U.S. Macroeconomic Conditions
Inflation
The latest official data show that U.S. inflation remains near the Federal Reserve's 2% target. Consumer Price Index (CPI) inflation remained at 2.7% year-over-year in December 2025. Energy prices fell (gasoline and fuel oil), while food and shelter prices edged higher. Core CPI (excluding food and energy) stayed at 2.6% YoY and the month-over-month core CPI rose 0.2%. The Producer Price Index (PPI) showed hotter pipeline pressures: core PPI jumped 0.7% month-over-month in December – its largest increase in five months. The Fed's preferred measure, the Core PCE price index, remained at 2.8% YoY in November 2025, reflecting sticky services inflation.
Interest Rates & Fed Policy
The Federal Open Market Committee (FOMC) kept the federal-funds target range at 3.50%–3.75% at its Jan. 28 meeting and signalled a data-dependent stance. The upper limit of the target range remained 3.75%. Markets expect modest rate cuts later in 2026 but the Fed emphasises its dual mandate and the need for evidence that inflation will sustainably return to 2%.
Economic Growth
Real GDP grew at an annualised 4.4% in 3Q 2025 (revised from 3.8%), supported by consumer spending, exports and government spending. Growth likely slowed in 4Q 2025 but remains above potential.
Labour Market
Unemployment
The unemployment rate fell to 4.4% in December 2025 from 4.5% in November, with 278k fewer unemployed persons and employment rising to 163.99 million. The labour-force participation rate slipped to 62.4% and the broad U-6 rate eased to 8.4%.
Non-farm payrolls
Employers added 50k jobs in December 2025 (below forecasts). Gains were led by food services (27k) and health/social assistance (38k), while retail trade lost 25k jobs. Revisions lowered October and November totals by 76k.
Wages
Average hourly earnings rose 0.3% MoM to $37.02 and were up 3.8% YoY in December 2025.
Consumption & Confidence
Retail sales
Advance retail and food-service sales increased 0.6% MoM in November 2025 and were 3.3% higher YoY.
Consumer sentiment (University of Michigan)
The January 2026 index rose to 56.4 (final), up from 52.9 in December; one-year inflation expectations fell to 4.0%.
Conference Board consumer confidence
In December 2025 the index fell to 89.1; the Present Situation index dropped to 116.8 and the Expectations index remained at 70.7 (below the recession-signal level of 80). Only 18.7% of consumers saw business conditions as good, while 19.1% saw them as bad.
Manufacturing & Services
ISM Manufacturing PMI: Rose sharply to 52.6 in January 2026 from 47.9 in December 2025, signalling the first expansion in a year.
ISM Services PMI: Improved to 54.4 in December 2025, the strongest since Oct 2024.
Industrial production grew 2% YoY in December 2025, with manufacturing up 2% and utilities up 2.3%.
Housing Market
Existing home sales surged 5.1% in December 2025 to an annualised 4.35 million units; inventory fell 18.1% to 1.18 million (3.3 months' supply) and the median price was $405,400.
Housing starts (latest Oct 2025 data) dropped 4.6% to 1.246 million units as multi-unit construction plunged while single-family starts rose.
Home price index: The Case-Shiller 20-city index slipped to 337.27 in Nov 2025 (down slightly from 337.37 in Oct); the index is still ~1.4% above year-ago levels.
Summary of Macroeconomic Climate
The U.S. economy in early 2026 features moderating inflation near 2.7%, a still-solid but cooling labour market, decent consumer spending and improving manufacturing activity. Housing is stabilising but remains constrained by high mortgage rates. The Fed maintains a restrictive policy stance but markets anticipate modest rate cuts later in 2026 if inflation continues to ease.
U.S. Broad Market Index (S&P 500)
Current Trend and Technical Picture (Feb 2 2026)
Trading economics data show that the US500 index (CFD tracking the S&P 500) closed around 6,972 points on Feb 2 2026, up 0.48% from the prior session and 1.02% over the past month. The index sits near record highs (~7,000) reached in late January.
Moving-Average & Momentum Indicators
Because investing.com's technical analysis section provides current values for moving averages, we summarise the key levels (Feb 2 2026):
| Moving-Average (Simple) | Value | Direction (price above MA?) |
|---|---|---|
| 5-day MA | ~6,949.5 | Price above MA (bullish) |
| 10-day MA | ~6,941.1 | Price above MA |
| 20-day MA | ~6,940.1 | Price above MA |
| 50-day MA | 6,945.5 | Price above MA (short-term trend remains up) |
| 100-day MA | 6,931.5 | Price above MA |
| 200-day MA | 6,916.7 | Price above MA (long-term uptrend) |
Other indicators show momentum remains constructive:
- Relative Strength Index (RSI 14) ~55 – middle of the neutral range but slightly bullish.
- Stochastic oscillator ~61 – rising momentum.
- MACD (12,26) remains above its signal line (bullish).
Pivot-point analysis provides short-term support/resistance. Using classic pivots, S1 ≈ 6,951; S2 ≈ 6,932; S3 ≈ 6,917; resistance levels R1 ≈ 6,985; R2 ≈ 7,000; R3 ≈ 7,019.
Volatility
The CBOE Volatility Index (VIX) closed at ~16.7 on Feb 2 2026, having traded as high as 19.96 intraday and well below its long-term average of ~20. Recent readings indicate complacency compared with 2025 highs, though the VIX briefly spiked earlier in the week amid a sell-off in commodities.
Breadth and Sentiment
Investor Sentiment (AAII)
For the week ending Jan 28 2026, the survey recorded 44.4% bullish, 24.8% neutral, and 30.8% bearish sentiment. Bullish sentiment remains above the historical average (37.5%), indicating optimism.
CBOE Put/Call Ratio (10-day moving average)
According to macro indicators (CBOE data), the 10-day MA of the total put/call ratio was around 0.83 at the end of January 2026, below 1.0 and signalling bullish positioning (a low ratio suggests complacency).
Fund flows
ICI data show that long-term mutual funds and ETFs saw $20.1 billion of net inflows during the week ended Jan 21 2026, with equity funds taking in $1.6 billion (domestic funds saw outflows of $7.9 billion while global equity funds drew $9.5 billion). Bond funds attracted $18.4 billion, indicating continued demand for fixed income.
Overall Market Outlook
With the S&P 500 trading near record highs, price above all major moving averages, momentum positive and volatility low, the index is in a short- and medium-term uptrend. However, elevated investor optimism (high AAII bullish readings and low put/call ratio) and tight yield spreads warn of potential corrections. Macro data show cooling inflation and a resilient economy, suggesting further upside but with sensitivity to labour and inflation surprises.
U.S. Treasury Market and Yield Curve
Current Yield Curve (Feb 2 2026)
The TradingEconomics bond table gives the following yields on Feb 2 2026:
| Maturity | Yield (%) |
|---|---|
| 3-month (3M) | 3.67% |
| 2-year (2Y) | 3.58% |
| 5-year (5Y) | 3.84% |
| 10-year (10Y) | 4.28% |
| 30-year (30Y) | 4.90% |
The curve gradually rises from 3.58% (2-year) to 4.28% (10-year) and further to 4.90% (30-year). Short-term yields (3M) are slightly higher than the 2-year, giving the curve a modestly upward but still flattened shape. The 10Y–2Y spread is ~0.70 percentage point, while the 10Y–3M spread is ~0.61 percentage point, indicating a modestly steep but narrow curve.
Market Outlook
The yield curve has re-steepened relative to 2025 when it was deeply inverted. Markets are pricing in modest rate cuts later this year (hence lower short-term yields) but long-term yields remain elevated due to supply concerns and risk premia. With inflation easing but still above the Fed's goal, yields may decline gradually if economic growth slows further. However, the nomination of Kevin Warsh as Fed chair (viewed as hawkish) introduced uncertainty, prompting some upward pressure on long yields.
Trading Strategy Design
1. Broad Market Index Strategy (S&P 500/US500)
Market Outlook
Bullish but cautious. The index is in a clear uptrend with price above all major moving averages and positive momentum. Macro data suggest disinflation and continued growth, and the yield curve has normalised. Nevertheless, investor sentiment is optimistic and valuations are stretched; volatility could increase if inflation surprises on the upside or earnings disappoint.
Strategy type: Trend-following with momentum and sentiment filter. The strategy buys the index when price confirms an uptrend and sentiment is not excessively euphoric, and scales out when momentum wanes or sentiment becomes extreme.
Entry Conditions (Long)
Price above trend:
The S&P 500 (or ETF SPY) must close above its 50-day simple moving average (MA50) and its 200-day moving average (MA200). As of Feb 2 2026, SPY is above both (MA50 ≈ 6,945; MA200 ≈ 6,917) indicating an uptrend.
Momentum confirmation:
- MACD (12,26) must be above its signal line and rising (positive divergence).
- RSI (14) between 50 and 70 (avoid overbought >70). Current RSI ≈ 55 (favourable).
Sentiment filter:
AAII bullish percentage < 45% (or put/call ratio ≥ 0.8). This prevents buying when sentiment is excessively euphoric. For the week ended Jan 28 2026 the bullish reading was 44.4%—just below the threshold. If bullish sentiment rises above 45%, delay entry until it cools.
Short entry: The strategy will not short the index unless macro conditions deteriorate sharply (e.g., sustained sub-MA200 close). A bearish setup would require: price closing below MA200, MACD crossing below its signal line, and RSI falling below 40 accompanied by negative economic surprises. This scenario is not currently active but should be monitored.
Exit Conditions (Profit-Taking)
- Profit target: Exit half of the position when the index reaches the next resistance level determined by pivot points or measured move. For example, Feb 2 pivot analysis shows R1 ≈ 6,985 and R2 ≈ 7,000. Exiting part of the position near 7,000 captures gains before major psychological resistance.
- Trailing stop: For the remaining position, implement a trailing stop at 5% below the highest closing price since entry. This allows participation in further upside while protecting profits.
- Momentum reversal: Exit fully if MACD crosses below its signal line and RSI falls below 50, indicating momentum loss.
Stop-Loss Conditions
Initial stop-loss: Place a stop 3% below the 50-day moving average at entry. For example, if SPY is at 6,972 and MA50 is 6,945, the stop-loss would be around 6,736 (approx. 3.4% below MA50). Adjust stop upward as the MA rises.
Position Sizing
Use a risk-based position size: risk no more than 1% of trading capital per trade. The number of shares = (capital × 1%)/(entry price – stop price). For example, with $100,000 capital, risk per trade is $1,000. If the difference between entry price (6,972) and stop (6,736) is 236 points (≈3.4%), position size = $1,000 / 236 ≈ 4.24 units of SPY (depending on ETF price scale). Adjust for contract/ETF scaling.
Time Horizon
Medium-term swing trade lasting from several weeks to a few months. The position should remain open as long as price stays above the moving averages and momentum indicators stay positive.
Rationale
The strategy aligns with the current uptrend while using momentum and sentiment filters to avoid chasing extremes. It sets clear, quantifiable entry and exit rules and uses a trailing stop to protect gains. The emphasis on risk-based sizing helps manage capital during potential corrections.
2. Treasury Market Strategy (Long-Term Bonds via TLT/IEF or Futures)
Market Outlook
The yield curve has modestly steepened but remains flat. Inflation is easing and growth may slow, while the Fed is expected to cut rates later in 2026. Long-term yields (10- and 30-year) remain near 4.3% and 4.9%, leaving room for declines if economic data soften. However, hawkish rhetoric from the prospective Fed chair could limit downside for yields.
Strategy type: Duration-extension play / yield-curve steepener. The strategy goes long intermediate-/long-duration Treasury ETFs (e.g., IEF – 7–10 year, TLT – 20+ year) when technical and macro criteria align, aiming to profit from declining yields. A secondary trade is a steepener: go long long-duration bonds and short short-duration Treasuries if the curve is expected to steepen further.
Entry Conditions (Long TLT or IEF)
- Yield threshold: Enter when the 10-year Treasury yield closes above 4.2% and begins to roll over (declines for at least two consecutive sessions). Feb 2 yield is 4.28%, within this zone.
- Macro confirmation: Evidence of slowing inflation or soft economic data (e.g., CPI trending below 2.5%, weaker payrolls or retail sales) supports bond rallies.
- Technical trigger: The bond ETF (TLT) should break above its 50-day moving average with MACD turning positive. If using futures, price must break above recent resistance. Monitor for a bullish divergence on RSI.
- Steepener trade: Enter a 2y10y steepener by going long 10-year Treasury futures and shorting 2-year futures when the 10y–2y spread is below 50 bp and begins to widen. As of Feb 2 the spread is about 70 bp, so this trade is currently less attractive. Wait for any renewed flattening before entering.
Exit Conditions (Profit-Taking)
- Yield target: Take profits if the 10-year yield declines to around 3.7% (previous support) or if TLT gains 3%–5% from entry.
- Time stop: Exit after 3 months if the bond rally fails to materialise.
- Steepener exit: Close the steepener when the 10y–2y spread widens to >1.2 percentage points or compresses below 0%.
Stop-Loss Conditions
- Yield stop: If the 10-year yield rises above 4.5% after entry (reflecting higher inflation or hawkish policy), exit the bond position.
- Technical stop: Close the trade if TLT falls back below its 50-day moving average or the 2y10y spread narrows sharply, signalling an adverse move.
Position Sizing
Given lower volatility of bonds, allocate up to 2% of capital per trade. For a $100,000 portfolio, risk per trade is $2,000. The position size in TLT or futures is calculated by dividing the risk amount by the difference between entry price and stop price. Because TLT has duration ~18 years, small price moves correspond to significant yield changes; size conservatively.
Time Horizon
Medium- to long-term position (1–6 months). The trade may be held longer if economic conditions deteriorate and yields fall substantially.
Rationale
With inflation easing and growth expected to slow, long-dated Treasuries offer capital-gain potential. The yield curve remains flat but is beginning to normalise; modest steepening could continue if the Fed cuts rates. A duration-extension strategy allows investors to benefit from declining yields, while the steepener trade provides exposure to curve dynamics. Clear yield- and technical-based triggers reduce the risk of entering prematurely.
Conclusion
The U.S. economy entering 2026 shows disinflation, moderate growth and signs of softening labour conditions. The S&P 500 continues to trend higher, supported by improving manufacturing and services activity, but sentiment is optimistic and valuations are stretched. The Treasury yield curve has steepened slightly but remains flat, creating opportunities in both equity and bond markets. The strategies above combine macro-economic insights with technical triggers and risk-management rules to provide actionable guidance for traders.