Weekly Recap:

by Michael Reinking, CFA & Eric Criscuolo

Published on 1/02/26 (a/o 11:00)

Happy New Year and welcome to trading in 2026, which feels a lot like it did last year. Equities pulled back on the final trading day of 2025 but it was another very solid year for markets. The S&P 500 ended the year up 16.4%, the third consecutive year of >15% gains. After the policy driven volatility around the end of Q1 equity markets quickly snapped back and continued to grind higher through the back half of the year.

The AI trade was the primary driver of gains yet again but it did broaden out shifting beyond just chips to companies levered to the data center and energy infrastructure buildout. There were growing concerns about the level of capex spending which seemed to hit a tipping point in Q4 amidst increasing circular partnership/financing announcements and as companies started to tap debt markets.

Inflation stabilized and the feared impact of tariffs never fully materialized but inflation remained stubbornly above the Fed's target. Treasury yields moved lower throughout the year with the Federal Reserve resuming its easing cycle after an extended period on the sideline as there were signs of weakness in the labor market. President Trump is expected to announce a replacement for Fed Chair Powell imminently who will take over a Committee that is divided related to the path of policy going forward.

The resumption of the easing cycle coupled with the AI concerns drove some rotation within equity markets during Q4 into small/mid caps and into more cyclical areas of the market. Raising the one of the biggest questions for 2026 will that broadening continue. Here are some of the other market related questions as we enter the new year (guess what they didn't miraculously change).

Beyond the basic market questions investors await the fate of tariffs with the looming Supreme Court decision. There are multiple active theaters on the geopolitical front. Home politics will also be in focus with another potential government shutdown looming and midterm elections later this year, which for equity markets has historically been the worst in the four year Presidential cycle.

Turning to today's trading. Overnight global markets moved higher with tech heavy indices outperforming after a couple of corporate updates which we'll cover below. The other headline getting some attention was the administration's announcement that it would delay tariffs on furniture and cabinetry which is helping related companies (ETD/RH/W). This is the most recent step by the administration to dial back tariffs amidst growing affordability concerns. This raises questions about how aggressively the administration would respond if the IEEPA tariffs are struck down as widely expected. Futures were broadly higher overnight. The S&P 500 came out of the gate strong with the AI trade leading the way but that has faded over the last hour. The S&P 500 has turned slightly lower with mega-cap tech coming under some pressure but there has been an improvement in breadth. As we start the year expect to see sector/factor based volatility as portfolios are adjusted.

Quickly looking at some of the sector performance. Tech was leading the way at the open but performance is more mixed with chips/memory very strong while software is getting hit hard. Mega-cap tech has pulled back from opening levels with a lot of dispersion within the group. The breadth has improved over the last hour with value now outperforming growth after underperforming by >1% shortly after the open. Financials, healthcare and REITs are underperforming. Consumer discretionary is also under some pressure but this is driven in large part by losses in the mega-cap tech components.

Global Markets - moving higher with tech outperformance.

Commodities & Crypto - mixed trading with metals volatility continuing.

There was no impactful economic data today. Yields are hovering around unchanged.

We get back to business in the first week of 2026 with a more normal schedule. President Trump could announce his pick for Fed Chair (and lob some more insults at the current chair), and the Supreme Court may release its decide in the tariff case. Labor market updates will be the primary macro data in the US with nonfarm payrolls along with ADP, JOLTS and the weekly initial claims in the spotlight. ISM Manufacturing PMI, Housing Starts, Trade Balance and latest Univ of Michigan survey will hit the wires as well. A few earnings will get some attention, including AAR, Albertsons, Cal-Maine, Constellation Brands, RPM, and Greenbrier. The CES extravaganza in Las Vegas will create a lot of headlines, including presentations from major tech CEOs. We hope to see lots of breakdancing robots. Have a great weekend!

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