What drove the U.S. macro and markets in the last 24 hours

U.S. markets spent the past day recalibrating around three familiar pillars: the path of Federal Reserve policy in 2026, the durability of disinflation relative to labor-market resilience, and the early-year restart of primary issuance and corporate guidance ahead of fourth-quarter earnings season. Price action reflected a market still balancing soft-landing hopes against the risk that inflation progress slows as growth stabilizes.

Rates and Fed expectations

  • Front-end policy expectations remained the key anchor for all risk assets. Traders continued to debate the timing and pace of 2026 rate adjustments, with interest-rate vol concentrated around upcoming labor and services-sector prints.
  • Along the curve, duration demand is sensitive to two forces that picked up in the last day: seasonal reopening of Treasury supply and re-engagement from real-money accounts after the holidays. Any incremental repricing of the terminal policy path is flowing quickly into 2–5 year maturities, while long-end yields are trading more on term-premium and supply/demand dynamics.
  • Fed communications remain firmly data-dependent. Markets are attuned to hints on three topics: the threshold for additional disinflation progress, the tolerance for growth moderation, and any discussion of the balance-sheet runoff pace as liquidity conditions evolve.

Equities and sector rotations

  • Equity leadership continued to toggle between megacap growth and cyclicals. Investors are weighing the earnings durability of secular growth against potential margin tailwinds for rate- and commodity-sensitive sectors if input costs remain contained.
  • Early January positioning effects are in focus: the “January effect” lift for small/mid caps, pension and target-date rebalancing flows, and a gradual reopening of corporate buybacks as issuers exit blackout windows later in the month.
  • Pre-earnings guidance is starting to trickle in. Markets rewarded visibility on 2026 revenue trajectories and capex discipline, while punishing names signaling inventory normalization or delayed enterprise spending.

Credit and funding

  • Primary issuance returned with a heavier investment-grade calendar, a typical feature of the first full trading weeks of the year as issuers term out funding. Concessions and order-book depth are being watched closely for signs of demand elasticity at current spread levels.
  • In high yield, appetite remains selective: higher-quality BB and secured paper see steadier sponsorship than lower-quality single-B cohorts. Loan markets continue to benefit from floating-rate carry but are sensitive to any downgrade or default headlines.

Commodities

  • Oil remains a geopolitical barometer. Markets are monitoring shipping conditions, OPEC+ compliance signals, and indications of demand from U.S. mobility and global refineries. Energy equities track not just crude levels but also term structure and differentials.
  • Gold is trading as a function of real yields and the dollar. Any swing in inflation breakevens or a pivot in policy-rate expectations can quickly feed into bullion flows.

U.S. dollar and cross-asset linkages

  • The dollar’s near-term path remains tied to relative growth and rate differentials. Range-bound trade has been supported by offsetting impulses: a cautious risk tone that supports the dollar as a hedge versus ongoing disinflation that caps upside via lower real yields.
  • Cross-asset correlation remains high around macro catalysts. A repricing in front-end rates tends to ripple into equity factor performance (quality and profitability factors favored when policy uncertainty rises).

Macro takeaways

  • Soft-landing base case remains intact but not guaranteed. The balance between cooling inflation and steady employment continues to define risk premia.
  • Policy-path uncertainty is the dominant source of short-term volatility. Incremental data points can cause outsized swings because positioning reset is still underway after year-end.
  • Liquidity has normalized from holiday lows, but early-year supply (Treasuries and corporates) will periodically test market depth.

Seven-day outlook: what matters and why

Top catalysts to watch

  • Labor-market signals: Job openings, private payroll estimates, and weekly claims will shape the debate on “cooling versus cracking.” A steady participation rate and moderating wage growth would support a benign disinflation narrative. Any surprise re-acceleration in wages could reprice the front end.
  • Services activity and prices: Services-sector activity indices and their prices-paid components remain pivotal for core inflation. A continued downshift in services inflation would reinforce confidence that policy can ease without reigniting price pressures.
  • Fed communications: Remarks from policymakers and any published materials will be combed for clues on the sequencing of policy changes in 2026 and potential balance-sheet considerations.
  • Treasury supply and funding: Auction outcomes and bid-to-cover dynamics are important for term premium. Strong demand supports duration; tepid demand can steepen the curve.
  • Earnings setup: Early bank and large-cap reports are on the horizon. Watch net interest income trajectories, credit provisioning, fee income resilience, and guidance on capital returns. For tech and industrials, commentary on backlog, AI-related capex, and supply chains will set the tone for Q1.
  • Energy/geopolitics: Any disruption to shipping lanes or production guidance changes can move oil and, by extension, inflation expectations.

Scenario map for the week

  • Benign data mix (base case): Labor indicators cool at the margin; services inflation eases; auctions clear smoothly. Implication: Bull-steepening bias in rates, support for quality equities, tighter credit spreads.
  • Sticky inflation surprise: Services prices or wages run hot. Implication: Front-end yields rise, dollar firms, long-duration equities underperform, credit tone cautious.
  • Growth wobble: Labor data softens more than expected or guidance turns defensive. Implication: Curve bull-flattens, defensives outperform cyclicals, flight-to-quality bid in IG; HY and small caps lag.

Positioning and technicals

  • Seasonals: January often favors small/mid caps and value when rates drift lower, but factor performance will be path-dependent on macro prints.
  • Volatility: Implied vol is sensitive to event clustering; consider hedges around data drops and auctions if exposures are concentrated in rate-sensitive equities or long-duration credit.
  • Liquidity: Early-week liquidity can be thinner around data releases; plan execution accordingly, especially for larger credit allocations.

Implications by asset class

Equities

  • Favor balance: Pair secular growth (strong balance sheets, pricing power) with select cyclicals that benefit from stable demand and easing input costs.
  • Watch margins: Freight, wage trends, and energy are the swing variables for 2026 EPS. Companies with productivity levers and operating discipline should outperform.
  • Event risk: Use earnings dates and macro releases to stage entries; consider staggered buys or collars on high-beta exposures.

Rates

  • Front-end: Most sensitive to policy repricing; incremental hot prints push expected easing further out.
  • Intermediate: Offers convex exposure to soft-landing data; watch for buy-the-dip demand from real money on supply indigestion.
  • Long-end: Term premium linked to auction outcomes and pension demand; curve shape will be the cleanest read of growth vs. inflation impulses.

Credit

  • Investment grade: New-issue concessions present entry points; focus on maturities near the belly of the curve for carry versus rate risk.
  • High yield/loans: Emphasize quality and sectors with clear free-cash-flow visibility. Keep dry powder for spread widening on macro surprises.
  • Structured credit: Seasonality supports AAA/AA tranches; watch collateral performance and prepayment dynamics as rates evolve.

FX

  • USD: Most reactive to shifts in real-rate differentials. Benign U.S. data and cooperative inflation typically cap dollar upside; inflation surprises support it.
  • Crosses: Risk-sensitive pairs will mirror equity tone; consider diversification across currencies with improving growth momentum and credible policy frameworks.

Commodities

  • Energy: Track inventory data, refinery runs, and shipping updates. Equity beta to crude differs by subsector; integrateds and midstream can dampen volatility relative to E&P.
  • Precious metals: Real yields and Fed-path expectations drive direction; gold serves as a hedge for policy or geopolitical missteps.

Risks to monitor

  • Reacceleration in services inflation or wages that challenges disinflation progress.
  • Weaker-than-expected labor data that shifts the narrative from “cooling” to “cracking.”
  • Treasury auction underperformance that lifts term premium and tightens financial conditions.
  • Geopolitical flare-ups affecting energy or shipping, with knock-on effects for inflation expectations.
  • Earnings or guidance disappointments that expose stretched valuations in select segments.

Bottom line

The next week is about confirmation. If labor and services data continue to glide lower alongside contained inflation pressure and orderly Treasury supply, risk assets can extend early-year footing and rates can settle into a lower-volatility range. Surprises on either side—sticky inflation or a sharper growth slowdown—will move the front end first and cascade into equities and credit. Stay tactical around data, lean into quality, and let auction and earnings signals guide duration and risk exposures.