As February begins, U.S. markets navigated a week of resilience in equities despite volatility in commodities and ongoing debates around artificial intelligence's trajectory. Major indexes posted modest net changes over the period from late January to early February, with the S&P 500 and Dow showing slight weekly fluctuations amid choppy trading, while the Nasdaq faced pressure from tech-related sentiment shifts. Fixed income markets held Treasury yields relatively steady in the mid-4% range for the 10-year note. Commodities experienced sharp movements, led by a significant selloff in precious metals following their parabolic January rally, with gold and silver extending losses early in the week before partial recoveries.8

Market Overview  

U.S. equities displayed cautious optimism, with the S&P 500 edging modestly lower week-to-date amid mixed sessions, including a dip on Tuesday but support near recent highs. The Dow showed relative strength in some sessions, while the Nasdaq bore the brunt of volatility tied to AI and tech narratives. Bond yields on the 10-year Treasury remained elevated around 4.27-4.29%, reflecting steady inflation expectations and policy assessments. Commodities saw pronounced weakness in precious metals, with gold and silver undergoing a sharp correction from record highs, driven by factors including margin requirement hikes and shifting rate outlooks; oil also pulled back modestly amid easing geopolitical tensions.8

Key Economic Releases  

Recent data painted a picture of a U.S. economy with pockets of strength in manufacturing and productivity, while labor market signals remain in focus ahead of upcoming reports.  

• January 2026 ISM Manufacturing PMI: Released Monday, the index surged to 52.6, up 4.7 percentage points from December's 47.9, marking the first expansion in 12 months and the highest reading since August 2022. New orders jumped sharply to 57.1, production rose to 55.9, and employment improved though still in contraction at 48.1. This rebound highlights post-holiday reordering and some tariff-related front-running, though sustainability remains questioned amid trade uncertainties.¹  
• Q3 2025 Productivity: The nonfarm business sector productivity report, finalized last Thursday (revised), confirmed a 4.9% annual increase, the fastest pace in two years—unchanged from preliminary estimates. Output grew 5.4% while hours worked rose modestly by 0.5%, leading to a decline in unit labor costs. This represented an acceleration from Q2's revised 4.1% gain, offering supportive signals for non-inflationary growth potentially tied to technology investments.²  
• Germany's Q4 2025 GDP: Released last Friday, real GDP rose 0.3% quarter-over-quarter (price-, seasonally-, and calendar-adjusted) and 0.6% year-over-year (price-adjusted), or 0.4% calendar-adjusted. This modest expansion ended 2025 on a positive note after a turbulent year, but underscores largely flat growth in the Eurozone's largest economy amid ongoing challenges.³  
• Tomorrow's ADP nonfarm payrolls report for January is expected to show private sector job growth around 48,000 (consensus estimates ranging 35,000-80,000 in various previews), a modest rebound from December's weaker readings, providing early clues ahead of the official BLS employment situation.⁴  
• Looking ahead, Friday's official January nonfarm payrolls report shows a consensus forecast for around 70,000 jobs added, a slight uptick from December's 50,000 gain, with the unemployment rate expected to hold steady near 4.4%. This would reflect continued labor market cooling but no sharp deterioration, though note that the release timing remains subject to potential delays amid the ongoing partial federal government shutdown.⁵

Market Drivers  

The AI narrative continues to oscillate rapidly, serving as a real-time barometer of market sentiment. Recent reports indicate Nvidia has stepped back from an initial massive commitment but is nearing a deal to invest $20 billion in OpenAI's latest funding round (potentially part of a broader $100 billion raise), with phased contributions still representing substantial capital deployment.⁶ This adjustment reflects pragmatic recalibration amid evolving partnership dynamics yet underscores the enormous resources flowing into frontier AI development.  

If the AI rollercoaster isn’t enough, this week, “AI is Eating Software” is the new thesis—echoing Marc Andreessen's 2011 proclamation that “Software is Eating the World”, and it has gained traction but appears greatly exaggerated in scope and speed. While generative AI tools are disrupting certain coding and application layers, core enterprise software relies on complex integrations, data security, regulatory compliance, and human oversight that AI has yet to fully supplant. The panic overlooks that AI models themselves are…software. So, if AI is eating software, isn't software still eating the world? And if AI is software, but is eating software, is AI eating itself?  We hope that these interesting market narratives calm down a little in the year ahead.

Cryptocurrencies faced significant pressure this week, entering a pronounced selloff amid broader risk-off flows in risk assets. Bitcoin plunged to multi-month lows, briefly dipping below $75,000 before partial stabilization around $76,000-$78,000, marking a roughly 12% weekly decline and erasing substantial year-to-date gains as the asset retraced over 40% from late-2025 peaks. Ethereum and other major altcoins saw even steeper drops, with Ether down around 20% over the week, contributing to over $450 billion wiped from total crypto market capitalization in recent days. Liquidations exceeded $2.5 billion in leveraged positions, exacerbated by thin weekend liquidity, shifting macro expectations including Fed-related developments, and a rotation away from high-beta assets. This pullback has pushed sentiment into "extreme fear" territory, though some analysts view it as a potential bottoming setup amid ongoing institutional interest.⁷

Outlook  

With manufacturing showing unexpected rebound strength, productivity gains providing a solid foundation, and services likely to remain resilient, the U.S. economy continues to demonstrate balance despite softer labor trends and policy uncertainties. However, commodity volatility—particularly the precious metals unwind—and the fluid AI investment story introduce cross-currents that could influence investors for months or years to come.  Our team maintains a focus on high-quality, diversified positioning to navigate these dynamics.

Best regards,

Richard Barnett  

Chief Investment Officer  

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Footnotes:

1. Institute for Supply Management, Manufacturing PMI - January 2026, https://www.ismworld.org/supply-management-news-and-reports/reports/ism-pmi-reports/pmi/january/  

2. U.S. Bureau of Labor Statistics, Productivity and Costs - Third Quarter 2025 (Revised), https://www.bls.gov/news.release/prod2.nr0.htm  

3. Federal Statistical Office (Destatis), Gross domestic product in the 4th quarter of 2025, https://www.destatis.de/EN/Press/2026/01/PE26_035_811.html  

4. Consensus estimates from sources including Trading Economics and market previews for ADP Employment Change - January 2026.  

5. Consensus from sources including Seeking Alpha, FXStreet, and Trading Economics previews for January 2026 Nonfarm Payrolls (Employment Situation release expected Friday, February 6, subject to government funding).  

6. Bloomberg News, "Nvidia Nears Deal to Invest $20 Billion in OpenAI Round," February 3, 2026, https://www.bloomberg.com/news/articles/2026-02-03/nvidia-nears-deal-to-invest-20-billion-in-openai-round  

7. CoinDesk, "Bitcoin Bounce Fails With Price Falling Back Below USD77,000," February 3, 2026, https://www.coindesk.com/markets/2026/02/03/bitcoin-bounce-fails-with-price-falling-back-below-usd77-000-while-precious-metals-renew-surge; Reuters, "Crypto Market Volatility Triggers $2.5 Billion in Bitcoin Liquidations," February 2, 2026, https://www.reuters.com/markets/wealth/crypto-market-volatility-triggers-25-billion-bitcoin-liquidations-2026-02-02; Bloomberg, "Bitcoin-Led Crypto Rout Erases Nearly Half a Trillion in a Week," February 4, 2026, https://www.bloomberg.com/news/articles/2026-02-04/bitcoin-led-crypto-rout-erases-nearly-half-a-trillion-in-a-week

8. Bloomberg News, February 3, 2026, Asian Stocks Pare Losses After US Tech-Led Selloff: Markets Wrap

Researched and compiled with the assistance of Grok.  This newsletter represents our opined general assessment of the market environment at a specific time and is not intended to be a forecast or guarantee of future performance or results. The opinions and statements expressed are intended for information purposes only, and does not constitute investment advice, a recommendation or an offer or solicitation to purchase or sell any securities or investment strategies to any person in any jurisdiction in which an offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. This material may contain estimates and forward-looking statements, which may include forecasts and do not represent a guarantee of future performance. This information is not intended to be complete or exhaustive and no representations or warranties, either express or implied, are made regarding the accuracy or completeness of the information contained herein. The opinions expressed are as of February 3, 2026, and are subject to change without notice. Investing involves risks. Past performance is not a reliable indicator of current or future results, and index returns do not account for fees. It is not possible to invest directly in an index.  

Investment advisory and wealth management services are offered through Highline Wealth Partners, an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training and does not guarantee investment performance,

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