What a Week: Shifting the Paradigm

Personal consumption data streamed in to show that incomes are rising and that people are spending their winnings. At the same time, the Fed's core personal consumption expenditures index revealed fading price pressure. Manufacturing activity as measured by the ISM was soft, but that weakness was already priced in, say traders.

"This is the fox-trot economy," says Jeffrey Saut, chief equity strategist at Raymond James & Associates. "Fast, fast data followed by slow, slow data." Saut notes that while payrolls for January were weaker than expected, factory orders were higher. Payrolls for January were weak, but revisions to prior months show that jobs grew more than analysts' expected over the past three months.

The fed funds futures market took the sum of the parts and put odds of any move in the overnight borrowing rate to neutral until the fall. With only 1% odds of a cut in March and May, the fed funds futures market prices in 66% odds of a cut by the end of the year, according to Miller Tabak.

Likewise, the bond market somewhat unwound last week's strong reaction to recent signs of economic growth. With the temperate inflation data, traders removed some of their rate-hike fears and sent yields down slightly. The 10-year benchmark Treasury bond fell to 4.82%, from 4.88% last week.