Weekly Newsletter January 12th to January 16th
RECAPPING LAST WEEK
Investors’ attention turned to U.S. corporate earnings reports amid geopolitical turbulence and friction between the Justice Department and Federal Reserve. The S&P500 and Nasdaq Composite indices ended the week slightly lower, while the Russell 2000 rose 2% and the S&P Midcap 400 gained 1.3%. The outperformance of smaller companies along with equal-weight indices continued to highlight the rotation away from large caps that has been evident early in 2026. At the sector level, consumer staples jumped more than 3.5%, maintaining a strong start to the year. Financials fell more than 2% as talk of capping credit card rates and mixed earnings reports from U.S. banks weighed on the sector. Large money-center banks like JP Morgan Chase and Citigroup exceeded analysts’ earnings estimates on strong lending demand. However, they missed revenue expectations in areas like investment banking, which in turn boosted profits for historically dominant players Goldman Sachs and Morgan Stanley. In commodities, gold reached a new record high above $4,650, while silver soared more than 17% to $93.70 before pulling back at week’s end. Fears of a U.S. strike on Iran to quell the unrest there subsided, causing crude oil to fall more than 4% on Thursday, though it held onto modest gains for the week. U.S. Treasury yields ticked higher after economic data did little to change expectations regarding the Fed’s next rate cut. Consumer prices increased in line with forecasts last month, with CPI rising 0.3% MoM and 2.7% YoY. November’s delayed retail sales report advanced 0.6%, pointing to solid economic growth in Q4 2025. Renewed concerns over the Fed’s independence likely also contributed to the rise in yields after the U.S. Department of Justice threatened a criminal indictment of Chair Powell. In other economic news, existing home sales jumped 5% in December while delayed data showed that new home prices continued to drop at the end of last year on weak demand and high inventory. On the international side, the Japanese yen fell to multi-year lows against the U.S. dollar and the euro before rebounding slightly to end the week. Prime Minister Takaichi said she will call a snap election later this month in an effort to secure a mandate for the new ruling coalition. The move may allow her to advance plans for a pro-stimulus economic agenda, which may lift Japanese stocks but would likely send bond yields higher and the keep downward pressure on the yen. China’s 2025 trade surplus surged to nearly $1.2 trillion, up from $992 billion the year prior. Increased shipments to South America, Southeast Asia, Africa, and Europe largely offset the sharp drop in exports to the U.S. Finally, UK GDP grew by a better-than-expected 0.3% in November, lifting hopes for economic improvement this year backed by more rate cuts.
THE WEEK AHEAD
A shortened week awaits following Monday’s holiday for Martin Luther King Jr. Day. Despite all the geopolitical and domestic political issues that loom large, investors have mostly stayed the course thus far, focusing on generally positive economic data. Volatility has risen from its lows but overall remains subdued. For the rest of this month, corporate earnings reports will likely be an important driver of the news cycle. This week, attention will shift from the banks to a more diverse set of companies, including Netflix, Intel, Proctor & Gamble, Johnson & Johnson, Freeport-McMoRan, DR Horton, and others. On the U.S. economic calendar, the delayed PCE Price Index data from October and November will be released Thursday, along with the final reading of Q3 GDP. Then on Friday comes the S&P Global flash PMI readings for the U.S. and other developed economies. Additionally, at week’s end the Bank of Japan is expected to leave interest rates unchanged, even as the yen remains under pressure. No further hikes are anticipated until this summer, and the Japanese government may be forced to intervene at some point to support its flagging currency. The World Economic Forum gets underway this week in the Swiss alpine town of Davos, where leaders will gather to discuss challenges confronting the global economy. The international economic calendar features China’s GDP, industrial production, and retail sales figures, as well as inflation updates from Canada and the UK.
CHART OF THE WEEK
Semi-charmed kind of life
Typically, the PHLX Semiconductor Index (SOX) is highly correlated with the overall technology sector, as its component stocks make up over 40% of the broader S&P500 Information Technology Index ($SP500#45). This week’s chart shows the 10-day correlation between the two indices, which had been above 80% from last August through year-end. Things have changed dramatically in 2026. Earnings reports from semiconductors have greatly exceeded expectations and forward guidance has been strong, with Micron Technology one of the recent standouts. Taiwan Semiconductor is the latest example, with the world’s largest contract chipmaker reporting blowout earnings last week amid news that the U.S. and Taiwan had struck a trade deal favoring more mutual technology investment. The broader tech index is dominated by giants like Apple, Microsoft, and Meta Platforms, which are not part of the SOX index. Thus, the sharp divergence in performance as the mega-caps have fallen behind to start the year. With some investors considering diversifying away from the big winners of the past several years, mega-caps may continue to lag. Small to mid-size semiconductor company performance is also contributing to the widening gap between SOX and the tech sector index.
Source: Charles Schwab Corporation
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