Weekly Trader's Outlook

If you read the last week's blog, you might recall that my forecast for this week was "Neutral to Slightly Bearish," citing a near-term overbought view on the Russell 2000 (RUT), which is a proxy for the broadening trade. On the week, the Russell 2000 (RTX), S&P 500 (SPX), and Dow Jones ($DJI) are on track to be slightly down, while the Nasdaq Composite is on track to be slightly higher. However, the flat performance does not capture the intra-week volatility that markets encountered. Coming into this holiday-shortened week, stocks saw the largest one-day drop on Tuesday after U.S. President Donald Trump sped up his push for Greenland and threatened to impose new tariffs in response to any EU retaliations. The announcement came as global leaders gathered at the World Economic Forum in Davos, Switzerland. Trump subsequently tempered his threats by stating he would not take Greenland by force and markets recovered the following day. Trump said that he talked with NATO and explored the "framework" of a potential deal for Greenland. While we don't know the details of said framework, markets have rebounded, nearly capturing the losses from the initial shock.

Elsewhere, earnings reports continued to pour in this week, and the results have been encouraging so far. Out of the 62 S&P 500 companies that have reported results, 61% have beat on the top line while 80% have beat on the bottom line. Perhaps more importantly, earnings-per-share (EPS) growth is tracking at 17%, though it's still very early in the earnings season. FactSet is currently forecasting 8.3% EPS growth in Q4 for the entire S&P 500, so we'll have to wait before getting the final tally.

Elsewhere, markets received a moderate dose of economic data this week, and there continues to be strong signals of healthy economic expansion. Q3 GDP was revised up to a two-year high (4.4%), the Atlanta Fed Nowcast for GDP was revised slightly higher to 5.4%, and Initial Claims remain subdued. While odds of Federal Reserve rate cuts in 2026 continue to dimmish, it won't likely deter the rally in stocks as long as the U.S. economy and corporate earnings remain strong.

At the time of this writing (3:00 p.m. ET) stocks are mixed, with the Russell 2000 exhibiting notable weakness today (DJI - 300, SPX + 3, $COMP + 83, RUT - 50). Although the pullback in the RUT is being partly driven by selling in the regional banks, it appears that some mean reversion to the rotation trade is underway as the $COMP is today's best performing major. Whether this is a one-day phenomenon remains to be seen. 10-year yields (TNX) are slightly lower (~4.23%), which is a continuation of the pullback from Tuesday's jump to ~4.30%. Although the VIX has pulled back from 20 to 15 over the past four days, I'm not convinced that we are done with volatility. Next week the Fed will be holding a monetary policy meeting and we're going to get earnings reports from four mega-cap tech companies (MSFT, META, AAPL, TSLA). I don't expect any surprises from the Fed meeting (although anything can happen), but I think results out of the tech sector will be a primary driver of investor sentiment next week. Not only have markets been going through a rotation trade away from mega-cap tech in 2026, but software stocks have been under pressure on AI concerns, and we'll hear from ServiceNow on Wednesday. Then there's the red-hot cohort of memory stocks (SNDK, MU, STX, WDC, along with semi equipment manufacturers like ASML, AMAT, KLAC, LRCX), and we're going to get results from ASML on Wednesday and SanDisk/Western Digital on Thursday. Buckle up because the potential for big moves, one way or the other, following these reports seems likely in my view. Therefore, I'm providing a "Higher Volatility" forecast for next week. I'm not providing a directional bias because I'm not really sure whether the rotation trade will continue next week, and I'm not sure how investors will react to some of these key earnings reports. What could challenge my forecast? It's possible that investors have muted reactions to these potential catalysts and stocks have a relatively typical week.

• Monday (Jan. 26): Durable Orders
• Tuesday (Jan. 27): Consumer Confidence, FHFA Housing Price Index, New Home Sales, S&P Case-Shiller Home Price Index
• Wednesday (Jan. 28): Advanced International Trade in Goods, Advanced Retail Inventories, Advanced Wholesale Inventories, EIA Crude Oil Inventories, MBA Mortgage Applications Index
• Thursday (Jan. 29): Continuing Claims, EIA Natural Gas Inventories, Factory Orders, Initial Claims, Trade Balance, Wholesale Inventories
• Friday (Jan. 30): Producer Price Index (PPI), Chicago Purchasing Managers' Index (PMI)
   

• Monday (Jan. 26): AGNC Investment Corp. (AGNC), Alexandria Real Estate Equities Inc. (ARE), Bank of Hawaii Corp. (BOH), Brown & Brown Inc. (BRO), Crane Co. (CR), Graco Inc. (GGG), Nucor Corp. (NUE), Ryanair Holdings PLC (RYAAY), Steel Dynamics Inc. (STLD), W.R. Berkley Corp. (WRB)
• Tuesday (Jan. 27): Boeing Co. (BA), General Motors Co. (GM), F5 Inc. (FFIV), HCA Healthcare Inc. (HCA), Nextera Energy Inc. (NEE), Nextpower Inc. (NXT), Packaging Corp of America (PKG), PPG Industries Inc. (PPG), RTX Corp. (RTX), Seagate Technologies (STX), Texas Instruments (TXN), Union Pacific Corp. (UNP), United Parcel Service Inc. (UPS)
• Wednesday (Jan. 28): Amphenol Corp. (APH), ASML Holding NV (ASML), AT&T Inc. (T), Automatic Data Processing Inc. (ADP), Danaher Corp. (DHR), General Dynamic (GD), GE Vernova Inc. (GEV), International Business Machines Corp. (IBM), Lam Research Corp. (LRCX), Las Vegas Sands (LVS), Meta Platforms (META), Microsoft Corp. (MSFT), ServiceNow Inc. (NOW), Starbucks (SBUX), Tesla Inc. (TSLA), United Rentals Inc. (URI)
• Thursday (Jan. 29): Apple Inc. (AAPL), Blackstone Inc. (BX), Caterpillar Inc. (CAT), Honeywell International Inc. (HON), KLA corp. (KLAC), Lockheed Martin Corp. (LMT), Mastercard Inc. (MA), Parker-Hannifin Corp. (PH), SanDisk Corp. (SNDK), Visa Inc. (V), Western Digital Corp. (WDC)
• Friday (Jan. 30): Air Products and Chemicals Inc. (APD), American Express Co. (AXP), AON PLC (AON), Chevron Corp. (CVX), Colgate-Palmolive Co. (CL), Exxon Mobil Corp. (XOM), Regeneron Pharmaceuticals Inc. (REGN), Verizon Communications Inc. (VZ)

There was a healthy dose of economic data for investors to digest this week, which included the monthly Personal Consumption Expenditures (PCE) report, the Fed's preferred inflation gauge. The PCE report was mostly in line, so there was little to no market reaction. However, evidence of a strong economy manifested in the updated Q3 GDP figure, which was revised up slightly to a two-year high of 4.4%, as well as the Atlanta Fed Nowcast for Q4 GDP (to 5.4% from 5.3%). Here's the breakdown from this week's reports:

• PCE Price Index: Both the headline month-over-month (MoM) and year-over-year (YoY) figures for October were in line with estimates (+0.2% and +2.7%, respectively). The MoM and YoY figures for November were also in line with estimates (+0.2% and +2.8% respectively).
• Personal Income: Increased 0.1% in October (below the 0.3% estimate) and 0.3% in November (below the 0.4% estimate).
• Personal Spending: Increased 0.5% in both October and November (above the +0.2% estimate for both months).
• Q3 GDP: Was revised slightly higher to 4.4% from 4.3%, which represents the fastest growth rate in two years.
• University of Michigan Consumer Sentiment: Rose to 56.4 in January from 52.9 in December, which was above the 54.0 economists had expected. One-year inflation expectations eased to 4.0% (lowest reading since January 2025) while long-run inflation expectations ticked up to 3.3% from 3.2% in the prior month.
• Construction Spending: Rose 0.5% in October (above the 0.2% estimate) but is down 0.9% on a year-over-year basis.
• Pending Home Sales: Fell 9.3% in December (well below the +1.0 estimate) and are at the lowest level since April of 2020.
• Leading Economic Indicators: -0.3% vs. -0.1% in the prior month.
• Initial Jobless Claims: Initial applications for U.S. jobless benefits increased 1K from last week to 200K, which was well below the 208K economists had expected. Continuing Claims fell to 1.85M from 1.884M week-over-week.
• EIA Crude Oil Inventories: +3.60M barrels.
• EIA Natural Gas Inventories: -120 bcf.
• The Atlanta Fed's GDPNow "nowcast" for Q4 GDP was revised up to 5.4% from 5.3% on January 16th, driven by an upward revision in the nowcast of Q4 real gross private domestic investment growth (to 6.4% from 6.2%).

U.S. Treasury yield curve ticked up slightly on a week-over-week basis. Compared to last Friday, two-year Treasury yields are up less than one basis point (3.607% vs. 3.599%), 10-year yields are higher by ~2 basis points (4.253% vs. 4.231%), and 30-year yields are higher by ~1 basis point (4.851% vs. 4.84%). Last Friday, I noted the move in 10-year yields above the key 4.20% level, but it's not entirely clear whether the push is related to higher long-term economic growth expectations or the shifting probabilities around the next Fed chair (or perhaps a combination of both). Per Kalshi, Kevin Warsh remains the most likely pick at 64%, but this week (BlackRock Chief Investment Officer of Global Fixed Income) Rick Rieder saw some upward movement, currently seen as a 32% probability.

Market expectations for rate cuts from the Federal Reserve continued to ease over the past week, likely driven by this week's relatively strong economic data. Per Bloomberg, the probability of a 25-basis-point cut from the Fed next week is 2.8% (down from 5.0%), March eased to 16% from 23%, April is down to 32% from 39%, and June is down to 75% from 80%. As long as the U.S. economic engines are humming, equity investors are likely comfortable with less rate cuts, or no cuts at all this year, in my view.

Investors have mostly shied away from tech stocks in 2026 as money has rotated to other areas of the market. However, interest appears to have perked up over the past couple days, and it coincided with a technical support test for the Nasdaq 100 index (NDX). On Tuesday the NDX dropped down to its 100-day Simple Moving Average (SMA) for the third time over the past three months and fortunately, for the bulls that is, there was another follow-through bounce off this indicator. The test and hold of this support level is bullish as it signals investor's willingness to own tech at certain price/valuation levels. Going forward however, the bulls likely don't want to see a higher frequency of support tests in the near-term, as this could be a harbinger of an eventual break below this indicator. Next week we will give investors a better sense of the state of tech as four mega-cap tech companies report (MSFT, META, AAPL, TSLA), as well as ServiceNow (software has been under pressure) and ASML (semiconductor equipment manufacturers have been hot, seen as secondary memory plays).

Near-term technical translation: moderately bullish, provided it holds above the 100-day SMA

Last week I had a cautious near-term technical perspective on the Russell 2000 (RUT), noting the near-73 reading on the Relative Strength Indicator (RSI). On Tuesday the RUT dropped with the other majors following Trump's push for Greenland and tariff threats, but the index bounced right back and hit back-to-back all-time highs on Wednesday and Thursday. The RSI crept back above the 70 threshold yesterday, but is pulling back today, driven by weakness in regional banks. Whether the "broadening trade" continues from here is unclear, but near-term there could be additional mean reversion to the downside, and I am maintaining a cautious stance. Aside from the stretched RSI, yesterday's daily candle looks a bit like a (bearish) gravestone doji, and today's long red candle suggests follow-through selling pressure.

Near-term technical translation: moderately bearish

Crypto-friendly Commodity Futures Trading Commission (CFTC) Chair Michael Selig has been in his role for roughly a month and is looking to "future proof" the agency regarding crypto oversight. On Tuesday, Selig said the CFTC needs an "upgrade" and will initiate a broad review of the current rules, with the aim of implementing the "minimum effective dose of regulation." Selig stated, "While decades-old rules designed for agricultural futures contracts may still suit those markets today, they do not contemplate nascent products or trading venues." Regulatory clarity around digital assets is viewed as a bullish development for the crypto industry. Cryptocurrencies have recently sold off after last week's Clarity Act, which is designed to provide that regulatory framework. "Should Congress deliver on making America the crypto capital of the world and send digital asset market structure legislation to the president's desk, the CFTC will have a broad set of new responsibilities."

The Bloomberg chart below shows the current percentage of members within the S&P 500 (SPX), and Nasdaq Composite (CCMP) that are trading above their respective 200-day Simple Moving Averages (SMA). In short, both the S&P 500 and Nasdaq Composite are little changed on the week and so is market breadth. Compared to last Friday's, the SPX (white line) breadth eased to 69.28% from 70.88% and the CCMP (blue line) ticked up to 52.94% from 52.02% (note: RUT is excluded from this week's chart due to data inaccuracies).