Weekly Trader's Outlook

If you read the last week's blog, you might recall that my forecast for this week was "Moderately Bullish," citing encouraging technicals on the Russell 2000 and the potential for the "January Effect" to provide an assist to the bulls. At the time of this writing all the majors are on track for weekly gains: Russell 2000 (RUT) + 5.1%; Dow Jones Industrial Average ($DJI) +2.3%; Nasdaq Composite ($COMP) +1.9%; S&P 500 (SPX) +1.6%. The 5% rally in the RUT, along with the 2.6% move higher in the S&P 500 Equal Weight index (SPXEW), suggest a broadening of the rally and generally a healthier bull market. Sectors such as Health Care, Industrials, Biotech, Materials, and Financials have been the biggest beneficiaries of the rotation trade. If there was an underperforming area of the market this week it was largely mega-cap tech, which may seem unusual to say, but not if investors are rotating into other areas of the stock market. However, investors are becoming more discerning and not treating all mega-cap tech stocks equally. Alphabet (GOOGL) is up 4.5% and hit a fresh all-time high today and Amazon (AMZN) is up over 8% this week, while Apple (AAPL) is on track to lose 4% and Nvidia (NVDA) is down 1.6%. What's interesting is that Nvidia is down on the week despite an HSBC upgrade (Buy + $320.00 price target) and positive analyst commentary following CEO Jensen Huang's keynote presentation at the Consumer Electronics Show (CES). Additionally, the PHLX Semiconductor Index (SOX) hit a fresh all-time high this week, but it wasn't driven by the chip leaders of 2025, like NVDA, AVGO, or AMD. The recent rally in the SOX was mostly fueled by gains in the semiconductor equipment manufacturers (AMAT, ASML, LRCX, KLAC) and memory chip stocks (MU, SNDK). While the expansion in market breadth is an encouraging sign for the bulls, it appears 2026 will be a "stock pickers' market" and investors may need to be mindful of the potential for leadership changes.

Elsewhere, markets received a large batch of data to chew on this week, especially on the labor front, but there weren't a lot of surprises. Job openings dropped to the lowest in over a year, weekly Initial Claims remain subdued, and monthly job gains continue to trend lower, all of which send the message of a "low hire, low fire" job market. Also worth pointing out is a big upward revision in the Atlanta Fed's GDP Nowcast, which currently stands at a healthy +5.1% (more on this in the "Economic Data, Rates & the Fed" section below).

At the time of this writing (2:35 p.m. ET), all the major indices, sans the Nasdaq, are trading at fresh record highs and near the highs of the session at the time of this writing (DJI + 240, RUT + 20, SPX + 52, $COMP + 222). Yields on the 10-year crept above the 4.20% level earlier in the session but have subsequently backed off (4.17%). Yields on the 10-year have really been caught within a 4.10-4.20% trading range over the past five weeks, and provided the 4.20% level remains a near-term ceiling, it should be supportive for equities. Next Tuesday, Q4 earnings season will unofficially kick off with the big banks, and it will be interesting to see how those stocks react post-results given the run that financials have been on over the past two months. On the economic front, we'll get the monthly inflation reports (consumer price index, or CPI and producer price index, or PPI) and the monthly Retail Sales data, so the potential for higher volatility is there. The technicals remain bullish but given this week's 5%+ rally in the Russell 2000, I wouldn't be surprised if next week's price action is a little more subdued and choppy. However, the broadening trade is a bullish development and likely has more momentum, so I wouldn't be surprised if we see that them continue next week. Therefore, I'm providing an overall "Slightly Bullish" forecast for next week. What could challenge my forecast? Hotter inflation data or a "sell on the news" reaction to Q4 earnings given the run we've seen could dampen investor sentiment and send stocks lower.

• Monday (Jan. 12): no reports
• Tuesday (Jan. 13): CPI, New Home Sales, Treasury Budget
• Wednesday (Jan. 14): PPI, Current Account Balance, EIA Crude Oil, Existing Home Sales, MBA Mortgage Applications Index, New Home Sales, Retail Sales
• Thursday (Jan. 15): Continuing Claims, EIA Natural Gas Inventories, Empire State Manufacturing, Export Price, Import Prices, Initial Claims, Net Long-Term TIC Flows, Philadelphia Fed Index
• Friday (Jan. 16): Capacity Utilization, Industrial Production, NAHB Housing Market Index

• Monday (Jan. 12): Sify Technologies Ltd. (SIFY), Sono-Tek Corp. (SOTK), Wealthfront Corp. (WLTH)
• Tuesday (Jan. 13): Bank of New York Mellon Corp. (BK), Concentrix Corp. (CNXC), Delta Airlines Inc. (DAL), JPMorgan Chase & Co. (JPM), Phoenix Education Partners Inc. (PXED)
• Wednesday (Jan. 14): Bank of America Corp. (BAC), Bitmine Immersion Technologies Inc. (BMNR), Citigroup Inc. (C), H. B. Fuller Company (FUL), Home BancShares Inc. (HOMB), Infosys Ltd. (INFY), Wells Fargo & Co. (WFC),
• Thursday (Jan. 15): BlackRock Inc. (BLK), First Horizon Corp. (FHN), Goldman Sachs Group Inc. (GS), J.G. Hunt Transport Services Inc. (JBHT), Morgan Stanley (MS),
• Friday (Jan. 16): M&T Bank Corp. (MTB), PNC Financial Services Group Inc. (PNC), State Street Corp. (STT), Regions Financial Corp. (RF), Wipro Ltd. (WIT)

There was a heavy dose of economic data for investors to digest this week, highlighted by several reads on the state of the U.S. labor market. The reports continue to convey the recent theme of a "low hire, low fire" labor market environment—Job openings (JOLTs) came in at the lowest reading since September 2024 (7.14M vs. 7.61M expected), weekly jobless claims remain at the bottom end of the range and payroll growth continues to be caught in a downtrend. As it currently stands, 2025 is the weakest year of job growth in the post-pandemic cycle. Here's the breakdown from this week's reports:

• Nonfarm Payrolls: Headline payrolls increased 50K in December, which was below the 70K estimate. November job gains were revised down to +56K from +64K.
• Unemployment Rate: 4.4% vs. 4.5% est.
• Average Hourly Earnings: 0.3% vs. 0.2% est; The translates into a +3.8% year-over-year gain, which was above the +3.6% economists had expected.
• ADP Employment Change: 41K vs. 50K est.
• JOLTs – Job Openings: 7.14M, down from 7.449M in the prior month and below the 7.61M economists had expected.
• ISM Manufacturing Index: 47.9% vs. 48.8% est.
• S&P Global U.S. Services PMI: Fell 1.6 points in December to 52.5, which is still in expansion territory (>50), but at the lowest reading in eight months.
• ISM Non-Manufacturing Index: 54.4% vs. 52.4% est.
• Productivity - Preliminary: 4.9% vs. 3.0% est.
• Unit Labor Costs - Preliminary: -1.9% vs. 0.9% est.
• University of Michigan Consumer Sentiment: Increased 1.1 points in January from the prior month to 54.0, which was above the 53.5 economists had expected.
• Initial Jobless Claims: Initial applications for U.S. jobless benefits increased 8K from last week to 208K, which was well below the 210K economists had expected. Continuing Claims jumped to 1.914M from 1.858M week-over-week.
• EIA Crude Oil Inventories: -3.83M barrels
• EIA Natural Gas Inventories: -119 bcf
• The Atlanta Fed's GDPNow "nowcast" for Q4 GDP doubled to 5.4% yesterday from 2.7% on January 5th, primarily driven by the nowcast of the contribution of net exports to Q4 real GDP growth (revised from -0.30 to 1.97%). However, the GDP Nowcast was revised slightly lower to 5.1% earlier today.

The U.S. Treasury yield curve saw some flattening on a week-over-week basis. Compared to last Friday, two-year Treasury yields are up ~5 basis points (3.522% vs. 3.477%), while 10-year yields are lower by ~1 basis point (4.171% vs. 4.187%), and 30-year yields are down ~4 basis points (4.828% vs. 4.864%).

Market expectations for rate cuts from the Federal Reserve continued to diminish over the past week, perhaps due in part to the downtick in the Unemployment Rate from this morning's Nonfarm Payrolls report. Per Bloomberg, the probability of a 25 basis point cut from the Fed over the next three Federal Open Market Committee (FOMC) meetings are all lower—January is currently 5% vs. 17%, March eased to 29% from 53% and April is down to 51% from 79%. Historically, the Fed has adjusted policy when the probability has been roughly 65% or greater, which suggests that markets currently believe that the next rate cut will be at the June FOMC meeting (currently showing a theoretical 100% probability).

The New Year has been off to a good start for the bulls. The S&P 500 Equal Weight index (SPXEW) is up 3.2% in the past six trading days and is hitting fresh all-time highs today. This supports the notion of broadening participation in the bull market, so its not just technology or the Magnificent 7 that is pulling most of the weight. Fresh all-time highs are technically bullish, and it appears that near-term support is around 7,880.

Near-term technical translation: bullish

Also validating the "broadening trade" is the performance in the Russell 2000 index (RUT), which is up the most among the majors so far this year. The RUT is up over 6% over the past six trading days, following a bullish bounce off support at the 50-day Simple Moving Average (SMA) last week. The Relative Strength Index (RSI) on the RUT is currently 66, below the "overbought" threshold of 70, suggesting that the index hasn't yet stretched too far to the upside.

Near-term technical translation: bullish

Earlier this week Bank of America (BofA) announced a significant shift in their stance on Bitcoin and spot Bitcoin ETFs/funds. BofA said they will now allow their advisors across Merrill, Bank of America Private Bank, and Merrill Edge to proactively recommend the top four most liquid spot Bitcoin ETFs to their clients. The guidance, backed by CIO research, assigns a 1-4% crypto allocation for suitable clients. Previously wealth advisors were only able to discuss cryptocurrency investment inquiries if clients initiated the conversation. BofA's move follows several other investment firms who have established a BTC portfolio allocation recommendation for suitable clients such as Blackrock (1-2%), Morgan Stanley (up to 4%) and Fidelity (2-5%).

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, stocks are on track for weekly gains and market breadth expanded significantly as a result. Compared to last Friday's, the SPX (white line) breadth jumped to 66.06% from 60.44% and the CCMP (blue line) rose to 51.08% from 46.87% (note: RUT is excluded from this week's chart due to data inaccuracies).

Market breadth attempts to capture individual stock participation within an overall index, which can help convey underlying strength or weakness of a move or trend. Typically, broader participation suggests healthy investor sentiment and supportive technicals. There are many data points to help convey market breadth, such as advancing vs. declining issues, percentage of stocks within an index that are above or below a longer-term moving average, or new highs vs. new lows.

This Week's Notable 52-week Highs (171 today): Alcoa Corp. (AA + $1.28 to $62.37), Exxon Mobil Corp. (XOM + $0.83 to $123.74), FedEx Corp. (FDX + $1.74 to $310.75), Merck & Company (MRK + $0.02 to $111.01), Micron Technology Inc. (MU + $10.02 to $337.04), Regeneron Pharmaceuticals Inc. (REGN + $5.18 to $806.19)

This Week's Notable 52-week Lows (28 today): Apogee Enterprises Inc. (APOG + $0.77 to $34.54), Cal-Maine Foods Inc. (CALM - $2.14 to $73.33), General Mills Inc. (GIS + $0.58 to $43.89), Kraft Heinz Company (KHC - $0.08 to $23.35), Lamb Weston Holdings Inc. (LW - $0.49 to $40.81), Sprouts Farmers Market Inc. (SFM + $0.38 to $77.47)