Market Flash: AI Shockwaves, Shutdown Static, and Groundhog Predictions

Coverage: January 28 - February 4th, 2026

Fed Holds Steady as Kevin Warsh Tapped for Chair

The Federal Reserve held rates steady at 3.50%–3.75% on January 28, with Chair Powell emphasizing institutional boundaries as the succession conversation intensified. Separately, markets have started to price a different policy mix under a potential Kevin Warsh-led Fed — a blend of rate cuts alongside faster balance-sheet shrinkage. The practical implication investors are debating: easier policy at the front end, while reduced Fed demand could keep longer-term yields relatively elevated (a recipe for curve steepening, and potentially choppier term premium).

“AI Disruption” Became a Tape Driver, and Software Took the Hit

This week’s notable equity story was a sharp selloff in software, data analytics, and related services, triggered by fresh investor anxiety that AI tools are moving from “assist” to “automate.” The potential catalyst: Anthropic’s new AI agent/tools, which investors read as a nearer-term threat to parts of the software value chain.

The market reaction looked less like a broad risk-off event and more like a rotation inside tech — with hardware and AI infrastructure holding up better than application-layer names. In other words: investors kept buying the picks-and-shovels while questioning the pricing power of some toll booths.

Macro: Manufacturing Popped, Jobs Data Got Fogged by Washington

The cleanest “growth” print of the week came from ISM manufacturing, which showed a meaningful rebound and a surge in new orders. The details mattered too: stronger orders can also mean renewed supply-chain pressure and higher input costs, depending on how tight capacity is.

Meanwhile, labor-market visibility got worse before it got better. A partial government shutdown delayed the official January employment report, adding noise around a data point that typically anchors weekly rate expectations. ADP’s private payrolls print for January came in soft, but markets treated it as a secondary signal — useful, but not dispositive.

Policy Risk Went Two Directions: Shutdown Resolved, Middle East Risk Flickered

On the domestic front, the shutdown ended with a signed funding bill, removing one near-term tail risk and clearing the path for delayed government releases to resume. The market impact here was mostly about removing uncertainty, not changing the underlying growth/inflation story.

Meanwhile, geopolitics pushed commodities around in a more visible way. Oil moved on shifting U.S.–Iran headlines: de-escalation signals hit prices early in the week, while a reported drone incident near a U.S. carrier later added risk premium back into the tape.

Gold Looked Like a Safe Haven — With a Volatility Warning Label

Gold remained the beneficiary of uncertainty, but the story this week was the size of the swings. Reuters highlighted unusually large moves and rising volatility — an awkward trait for an asset many investors treat as portfolio ballast.

Analyst commentary also tied part of the move to policy credibility themes (Fed governance, fiscal trajectory, reserve diversification), though the short-term tape showed how quickly positioning can unwind when the policy narrative shifts.

Phil Says “6 More Weeks of Winter” — Snowmen Around the World Rejoice

If you couldn’t tell by this blog’s hero image, Punxsutawney Phil saw his shadow on Sunday, extending winter by a whole six weeks (if you follow folklore standards). It’s been one of the more extreme cold seasons in recent years. The Northeast and east coast in general have been pummelled by snow and frigid temperatures. Meanwhile, the Rocky Mountain ski resorts are begging for more powder.

Since Groundhog Records have been kept, Phil has seen his shadow 110 times (about 84% of the time). NOAA puts his forecasting accuracy at around 35% — a number that surely outpaces your local meteorologist's record.