Last week was relatively quiet in terms of economic updates, with only three major data releases. The January Consumer Price Index showed that headline and core consumer inflation remained well constrained to start the year. This week will be busier, as a number of important economic updates are scheduled for release. The January retail sales report will be widely followed, as it is expected to show a return to retail sales growth.

My colleague Sam Millette, senior investment research analyst on Commonwealth’s Investment Management and Research team, has helped me put together this month’s Market Risk Update. Thanks for the assist, Sam!

Markets took a breather in January, as month-end volatility led to a mixed month for major equity indices to start the year. This volatility caused the S&P 500 to decline by 1.01 percent during the month, while the Dow Jones Industrial Average dropped 1.95 percent. The Nasdaq Composite managed to record a 1.44 percent gain. While we have seen markets largely recover to start February, the month-end volatility is a good reminder of the risks markets continue to face.

For the third week in a row, the big picture continues to be very positive. On the medical front, all three major data series—new cases, positive testing rates, and hospitalizations—have continued to trend down, while vaccinations continue to scale up. If current trends continue, we are through the worst of the pandemic and should see continued improvement.

My colleague Sam Millette, senior investment research analyst on Commonwealth’s Investment Management and Research team, has helped me put together this month’s Economic Risk Factor Update. Thanks for the assist, Sam!

The economy showed moderate growth in January, despite the lingering headwind of the third wave of the pandemic. There were signs toward month-end that federal stimulus and an improving public health picture started to have a positive impact on the economic recovery, with a return to job growth and increases in business and consumer confidence. Reflecting the improvements, long-term interest rates also began to show signs of normalization.

January was a month of transition. Markets took a break, with small gains or declines. The presidential inauguration handed the reins from the Trump administration to the Biden administration. Winter finally arrived, at least here in Massachusetts. And with the start of mass vaccinations, we began the transition to get past the COVID-19 pandemic.

Last week was packed with updates, with a focus on January’s business confidence and employment reports. Confidence held up well to start the year, and we saw an encouraging return to job growth in January. This week will be relatively quiet, with only a few major reports set to be released. The highlights will be the January consumer inflation report and the first look consumer sentiment in February.

Today, I'd like to provide an update on the coronavirus, including the economic and market implications. On the medical front, new daily infection rates and hospitalizations were down, and we saw improvement in positive testing rates. Although the threat of a more contagious variant of the virus remains, substantial progress on vaccinations should help offset that risk.

For the second week in a row, the big picture continues to be very positive. On the medical front, all three major data series—new cases, positive testing rates, and hospitalizations—have continued to trend down, while vaccinations continue to scale up. If current trends continue, we are through the worst of the pandemic and should see continued improvement.

Recently, I have been getting a number of questions about inflation. Is it coming? How bad will it be? And, of course, what should I do about it? It has been interesting, because inflation has been largely off the radar for some years—it simply has not been a problem. What has been driving the concern now seems to be worries about the effects of the federal stimulus programs, which many think will drive more inflation. But I don’t think so. To show why, let’s go back to history.

Most developed markets were down slightly in January, including the Dow and S&P 500 in the U.S., as well as developed markets abroad. Despite the month's weak numbers, markets remain near all-time highs. On the economic front, layoffs were high and retail spending dropped. But with federal stimulus payments, consumer confidence has begun to recover, boosting higher-frequency spending data.