What Happened Last Week
- Broad Stock Rally: Equities opened 2026 with a strong start, led by more cyclical parts of the market.
- Labor Data: Last week’s jobs report did little to elicit a reaction from investors as the macro backdrop becomes clearer.
- Powell Probed: The Department of Justice opened a probe into Jerome Powell’s handling of the Eccles Building renovation.
What We’re Watching This Week
- Earnings Week One: Earnings season officially begins with updates from the major U.S. banks starting on Tuesday.
- Economic Data: Tuesday’s Consumer Price Index release is the highlight, but the retail sales report and other metrics will add to the mosaic.
- Policy: The Supreme Court may issue a ruling on the legality of President Trump’s tariffs this week as policy-by-tweet keeps investors on their toes.
Investment Management Team’s Views
Equity markets opened the year with strong performance as U.S. large caps, international equities, and domestic small caps all rallied to new all-time highs. Notably, even though the tech-heavy NASDAQ 100 outperformed the S&P 500 last week, it remains below its October peak. We view this as constructive, signaling that leadership is broadening beyond mega-cap technology, a stark difference from the narrow market environment of the past few years. Geopolitical headlines around Venezuela failed to disrupt markets despite wall-to-wall news coverage, reflecting limited escalation risk and minimal near-term impact on core economic variables. Overall, price action continues to point to healthy market breadth and resilient investor risk appetite. However, Sunday evening saw the Department of Justice open a probe into Fed Chair, Jerome Powell, which has pushed yields higher to start the week.
Recent economic releases have carried diminishing market impact, underscored by the muted response to the December jobs report. Month-to-month data volatility matters less now that the Federal Reserve has already cut rates by 175 basis points from their peak, bringing policy closer to neutral. This shift has dampened sensitivity to incremental surprises. Ahead of this week’s inflation report, expectations remain subdued; option-implied volatility suggests the smallest expected S&P 500 move around CPI in a year. This week will also see the publication of updated retail sales figures and home sales data. Markets appear increasingly comfortable that the broad policy and growth backdrop is well understood.
“Uncertainty” dominated investor narratives entering 2025, but it may have peaked as a macro concern and is instead morphing into targeted, sector-specific risks. Recent signals from President Trump point toward a more populist policy tilt aimed at affordability, including trial balloons on housing market intervention, limits on institutional homeownership, and potential caps on credit card interest rates. With U.S. banks set to begin reporting earnings this week, management teams are likely to respond to these policy proposals and offer 2026 macro outlooks. Beyond these proposed economic policies, President Trump has also floated restricting dividends and buybacks for defense firms and pressuring energy companies to invest in Venezuela, further highlighting rising micro-policy risk. Investors still assume Trump is broadly pro-market, but this assumption bears close monitoring into the midterms.