki Katayama echoed the same premise on Sunday night, stating the government plans to explore funding schemes that do not rely on deficit-covering bonds and advance the plan within the two-year timeframe.
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