Weekly update: Records, retail strength, and Fed friction

U.S. markets showed mixed performance last week, with the S&P 500 posting a losing week despite hitting new records mid-week. Volatility stemmed from President Trump's Federal Reserve comments, cautious guidance from major banks, and mixed economic signals, though inflation readings, strong retail spending, and resilient growth indicators bolstered the soft-landing narrative.

 

Here are the week’s most important developments:

 

Stock Index Performance 

 

• The S&P 500 declined 0.38%.
• The Nasdaq 100 fell 0.92%.
• The Dow Jones Industrial Average slipped 0.29%.

 

Policy & Prices: The Fed Under Pressure

 

• At a Detroit Economic Club address, President Donald Trump criticized Federal Reserve Chair Jerome Powell and urged deeper rate cuts, the most recent example of volatility between the White House and the Federal Reserve — and more specifically, President Trump and Powell.
• December's inflation report came in slightly cooler than expected, with consumer prices up 2.7% year-over-year and core inflation at 2.6%, both edging down but still above the Fed's 2% target. Wholesale price data showed modest upstream pressure, with key measures rising just 0.1-0.4%, though December's full producer price report won't arrive until Jan. 30, leaving some uncertainty about the inflation pipeline.
• Retail data offered a mixed read on the consumer. Circana reported flat revenue but roughly a 1% drop in unit volumes in the five weeks to Jan. 3, 2026 — signaling mounting resistance to higher prices. However, the NRF’s Retail Monitor showed 2025 holiday sales up 4.1% to just over $1 trillion, and delayed November Census retail sales rose 0.6% month-on-month, beating expectations and suggesting goods demand ended 2025 with more momentum than feared.

 

The Week Ahead 

 

When stock markets reopen after Martin Luther King Jr. Day, investors will focus on a range of key data:

 

• Personal Consumption Expenditures (PCE) inflation and income data for October/November (Jan. 22) will test the soft-landing narrative and shape Fed rate-cut expectations. On the same day, the Q3 Gross Domestic Product (GDP) revision will confirm whether late-2025 growth near 4% holds. Preliminary January Purchasing Managers’ Index (PMI) for manufacturing and services (Jan. 23) offers the first read on 2026 business activity and pricing pressures.
• The next phase of the earnings season is crucial. After early results and notably cautious 2026 guidance from major banks, strategists say sustaining the S&P 500 and Dow rally now hinges on whether cyclicals (companies with periods of high profits followed by low profits), industrial companies, and consumer‑facing companies can deliver solid 2026 margins, capital‑spending plans, and demand outlooks.

 

For diversified portfolios, the latest data supports maintaining equity exposure, alongside bond allocations and real-asset positions that can provide balance against potential policy missteps, inflation surprises, or economic deceleration later in 2026.