By Pete Biebel, Senior Vice President, Senior Investment Strategist
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Over the past few days, winter storm Fern impacted hundreds of millions of Americans as it brought heavy snow, freezing rain, sub-zero temperatures and power outages from Texas to Maine. For the stock market, it was a welcome change from the storm that hit the previous weekend. That disturbance of a week earlier, which punished the market as last week began, was far more political than meteorological.
Over the MLK holiday weekend, rhetoric, threats and counter-threats regarding Greenland precipitated fears of new tariffs and counter-tariffs. Coming into the first market opening of the week on Tuesday morning, those fears hung over the market like a shelf cloud. The major averages all fell about 1% in early trading and ended the day with losses of about 2% or more. Beyond the impact on future corporate profits, those fears also caused the U.S. dollar to lose value against other currencies, which in turn, helped to lift precious metal prices to record levels.
Thankfully, what looked like a full-blown tropical depression turned out to be just a microburst. Stocks recovered much of Tuesday’s losses on Wednesday after the Greenland threats were significantly dialed back. The averages extended their rebound gains on Thursday, helped in part by a Commerce Department report that U.S. gross domestic product (GDP) increased at a 4.4% annual rate in the third quarter of 2025. The NASDAQ Composite Index (COMP) briefly poked into the black on Thursday, while the S&P 500 Index (SPX) couldn’t quite get out of the red. Both indices chopped sideways on Friday. For the week, COMP lost a mere 0.06% and SPX fell 0.35%. Both indices are up about 1% year-to-date (YTD).
In recent months, the climate in the equity markets has seen a rotation out of growth/tech into value. Since the notional market high in late October, the NASDAQ 100 Index (NDX), which is made up of the 100 largest nonfinancial stocks on the NASDAQ, is down about 2%. COMP is also down about 2% over that time. An index of the Magnificent 7 stocks, in spite of a nice bounce last week, has lost about 5% since peaking in late October. By comparison, both the Russell 2000 Index of small-cap stocks (RUT) and the more discerning S&P SmallCap 600 Index (SML) are up 5.9%. Both indices have been on cloud nine in 2026. Despite steep losses on Friday, each index is up about 7% YTD.
Effects of that climate change are also evident in YTD industry sector performance. Two of the dullest of the dull sectors, energy and materials, lead all others YTD with gains of just over 10%. The consumer staples sector, which was the poorest performing of the 11 sectors in 2025, is third-best YTD with just under a 7% gain.
Last week’s Greenland disturbance, like a polar vortex, may have shifted the jet stream of the bond market. The yield on 10-year Treasury notes had been stuck between about 4.10% and 4.20% for many weeks. That yield had bumped up against the 4.20% level numerous times and had been rejected on each occasion. The 10-year yield finally poked up to 4.22% on Friday, January 16, then shot up to 4.29% last Tuesday in the wake of the weekend news. Seeing that yield now broken out of that old range, there’s a risk of a more extended and more volatile move in rates. And that perceived risk likely contributed to the poor action in some of the more interest-rate-sensitive sectors last week. The utilities, real estate and financials sectors were the week’s poorest performers with losses of about 2% to 2.6%.
The stock market is very richly valued, but it’s been that way for months, and it could stay that way for a while longer. A lot is riding on how the market reacts to the shower of earnings announcements in the next few weeks. Watch how stocks react to good news and bad news. It won’t be just revenue growth and earnings per share (EPS) on analysts’ radar. They will also focus on forward guidance and especially plans for additional capital expenditures. So, a negative reaction to a solid earnings “beat” could be a bad omen for future performance.
Two other things to watch over the next week or two beyond reactions to earnings and capital expenditure spending plans are small-cap stocks and the 10-year yield. Small-caps have been hotter than a Death Valley afternoon in July. One theory is that their resurrection is a healthy sign for the overall market. Broader participation is good. But an alternative interpretation is that it’s just another sign of excess speculation in the late stages of an extended market. The December reading of stock fund allocation from the American Association of Individual Investors (AAII) hit its highest level in nearly 20 years. Their measure of total stock allocation got to within a percentage point of its two highest levels since 2001. Sentiment is very bullish, and investors are not just saying that they’re bullish, they’re buying stocks at record levels. Watch for signs of deteriorating relative strength in small-caps.
I described above how the 10-year yield recently broke out from a long, very narrow and very quiet trading band. So suddenly, there’s a heightened potential for a big run up in long-term interest rates. If that 10-year yield slumps back below the 4.15% to 4.20% range in the next week or two, then the Greenland rate breakout will have been a false alarm. However, if that rate continues to climb above 4.30% and (heaven forbid) above 4.40%, then it will have an increasingly negative impact on the stock market.
In a climate of generally positive reactions to earnings reports, lower yields on 10-year Treasury notes and continuing broadening participation in value and small-cap stocks, the forecast would be a positive one for stocks. Conversely, if the radar indicated negative reactions and higher yields, then, regardless of small-cap performance, the market would be issuing a bearish advisory. The first two storm warning downside levels to watch on SPX are 6830, the current 50-day moving average, and 6789, last week’s low.
The week ahead brings a flood of central bank rate decisions and a monsoon of earnings reports. In addition to the U.S. Federal Reserve (Fed) rate decision on Wednesday, analysts will also be watching rate decisions from the Bank of Canada as well as central banks in Brazil, Singapore, South Africa and Sweden. Our Fed is not expected to announce a rate cut; instead, the focus will be on the committee’s commentary and the number of dissenting votes. The economic report that’s most likely to trigger a market reaction is Friday’s Producer Price Index data.
Among the tsunami of fourth-quarter earnings reports this week are four from Magnificent 7 companies. Apple Inc. (after the market close on Thursday), Meta Platforms Inc., Microsoft Corp., and Tesla Inc. (all after the market close on Wednesday) will all release results this week.
| Economic Calendar (1/26/26 – 1/30/26) | Previous | Consensus | |
| Monday 1/26/2026 | Durable Goods Orders, November, M/M (Delayed Report) | -2.2% | +4.5% |
| Durable Goods ex-Transportation, November, M/M | +0.2% | +0.3% | |
| Tuesday 1/27/2026 | Consumer Confidence, January | 89.1 | 90.0 |
| Wednesday 1/28/2026 | FOMC Policy Announcement & Press Conference | ||
| Thursday 1/29/2026 | Initial Jobless Claims | 200K | 209K |
| Continuing Claims | 1,849K | 1,850K | |
| U.S. Trade Deficit, November (Delayed Report) | $29.4B | $45.1B | |
| U.S. Productivity, Q3, SAAR (Revised) | +4.9% | +4.9% | |
| Wholesale Inventories, November, M/M (Delayed Report) | +0.2% | +0.2% | |
| Factory Orders, November, M/M (Delayed Report) | -1.3% | +1.1% | |
| Friday 1/30/2026 | Producer Price Index, December, M/M (Delayed Report) | +0.2% | +0.3% |
| PPI ex-Food & Energy, December, M/M | +0.2% | +0.3% | |
| Producer Price Index, December, Y/Y | +3.0% | ||
| PPI ex-Food & Energy, December, Y/Y | +3.5% | ||
Links to previously published commentaries can be found at benjaminfedwards.com/Latest Investment Insights/Market Commentary/Market