Investors Step Up and Buy the Sharp Dip to Send Dow to a New Record: Feb. 6, 2026

Investors are rising to the occasion and aggressively buying the dip in stocks today with stronger-than-anticipated economic data especially bolstering the cyclicals and sending the Dow Jones Industrial Average to a fresh record. Yesterday’s disappointing earnings call from Amazon amidst an eye-watering amount of dollars allocated to AI capital expenditures isn’t weighing on the tech sector as a whole either, as participants increasingly focus on overall profit growth, which has been firm. Meanwhile, basement animal spirits are offering value hunters opportunities to accumulate shares against the backdrop of a general sense on Wall Street that the selling has gone too far. The strongest read on UMich Consumer Sentiment in six months, driven by a sharp plunge in aggregate inflation expectations, is a supporting factor following two sessions of weak labor releases, including ADP, Challenger, JOLTS and jobless claims. But the robust confidence numbers are lifting rates as the yield curve ascends in bear flattening fashion led by the monetary policy sensitive closer durations, with fixed-income watchers dismissing the short-lived notion from earlier in the week that the cycle needs imminent accommodation from the Fed. A lack of safe-haven demand is seen through a weakening greenback and equity market hedges being thrown out the window, as volatility protection instrument premiums decline in light of every major stock benchmark and 10 out of 11 sectors advancing.

Equity Gains and Easing Inflation Support Sentiment

The strongest reading on the University of Michigan’s Consumer Sentiment Index since August was generated by robust stock market gains and softer inflation expectations. The February headline score of 57.3 was well above the median estimate of 55 and slightly higher than January’s 56.4. The sub-indices of current conditions and the future outlook were bifurcated, however, with the former rising from 55.4 to 58.3 while the latter declined from 57 to 56.6. Projections of prices over the next one and five years changed from 4% and 3.3% to 3.5% and 3.4%, dropping in aggregate. Despite the progress, many households remain stressed from the adverse impact of heavier costs and reduced job opportunities.

Econ Data Is Next for Investors

With the majority of corporate earnings releases behind us, especially as six of the Magnificent Seven have reported, investors’ focus is likely to turn to economic data as we finish off this volatile week for stocks. The partial government shutdown delayed today’s jobs report and shuffled the statistics calendar a bit, but things are geared up to become a lot more eventful for economists in the next few days. Indeed, we have retail sales on Tuesday, employment and unemployment tallies on Wednesday, the typical Thursday jobless claims figures and the Consumer Price Index (CPI) on Friday. Investors will be carefully digesting the numbers and quickly adjusting portfolio positioning as the releases will provide crucial information regarding household spending, the health of the labor market, the pace of inflation and what the Fed should do next and when. All in all, I’m expecting a positive scenario featuring buoyant consumption, continued payroll expansions, subdued layoffs and a 2.4% CPI (lowest since May), which is poised to strengthen confidence in the state of the cycle, allow several rate cuts simultaneously and continue to support growing profits.

International Roundup

Japan Leading Indicator Climbs Above Expected Level

Japan’s Leading Economic Indicator climbed to 110.2 in December, its highest level since May 2024 when the gauge hit 111.1, according to the Cabinet Office. A consensus of economists anticipated that the gauge would fall from November’s 109.9 print to 109.8. In another preliminary release, the Cabinet Office estimates that the gauge climbed an additional 0.3% in January. Meanwhile, Japan’s Coincident Indicator sank 0.4% m/m following November’s 1% decline.

Japan Household Spending Falls More than Anticipated

Household spending in Japan sank 2.9% month over month (m/m) in December, exceeding the economist consensus estimate for 1.3% decline and recording a reversal from the 6.2% growth in November. Sales were also down 2.6% year over year (y/y). Economists expected the release to show a 0.5% drop after a 2.9% jump in the preceding period. 

Relative to December 2024, spending on clothing and footwear sank 8.9%. The housing classification and the transportation and communication category were also weak with spending dropping 7.6% and 7.1%. Purchases of food also fell, dropping 2.4%. Conversely, households spent 14.1% more on education and 5.3% more on medical care. Outlays for the culture and recreation category and the furniture and household utensils group also strengthened with gains of 3.6% and 2.3%, respectively. The fuel, light and water charges component also saw increased demand with outlays growing 1.2%.

Canada’s Payrolls and Unemployment Rate Fall

Canada’s payrolls lost 24.8k positions in January, a disappointing result that missed the economist consensus estimate for a 5.2K gain. It was also a reversal from the 10.1K December expansion. While full-time workers increased by 44.9K, the number of part-time employees shrank by 69.7K.

Manufacturing, educational services and public administration payrolls declined by 28K, 24K and 10k. Employers expanded their workforces in information, culture and recreation by 17k and business, building and other supports services by 14K. Agriculture and utilities payrolls, furthermore, grew by 11K and 4.2K. Also last month, the participation rate, or the ratio of employed individuals and individuals seeking work relative to the working-age population, slipped from 65.4% to 65% while the country’s unemployment rate went from 6.8% to 6.5%. Economists anticipated no change in the metric. Hourly wage growth also weakened, falling from 3.7% in December to 3.3% last month.

As Economic Activity Slows

The Canada Ivey Purchasing Managers Index sank from 51.9 in December to 50.9 last month, pointing to decelerating growth in the country’s economic activity.

While the result exceeds the contraction-expansion threshold of 50, it is below the 12-month average of 52.2. Economists, however, anticipated a steeper decline with the consensus pointing to the gauge hitting 49.7.

Within the broader release, the Ivey Employment Index weakened, falling from 53 to 51.1. Conversely, categories that strengthened and the change in their results were as follows:

• Inventories, up from 45.8 to 50.9
• Supplier deliveries, up from 47.7 to 49.2
• Prices, up from 63.2 to 64.8