Fixed Income & Equities Markets Week in Review

US stock indices came under pressure again this week, as investors remained uneasy and data dependent. Artificial intelligence (AI) disruption concerns and focus on macro-economic data were top of mind.

Worries about the possibility of AI disruption remained a notable narrative this week. The market has been focused for a while now on the significant amount of capital spending that is coming from major AI-related companies – and whether these investments will translate into higher revenues and profitability. But over the past couple of weeks, that has widened to worries that AI could become a broad-based threat to business models. Software companies’ stock prices have been under significant pressure in recent weeks, over concern that Software as a Service (SAAS) offerings could be replaced by AI tools.

In addition, last week Anthropic announced the release of its new Claude Opus 4.6 model. This product reportedly has sophisticated, automated, agent-type capabilities that can replace or alter existing business workflows rather than merely augment them (suggesting that it has the ability to replace specialized professional services). Anthropic has indicated that it can act as a specialist/analyst for such professions as legal, finance & accounting, sales and marketing, and customer support. Adding to the concerns, Algorhythm Holdings (RIME) announced on Thursday that its platform is “transforming freight management from a labor-intensive, manual process into a highly automated, intelligence-led system that's driving a 4x improvement in workforce productivity.” The combination of news from these two companies fueled a sell-off in companies’ stocks perceived as vulnerable to such AI intervention (software, freight & logistics, insurance, insurance brokers, wealth/asset managers & brokers, and real estate services, for example). The impact broadened further on Thursday as the market speculated that such replacement of employees could result in a decline in demand for office space. Commercial real estate and industrial REIT stocks joined the drawdown.

The AI secular growth story has been a significant driver of market gains for three years now, and which we believe will continue for several years. However, as the AI infrastructure continues to build out, questions such as these will arise about how it will be put into use across numerous businesses and how it will affect profitability, efficiency, and current ways of doing business.

Economic data was also in the spotlight during the week:

On Wednesday, the Bureau of Labor Statistics (BLS) released news on the labor market. Its non farm payrolls report showed that the nation added 130,000 jobs during January, well ahead of the 70,000 consensus estimate and the highest since December 2024. The unemployment rate dropped to 4.3% versus the expectation for it to hold at 4.4%. The stronger than expected report led to a reduction in expectations for a short-term cut in interest rates.

On Friday, the January core Consumer Price Index (CPI) index came in at a cooler than expected 0.3% month/month, in line with consensus estimates and the prior-month pace. On an annualized basis, core CPI was reported at 2.5%, also in line with expectations. That buoyed hopes for a sooner-than-later interest rate cut. The market is now back to pricing in the next reduction in June. The CME FedWatch Tool currently shows an approximate 30% likelihood of an April cut, but a 70% possibility of an easing in June.