There remains caution around the level of AI disruption across industries, spanning insurance, software and trucking. One AI-related bright spot was Applied Materials, which gained over 8% following better-than-expected second quarter forecasts. The tech-heavy Nasdaq Composite led losses for the week, falling 2.1% and seeing its fifth consecutive weekly decline. Earlier in the week the Dow Jones Industrial Average had closed at another record high however it reversed course and dropped 1.2%. The S&P 500 lost 1.4%, with all indices seeing their biggest losses since November. The utilities sector was the best performer on the S&P 500, up 7.1% to close at a record.
There were numerous economic data releases also in focus. The non-farm payrolls report for January came in stronger-than-expected, while the unemployment rate fell slightly. The stronger jobs data raised expectations that the Federal Reserve would slow down its pace of rate cuts. Then on Friday, the consumer price index eased to 2.4% in January from 2.7% the prior month and below consensus estimates. With traders dialling back rate cut expectations Treasury yields declined, with the 10-year note ending at 4.05%.
European markets fluctuated over the week weighing up the AI volatility, corporate earnings and also economic data. On Wednesday the pan-European STOXX 600 hit an intra-day record, supported by a surge in energy stocks and miners, offsetting losses from technology and financials. Nevertheless, the index later pulled back trimming its weekly gain to a modest 0.1%. The banking sub-index fell 5.4% in its worst week in over 10 months. Regional performance was mixed with Spanish and Italian indices lower, dragged down by financials, whereas German, French and UK indices saw gains.
Although it was a holiday shortened week for Japanese equities, the broader Topix gained 3.2% and the Nikkei 225 advanced almost 5%. This came as markets welcomed the election outcome in which Sanae Takaichi’s Liberal Democratic Party secured a supermajority. The 10-year Japanese government bond yield surged following the result however, it ultimately ended the week little changed. Chinese equities ended the week with modest gains going into the Lunar New Year holiday. The Shanghai Composite added 0.4% whilst Hong Kong’s Hang Seng was flat.