U.S. equity markets observed a closure on Monday in observance of Presidents Day, setting the stage for a holiday-shortened trading week packed with critical economic releases and corporate filings. Despite the quiet session, underlying market tensions remained, particularly surrounding the technology sector's aggressive spending on artificial intelligence and its uncertain payoff for investors.
Megacap Tech Under Pressure
The market value of major technology companies has contracted significantly this year as shareholders grow increasingly skeptical that enormous capital outlays on AI infrastructure will generate sufficient returns. Microsoft has declined approximately 17% year-to-date, while Amazon has fallen nearly 14%. As of the close on Friday, this selloff erased roughly $956 billion from their combined market capitalization.
Investor concern extends beyond the sheer magnitude of the AI investment bill to the blistering pace of innovation and competition. This was highlighted on Monday when Alibaba introduced its latest Qwen3.5 model, touting it as more cost-effective than its predecessor and capable of executing tasks across mobile and desktop applications. The move comes amid similar product pushes from peers like ByteDance and DeepSeek, intensifying the race for AI dominance.
Economic Data Takes Center Stage
Attention now pivots to more traditional market drivers: interest rates, economic growth, and consumer strength. The Federal Reserve will release the minutes from its January 27-28 policy meeting on Wednesday, February 18, at 2 p.m. EST. Later in the week, Thursday brings quarterly results from retail giant Walmart, while Friday delivers the advance estimate for fourth-quarter Gross Domestic Product (GDP) and the December personal income and outlays report at 8:30 a.m. EST. The latter includes the Personal Consumption Expenditures (PCE) price index, the Fed's preferred inflation gauge.
The previous trading session ended with a mixed and tight finish. On Friday, the S&P 500 edged up 0.05% to close at 6,836.17, and the Dow Jones Industrial Average gained 0.10% to 49,500.93. The Nasdaq Composite, however, slipped 0.22% to 22,546.67, weighed down by lagging technology and communications services stocks. All three major indexes recorded weekly losses.
Inflation and Rate Expectations
The latest Consumer Price Index (CPI) report, released Friday, showed headline inflation eased to a 2.4% annual rate in January, down from December. Core inflation, which excludes volatile food and energy prices, ran at 2.5%. "It doesn't really show a lot of urgency for the Fed to step on the gas," remarked James McCann, deputy chief economist at Edward Jones.
Following the data, rate futures markets tilted slightly more dovish. Traders now price in approximately a 70% probability that the Fed will initiate its first rate cut in June. Futures currently imply about 64 basis points of total easing for 2026. A decision to hold rates steady at the March meeting remains the consensus expectation in financial markets.
Sector Spotlight and Corporate Highlights
Walmart emerges as a key consumer bellwether this week, with investors scrutinizing its outlook for insights into household demand. The retailer recently surpassed $1 trillion in market value, amplifying focus on new CEO John Furner as the company emphasizes delivery services, advertising, and AI tools.
In a bright spot, the chip equipment sector finished the prior week with positive momentum. Applied Materials surged 11% on Friday after forecasting second-quarter revenue and profit above analyst estimates. CEO Gary Dickerson attributed the robust outlook to "the acceleration of industry investments in AI computing." Morningstar analyst William Kerwin echoed the sentiment, anticipating "a massive wafer fabrication equipment growth cycle" over the next three years.
Overseas, Asian markets were mixed during Monday's session, with trading largely shuttered in China for the Lunar New Year holiday. U.S. stock futures pointed to a modestly higher open, with S&P 500 and Dow futures each up about 0.2% in early dealings.
In commodities, gold prices softened in thin holiday trading, with spot prices down 0.2% at $5,007.70 an ounce. UBS analyst Giovanni Staunovo noted the CPI report could be interpreted dovishly but cautioned, "this doesn't mean the Fed will cut in March as services inflation is still too high." The week's upcoming data, particularly Friday's PCE print and the GDP figure, hold the potential to shift rate expectations and risk appetite, especially if they surprise to the upside and push bond yields higher.
