Market Overview - The week experienced significant drawdowns across various assets including gold, silver, Bitcoin, and tech stocks, particularly in the semiconductor sector [1] - Bitcoin saw a notable decline, dropping below 61,000 before a slight recovery on Friday [1] - The Dow reached a record high on Tuesday but faced a pullback, while the S&P 500 and Nasdaq entered negative territory for 2026 [2] - The Cboe Volatility Index (VIX) reached its highest level since November, indicating increased market volatility [2] Corporate Earnings - A substantial number of quarterly earnings reports were released, with notable contributions to tech sector challenges from companies like Advanced Micro Devices (AMD), Qualcomm (QCOM), Alphabet (GOOGL), and Amazon.com (AMZN) [3] - Despite the tech sector's struggles, some companies like Merck (MRK), Amgen (AMGN), and Eli Lilly (LLY) experienced post-earnings gains [3] - Walt Disney (DIS) reported positive results but still saw a decline in stock price, while Novo Nordisk (NVO) faced a significant drop due to competition [4] - Tapestry (TPR) reached record highs following its earnings report, while Reddit (RDDT) experienced a losing streak before a boost on Friday [4] Future Outlook - The upcoming week is expected to bring more earnings reports and economic data releases [5] - Schaeffer's Senior Quantitative Analyst highlighted the January barometer as a potential indicator for the S&P 500 based on investor sentiment [5] - A list of the 25 best and worst stocks to own in February was compiled, along with key SPX trendlines to monitor [5]

Market Overview - January 2026 was marked by significant volatility, with crowded trades experiencing sharp movements, and the dollar briefly hitting a four-year low [1] - Major tech stocks faced declines, with Microsoft down 11%, Apple down 4.6%, and Tesla down 4.3% [2] - Conversely, Meta Platforms and Alphabet saw gains of 8.6% and 8% respectively, indicating a mixed performance in the tech sector [3] Index Performance - The S&P 500 index recorded a 1.4% gain in January, suggesting a positive outlook for the year ahead [4][5] - Small-cap stocks, represented by the Russell 2000 index, outperformed large-cap stocks, gaining 5.3% in January compared to the S&P 500's performance [6] January Barometer - The "January barometer" suggests that a positive January typically correlates with a strong year, with historical data showing an average increase of 16.2% for the S&P 500 when January ends with gains [7] - Despite the positive indicators, January 2026 was described as atypical due to geopolitical tensions and policy uncertainties [8]

Core Insights - January 2026 exhibited unusual market behavior, suggesting potential volatility for the rest of the year [1] - Crowded trades experienced significant fluctuations, indicating a turbulent trading environment [1] - The dollar index (DXY) briefly fell to a four-year low, reflecting broader economic trends [1] - Stocks associated with the artificial intelligence sector faced declines despite reporting good earnings, highlighting market expectations [1]

Core Insights - The S&P 500 index is on track to decline for the third consecutive year during the traditional "Santa Claus rally" period, which has never occurred before [1][3] - Analysts suggest that this does not necessarily indicate the end of the bull market, as historical data shows mixed results regarding the implications of a weak Santa Claus rally [2][3] Market Performance - The Santa Claus rally period includes the last five trading sessions of the previous year and the first two of the new year, starting on Christmas Eve; during this period, the S&P 500 has fallen by 0.9% [3] - Since 2013, the Santa Claus rally has produced positive returns only 66.7% of the time, compared to a historical win rate of 76% since 1950 [3] Seasonal Trends - Recent years have shown inconsistent post-Christmas seasonal strength, with poor returns over the past 12 years not necessarily foreshadowing a bear market in the following year [4] - The performance of the S&P 500 during the first five trading days of January has historically correlated with full-year gains, averaging 14.2% after positive initial sessions, with an accuracy rate of 83.3% since 1950 [6] Future Indicators - Investors will also be monitoring the "January barometer," which suggests that early-year market strength or weakness can influence the rest of the year [7]

Core Viewpoint - The S&P 500 is expected to decline for the third consecutive year during the "Santa Claus rally" period, a phenomenon that has never occurred before [1] Group 1 - The S&P 500's potential decline during the holiday season indicates unusual market behavior [1]

Core Viewpoint - The stock market's performance at the beginning of January does not reliably predict its full-year direction, with historical data showing that the odds of rising remain consistent regardless of early January performance [2][4][5]. Group 1: Historical Context - The concept of the stock market's early January performance predicting annual trends dates back to at least 1972, when Yale Hirsch introduced the idea that poor performance during this period could indicate a bear market [2][3]. - Various analysts have identified different patterns, such as the performance on the first trading day, the first two days, or the entire first week of January as indicators of the year's market direction [3]. Group 2: Statistical Analysis - Analysis of the Dow Jones Industrial Average since its inception in 1896 reveals that none of the early January performance patterns meet traditional statistical significance criteria, indicating that these patterns are not reliable [4]. - The average stock market performance shows that it rises in approximately two out of every three years, and this probability remains unchanged by early January trading results [5].

Market Indicators - The Santa Claus rally is viewed as a bullish indicator, particularly during the last five days of the year and the first two days of the new year, which often sees increased stock buying due to tax-loss selling [2][5] - The January barometer, which has historically shown that the S&P is up 90.6% of the time with an average gain of 17.7% over 29 to 32 years, is another key indicator to watch alongside the Santa Claus rally [5] Presidential Term Trends - The second year of a presidential term typically sees an average gain of 3.3% on the S&P, while the sixth year of a president's term is characterized by efforts to cement their legacy, often leading to market-friendly policies [6][7][8] - The current administration's focus on legacy and economic performance has resulted in a robust stock market, with new highs for the Dow in December [9] Seasonal Market Behavior - Historical trends indicate seasonal weakness in the market during the summer months (May through October), which can be exacerbated by midterm elections that divert attention from economic issues [12][13] - The period from August to October is traditionally seen as a weak seasonal period, but this year did not follow that trend, which is considered a bullish sign for a potential Q4 rally [15] Q4 Market Expectations - The Q4 of a midterm year to Q2 of a pre-election year has historically shown significant market gains, with the Dow and S&P up 19% and 20%, respectively, and the NASDAQ up nearly 30% during this period [16] - Despite some profit-taking following a strong AI tech boom, the outlook remains positive for continued market growth as the calendar year turns [17]

Group 1 - Nvidia's stock is only up 40% this year despite being a dominant player in AI chips, suggesting it should have performed better [2] - Amazon's stock has only increased by 5% this year, underperforming against the S&P 500's 16% gain, attributed to investor skepticism about its AI capabilities [2][3] - Lululemon's stock has dropped 45% this year, and the company is facing leadership changes due to poor performance and activist investor involvement [4] - Consumer spending has surprisingly remained strong, growing at a 3.5% pace in Q3, despite tariff-related price increases [5] - The S&P 500 is not at record highs, which is unexpected given the current economic conditions [5] Group 2 - The Santa Claus rally is seen as a potential indicator of market optimism heading into the new year, with historical trends suggesting a positive outcome [7][10] - The first five days of January are viewed as a barometer for market performance for the entire month, with a strong correlation to annual returns [10][11] - Small caps are trading at a 35% discount to their 20-year average relative PE to the S&P 500, indicating potential for growth in 2026 [19][20] - The Fed is expected to cut interest rates in 2026, which could benefit small caps due to their higher debt levels [20][25] - There are concerns about elevated market valuations, with the S&P 500's PE ratio at two standard deviations above the mean, indicating potential market bubble conditions [26][27] Group 3 - The resilience of US earnings growth has been surprising, with expectations of continued growth supporting high market valuations [28][29] - Historical patterns indicate that market corrections typically take longer to recover, but this year has shown a quicker rebound [30] - Investment strategies suggest letting winners ride in a strong market, which could enhance returns [33]

Core Viewpoint - The "Santa Claus rally" is a significant market phenomenon that occurs during the last five trading days of the year and the first two of the new year, historically leading to positive market performance [1][2]. Group 1: Historical Performance - Since 1928, the Standard & Poor's 500 has averaged a 1.6% gain during the last five trading days of the year, with a slightly lower average gain of 1.3% since 1950 [3]. - Historical data indicates that even in years when the S&P 500 had a negative performance earlier in December, the Santa Claus rally occurred more than three-quarters of the time, specifically in 20 out of 26 years [5]. Group 2: Theories Behind the Rally - Theories explaining the Santa Claus rally include tax-loss selling followed by reinvestment, seasonal optimism, increased holiday shopping, and reduced institutional trading due to holiday schedules [4]. - A decline in stock prices during the last five trading days is interpreted as investor caution regarding the upcoming year [4]. Group 3: Current Market Sentiment - There is ongoing debate on Wall Street regarding the likelihood of a Santa Claus rally in 2025, with some analysts expressing skepticism about its occurrence [6].