Reasons for Investor Optimism Around January's Economic Data

We have finally received complete inflation and jobs numbers. Investors should be encouraged—not because the economy is booming, but because more clarity can mean more policy flexibility.

Why I Think Investors Should Feel Good About January Economic Data After several months of parsing through incomplete data sets tied to the government shutdown, we finally received a clean January print with complete inflation and jobs numbers. Investors should be encouraged by what they see, but not because the data showed the economy is booming. Instead, what we see is that the balance of risks appears to be shifting.1 Let’s start with jobs. January payrolls rose by 130,000, and the unemployment rate ticked down to 4.3%. On the surface, that looks like stabilization in the labor market, which is welcome news. But it’s not actually the reason I think investors should feel upbeat. The more consequential part of the jobs report was what it told us about 2025. Annual benchmark revisions and adjustments to the Bureau of Labor Statistics’ business formation model substantially altered 2025’s hiring picture. What markets and the Federal Reserve largely treated as a reasonably healthy year for job growth was revised down to roughly 180,000 total jobs for the entire year, or an average of just 15,000 per month. Outside of recessions, that ranks among the weakest hiring environments since World War II. Are You Prepared for the Market’s Next Moves? February’s data may have quietly shifted the narrative. Revised job numbers show hiring was weaker than previously believed. Inflation continues to ease. That combination could give policymakers more room to adjust rates without the economy slipping into recession. What could that mean for markets? Our February Stock Market Outlook Report 2 breaks down: Asset allocation guidelines for today’s market environment Expert forecasts for inflation, rates, and economic trends Industry tables and rankings to help you spot opportunities Buy-side and sell-side consensus insights at a glance And much more! If you have $500,000 or more to invest, claim your complimentary copy of the report and see how shifting market trends could influence opportunities in the months ahead. IT’S FREE. Download our latest February Stock Market Outlook Report 2 I want to be clear that I’m not implying an under-appreciated jobs market collapse. U.S. employers are not broadly cutting payrolls, and initial jobless claims remain historically low. But job openings have fallen meaningfully from their 2022 peak, quits have declined, and hiring momentum has narrowed dramatically. For instance, nearly all of January’s gains came from healthcare-related fields, which is a sector supported by demographics rather than cyclical strength. Professional services, finance, retail, information, and segments of government payrolls have either stagnated or contracted over the past year. In other words, the labor market has been quietly cooling for some time, and it’s been cooling while the Federal Reserve has remained overwhelmingly focused on inflation. This is an important point, especially when you consider the January inflation report. The latest CPI reading showed headline inflation slowing to 2.4% year over year, down from 2.7% in December. Core CPI came in at 2.5%, the lowest since the post-pandemic inflation surge began in 2021. Shelter costs, which had been the single largest contributor to elevated inflation, rose just 0.2% month over month and continue to trend lower on a year-over-year basis. There are still areas of stickiness, and the Fed’s preferred PCE measure is still running closer to 3% than 2%. But the feared reacceleration of inflation has simply not materialized. After several years in which early-year data disrupted the disinflation story, January 2026 did not bring that setback. Taken together, the revised labor data and the inflation print don’t change my view of the economy dramatically. I’ve been saying for months that growth remains positive and consumers remain resilient. What the January data do change, in my view, is the Federal Reserve’s calculus. If hiring has been running closer to stall speed than previously believed, the argument that policy remains restrictive gains credibility. Slower labor momentum also arguably reduces the risk of wage-driven inflation pressure, and I think it increases the likelihood that policymakers will weigh employment stability more heavily from here. This all being said, and as I’ve written many times before, rate cuts alone are not a reason to be bullish. Markets typically care more about why rates are being cut than about the cuts themselves. But in taking a step back, I think we are entering a period in which several potential tailwinds could converge: resilient corporate earnings, fiscal support flowing from the One Big Beautiful Bill Act, a pending Supreme Court decision that could clarify tariff authority and reduce trade uncertainty, and a Federal Reserve that may have room to ease policy without needing an economic downturn to justify it. From my vantage, the direction of policy risk appears more balanced than it was this time last year, and that alone should frame a constructive outlook for investors. Bottom Line for Investors If inflation continues to ease while employment remains broadly stable, rate cuts become possible without the economy having to slip into recession. When that potential monetary flexibility is layered onto steady earnings and incremental policy clarity, the macro backdrop looks a lot more supportive, in my view. Markets tend to respond favorably when uncertainty declines and policy flexibility increases. January’s data suggests we may be moving in that direction. Understanding where policy risk stands today is critical for long-term investors. In our February Stock Market Outlook Report 3, we take a deeper look at how moderating inflation, slower labor momentum, and a potentially more flexible Federal Reserve could influence market structure in the quarters ahead. The report outlines: Asset allocation guidelines for today’s market environment Expert forecasts for inflation, rates, and economic trends Industry tables and rankings to help you spot opportunities Buy-side and sell-side consensus insights at a glance And much more! If you have $500,000 or more to invest, claim your complimentary copy of the report and see how shifting market trends could influence opportunities in the months ahead. 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