Signals and Fundamentals May Shape 2026

Nearly all equity sectors out-performed Technology stocks for the first time in several years. On Thursday of last week, all equity sectors were in the green for the day, with

the exception of Technology. That doesn't happen very often, but may signal a changing of the guard. For the past two-and-a-half years, Technology has been the leading sector. However, elevated valuations and concentrations in just a few names may cause profit-taking in some key technology stocks in favor or a rotation to other sectors. Since late October of 2025, Mag 7 has lagged mid-caps, small caps, international, and even the equally-weighted S&P 500 Index that is not highly concentrated in Mag 7. If this rotation continues, it would be a healthy sign that markets are poised to move higher with the "other" 493 names in the S&P 500 Index out-shining the top 7 names.

From a fundamental perspective, the economic picture remains solid. The Atlanta Fed released an updated forecast for 4th quarter GDP last week that was an eye-opener.

After the initial reading in late December opened at +3.0%, this week's number jumped higher to +5.1%. If that number proves to be true, that would put year-over-year GDP growth well above the historical trend for annual growth. The two main drivers of the Atlanta Fed's forecast increase are an substantial increase in consumer spending and jump from negative to positive Net Exports. The labor market remains stable in a "low hire, low fire" trend. The jobs report released last week showed that the Unemployment Rate dipped to 4.4% last month and Jobless Claims came in at 208,000, both well below their respective historical averages.

It's early, but the first few days of 2026 were positive overall and that could be a good sign for the remainder of the year. When the first 5 trading days of January are positive,

the market is higher 12 months later 84% of the time, with an average return of 14.2%. For further perspective, earlier this week we wrote about Mid-term election year, like 2026, and the volatility that comes with it. It's a mixed bag when the first 5 days of January are positive in a Mid-term election year. The average return in that scenario is +7.3%, with a positivity rate of only 55%. However, in addition to the first few trading days signal, the Dow Theory also triggered last week. When this trigger occurs, the S&P 500 was higher one year later by an average of +12.4%, with a 94% positivity rate, going back to 1927. With the Mid-term elections and positive trading signals, it may turn out to be an interesting year in the markets.

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