Last week markets did not shy away from Buffet’s remarks made in his yearly investor letter. The S&P 500 returned 0.98%, followed by outperformance from the Nasdaq: 1.76%. The Dow lagged both indexes, returning only 0.01%. Small Caps outperformed all US indexes with a 3% return.

Overall, January & February returns bode well for the rest of the year. Since 1930, in the 25 periods where December, January and February are each positive, the S&P 500 Index has been positive in the following 25 March through February periods with an average return of 16.0%. February’s return this year is just below 5%.

January PCE report shows continued disinflation with year-over-year Core PCE cooling to 2.8% vs 2.9% from the previous month. Shelter & insurance  continue to be sticky as they remain the main contributors to the months increase. Goods deflated by 0.3% as services inflated 0.6% month-over-month.

ISM Manufacturing PMIs for January fell by 1.3 below market consensus to 47.8. New orders also declined by 3.3 to 49.2. While this reading sets levels back into contraction, there were optimistic highlights within the report. Respondents noted that sales are beginning to increase, and the macro environment appears to be improving.

For the week ahead: S&P Global PMIs & ISM non-manufacturing PMI (3/5). JOLTS, expecting to continue to shrink according to a Reuters Poll (3/6). The week ends with non-farm payrolls, which are expected to decelerate to 150k.

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