Weekly Market Update: February 2, 2026

The Federal Reserve held the benchmark short-term interest rate steady at its January Federal Open Market Committee(FOMC) meeting. The pause follows three-consecutive quarter-point reductions to end last year, which lowered the Fed interest rate to a range of 3.50% to 3.75%. Taking a breather allows Fed policymakers to assess additional inflation and labor market data. 

The latest Personal Consumption Expenditures (PCE) Price Index showed that inflation remains sticky. Specifically, both the November PCE and core PCE, which excludes the food and energy components, increased 0.2% on a month-to-month basis, which was in line with the consensus forecast. On a 12-month basis, the PCE and core PCE were up 2.8%, with both figures still running above the Fed’s target rate of 2.0%. 

The labor market is softening, but still holding up fairly well. Although job gains were lackluster in 2025, with the nation adding an estimated 584,000 positions, the U.S. layoff rate also remained relatively low by historical standards. It should be noted that continuing jobless claims recently dropped to 1.85 million, indicating a stable labor market with low layoffs. This, along with the aforementioned inflation data, is likely the main reason why the Fed held interest rates steady. 

The U.S. economy is reaccelerating, with the September-quarter gross domestic product (GDP) expanding by an estimated annualized rate of 4.4%. We also think fourth-quarter GDP growth will exceed the consensus forecast of around 2.0%. Our expectation is based on the continued resilience of the consumer sector. On point, the Labor Department reported that personal spending increased 0.5% in both October and November, coming in above the Wall Street consensus. Likewise, holiday season sales rose roughly 4%, eclipsing the $1 trillion mark. The renewed strength of the U.S. economy also was seen in the solid start to fourth-quarter corporate earnings season. 

Conclusion: Stock market volatility has picked up a bit since the start of the year, likely owing to geopolitical tensions (i.e., Iran, Venezuela, and Greenland), as well as data suggesting that the Fed may be more measured on the interest-rate front. Given this backdrop, a portfolio consisting mostly of stocks of high-quality companies from a diverse group of sectors may prove astute in 2026. 

Source: ValueLine.com