Healthy Economic Data Counter Declining AI Fervors: Feb. 4, 2026

Investors are buying stocks in every sector today minus tech as declining AI fervors continue to motivate rotations into cyclically oriented names that are poised to outperform in an environment of swifter growth. The economic calendar supported those bids and reinforced the strength of the cycle as ADP reported continued hiring while ISM served a beat on its services gauge. Together, the prints are bolstering confidence of a 2026 reacceleration, even though the jobs numbers in the former publication missed estimates and slowed from December. Sill, participants are fine with softening headcount expansions as long as they don’t turn into contractions, since the labor supply constraints stemming from immigration restrictiveness are capping headline payrolls. Against this backdrop, economists are looking more at consumer spending and productivity figures rather than worker rosters to analyze the health of the current landscape. Traders, however, will be focusing on earnings in the next two days from Alphabet and Amazon to see whether those results can reignite animal spirits related to Magnificent Seven shares, which have trailed the broader market year to date. The greenback is rising alongside yields as positive data underpin activity expectations, and the curve is ascending modestly in bear-steepening fashion led by duration. Volatility protection instruments are seeing interest as folks brace for potential turbulence that could come from quarterly reports. Forecast contracts are also experiencing engagement as a modern way to hedge portfolios. Elsewhere, commodities and cryptocurrencies are suffering losses.

Hiring Slows to Start the Year

Private sector employers expanded rosters for the seventh consecutive month, although it was the slowest pace since October to start 2026. January payroll growth of 22k missed the economist consensus estimate of 48k and slowed modestly from December’s 37k. The progress, meanwhile, carried a non-cyclical tilt, as education/health services rose a sharp 74k, while the other gainers, namely financial activities, construction, trade/transportation/utilities and leisure/hospitality added 14k net new employees or less. Conversely, professional/business services, other services, manufacturing and information reduced headcounts by 57k, 13k, 8k and 5k. The natural resources/mining industry was unchanged during the period. Additionally, large firms with staffing levels above 500 were a drag in the report and small establishments, or those that employ fewer than 50, didn’t help either, with figures declining 18k in the former category while remaining flat in the latter. Mid-sized corporations did amplify by 41k, however. Compensation trends were mixed as well, with the median year-over-year (y/y) change in annual pay climbing from 4.4% to 4.5% for job stayers while dropping from 6.6% to 6.4% for changers.

But Services Sector Posts Strong Growth

The services sector grew at the same brisk pace as December last month, as consumer demand, business activity and pricing power continued to point to a buoyant environment. The Institute for Supply Management’s (ISM) Purchasing Managers’ Index delivered a reading of 53.8, above the median estimate of 53.5 and the contraction-expansion threshold of 50. Under the hood, new orders, production, prices and employment came in at 53.1, 57.4, 66.6 and 50.3, signaling broad cyclical momentum, although accelerating cost pressures are an important aspect to watch from an inflationary perspective. Firms’ comfort with passing loftier charges to customers points to shopper pocketbooks having capacity, but it could incrementally deter further rate cuts from the Federal Reserve. Turning to the headwinds, exports, imports and backlogs were in contraction at 45, 48.2 and 44.

Econ Data Could Potentially Offset Weaker AI Prospects

A delay in the jobs report that would have been released this Friday but was postponed due to the partial government shutdown means that Magnificent 7 earnings results carry even heavier influence as we finish the week in light of the absence of a potential offsetting factor. As we progress through this year, strong economic data can continue to drive bids into parts of the market that are sensitive to the health of the cycle and are poised to cushion portfolios in case big-tech needs a break from three years of spectacular outperformance. Those countering possibilities are pivotal to remain focused on against the backdrop of an investor community whose enthusiasm for AI appears to be fading. Nonetheless, revitalized energies for the modern technological theme may emerge if Alphabet and Amazon point to a continued surge in capital expenditures that is driving bottom line expansion right here in the moment. One of two will probably not be enough to generate much more incremental excitement about the space, however, given Wall Street’s souring mood on the sector lately.

International Roundup

China’s Services Sector Expansion Accelerates

Growth of new orders and exports helped push the January RatingDog China General Services PMI to 52.3, a 0.3 point gain from December and the strongest number in three months. Economists anticipated that the gauge would repeat the preceding month’s print. With higher demand, businesses added workers for the first time in six months, helping to reduce the growth of backlogs. Survey respondents noted that input costs increased slightly, making expenses higher, but selling prices were at a five-month low. Business confidence, while remaining positive, dipped below the average level of 2025. On one hand, businesses were optimistic that new products and external demand would sustain the growth in orders. On the other hand, the outlook for the global economy weighed on optimism.

Annual Inflation in Europe Eases

Inflation in the euro area eased in January with the Consumer Price Index (CPI) climbing 1.7% y/y after December’s 2% jump. The y/y result also matched the economist consensus estimate for the flash print and it was the lowest reading since September 2024. Relative to December, prices slipped 0.5%, reversal from the 0.2% gain in the preceding period.When striping out items with more volatile pricing, the resulting Core CPI was less benign, jumping 2.2% y/y and declining 0.8% m/m after climbing 2.3% and 0.3% in December.

Within the broad index, the non-energy industrial goods category experienced the largest m/m decline with prices falling 2.4% while services also decreased by 0.3%. The unprocessed food, processed food/alcohol/tobacco and energy segments rose 1.7%, 0.5% and 0.7% m/m during the period. 

And Gate Prices Fall

The euro area Producer Price Index sank 2.1% y/y and 0.3% m/m in December. The y/y result was less severe than the economist consensus estimate for a 2.3% drop while the m/m metric matched expectations. The y/y result, however, depicted an acceleration in deflation after prices fell 1.4% in November and the monthly print was a reversal from the preceding periods 0.7% increase. Intermediate goods and durable consumer goods were the only categories to become more expensive with stickers up 0.3% and 0.2%, respectively.