Resilient Growth, Disrupted Markets

The ISM manufacturing PMI unexpectedly jumped to 52.6 in January, returning to expansion for the first time in nearly a year and marking the fastest pace of expansion in over three years.

The S&P Global manufacturing PMI was revised up, confirming solid expansion in manufacturing activity.

Here’s a look at the average weekly grocery bills by state.

Here are the largest sources of power in the US by state.

Even love cannot escape inflation.

Source: Investorsobserver   Read full article

US Stock Market

The average software stock is down 40% from the 52-week high.

Source: @bespokeinvest

Software stocks have seen declining multiples over the past year, partly driven by the greater use of “vibecoding” (using verbal prompts and AI to write code).

The Fed

According to the Fed’s FCI-G Index, financial conditions tightened slightly in December, but remained near their most accommodative level since early 2022.

Producer prices came in much hotter than expected. The upward surprise was driven by services prices. Core goods prices also rose, driven by durable goods.

President Trump confirmed he will nominate former Fed governor Kevin Warsh as the next Federal Reserve chair. Wells Fargo expects a Warsh-led Fed to lean dovish on rates in the near term, despite his hawkish reputation, with limited scope to shrink the balance sheet, a shift toward less data-dependent and less communicative policy, and no material change to the Fed’s independence or the committee-driven approach.

The market is not pricing in a second wave of inflation.

What Really Happened with SaaS-aggedon?

“The viral moment for Anthropic’s models is the most important thing that’s happened in AI since ChatGPT’s launch.”

– Dean Ball

Senior fellow at the Foundation for American Innovation. Source: WSJ

It was a surprise attack no one saw coming. ClaudeAI fired a missile. It hit its mark. The Wall Street Journal summed it up: “The Week Anthropic Tanked the Market and Pulled Ahead of Its Rivals.”

Anthropic is the company behind the popular ClaudeAI tool. Analysts are calling it Saas-ageddon. This is exciting, way cool, and extremely disruptive.

Anthropic competes with ChatGPT and Grok and appears to have leapfrogged both, for now, in the race for AI supremacy. And the news upended the stock market this week.

From the WSJ,

“A simple set of industry-specific add-ons to its Claude product, including one that performed legal services, triggered a dayslong global stock selloff, from software to legal services, financial data and real estate. Then, Anthropic unveiled Super Bowl ads that taunt rival OpenAI.”

“SaaS-ageddon” (a riff on Armageddon) is analyst shorthand for a prolonged shake-out in the Software-as-a-Service industry. It’s catchy and a little dramatic. But the concerns underneath it are real.

The focus for investors is the impact on earnings. This is a disruptive gut punch to the largest single sector in the U.S. stock market. Today, let’s take a look at why this matters.

Given near-record-high stock market valuations, it is important to consider the potential impact on tech’s overall earnings. Why?

• This is material, since Information Technology accounts for ~36% of the S&P 500’s total market cap. Source: com
• If the technology sector’s earnings decline, it would likely affect the S&P 500’s overall earnings, making it harder to support current record-high valuations.

Broader measures that include tech-oriented companies outside the pure tech sector (e.g., some in Communication Services and Consumer Discretionary that are tech-centric) imply a larger effective tech influence, often over ~40% of the S&P 500.

This is especially important because the S&P 500 accounts for roughly 70%–80% of the U.S. equity market. Because the S&P 500 comprises the bulk of U.S. stock market value, technology accounts for roughly 35-40% of total U.S. stock market capitalization. Source: Reuters

The point is that earnings growth in the tech sector materially affects the valuation of the S&P 500 index. Because the exposure is so large, a wobble in tech earnings impacts the market’s performance and your 401(k).

The impact on the market since the January 30, 2026 announcement through February 5, 2026: the S&P 500 index is down 2.6%, while popular SaaS companies are down more:

• Adobe -7.6%
• Workday – 9.1%
• Salesforce -11.3%
• Intuit – 13.5%

The Wall Street Journal added,

“Anthropic’s tools, which include so-called agents that can act autonomously to carry out increasingly complex user requests for hours, have offered a preview of the threat sophisticated AI models pose to entire companies. The startup has fought its way to the forefront of the AI conversation with a novel strategy focused on safety, software engineering, and business customers.

The result: a broader business reckoning that has left corporate leaders asking what it will mean when an AI system can easily replicate expertise developed over a lifetime of coding or, in the case of companies, years of corporate development.

Tech titans such as Nvidia Chief Executive Officer Jensen Huang and others have warned that the correction is an overreaction, because many platforms are far more complex and intricate than spinning up simple websites and apps. Many companies also give priority to investing in their businesses rather than building internal software tools, analysts have said.

Still, tech giants including Microsoft, Amazon.com, Meta Platforms, Oracle and Alphabet’s Google are planning more than $600 billion in 2026 capital spending, an amount that approaches the 2026 spending budget of Japan and exceeds that of Germany and Mexico. Anthropic—and all the ways the world might use its tools—are crucial drivers of that spending.” Source: WSJ

All of a sudden, what looked like steady earnings growth for the largest segments in the S&P 500 Index, technology, is now in question. Think of this in light of near-record-high stock market valuations.

The salient point is that the Information Technology sector’s current weighting has approached levels not seen since the dot-com era mania.

Great Quotes

“You don’t love someone because they’re perfect, you love them in spite of the fact that they’re not.” – Jodi Picoult

Picture of the Week

Cea Beach, Ogliastra, Italy

All content is the opinion of Brian Decker