Real economy stable as AI fears spread

Markets experienced another bout of weakness last week as fears of the disruptive potential of artificial intelligence broadened. What started as a software impact, spread to insurance brokers, wealth managers, and by weeks end, to almost any business that provides a service. Stocks naturally saw a greater impact, while the weakness in corporate bonds was comparatively tame. Bond investors still seem to be comfortable with the creditworthiness of largest tech names.  

After several weeks of negative layoff headlines, the US job market received a dose of good news. The economy added 130,000 jobs in January, almost twice the expected amount and a meaningful improvement from December as well. The unemployment rate also ticked down to 4.3%, from 4.4% prior, remaining at a low, healthy level. Wage growth surprised to the upside as average hourly earnings increased 0.41% month-over-month.   

US Treasury yields also moved lower last week, helped by a softer inflation reading.  The Consumer Price Index slowed to 0.2% growth month-over-month and 2.4% year-over-year, with both metrics better than forecast. Following the release, markets began pricing in an increased chance for three cuts this year, up from the two that had long been expected. The latest economic data suggests progress on both sides of the dual mandate, though plenty of risks still exist. Tariff impacts seem to be working through the system and employment data has alternated between signs of growth and occasional hints of cooling lately.