Published January 9, 2026
Welcome to the 2026 stock market! In the first full week of action, it’s been a feast for the cyclical materials and industrial sectors while tech takes a breather. The post below from Delta Research outlines the potential volatility ahead for markets as they wrestle with the midterm election dynamics. Note that the returns take flight once the uncertainty of the election clears. Also note that the numbers in the tables below are averages with individual years following many different paths.
“The stock market is off to a strong start in 2026. The Dow and S&P 500 reached new record highs this week, cyclical sectors are leading and small-cap stocks have outperformed as participation broadens.
The ISM Services PMI rose to 54.4% in December from 52.6% in November. The key takeaway: services activity accelerated in December to its best level of 2025 and the employment sub-index posted its first expansion since May 2025.
Third-quarter 2025 productivity rose 4.9% in the third quarter (versus 2.5% consensus), following an upwardly revised 4.1% (from 3.3%) in Q2. Unit labor costs fell 1.9% following a downwardly revised 2.9% decline (from 1.0%) in Q2, pointing to solid growth without labor-cost inflation.
Wall Street’s major investment banks and research firms universally believe the S&P 500 will finish 2026 higher than today. The average end-of-year target is 7,555. The S&P 500 closed 2025 at 6,845.50, implying 10% appreciation for the year.
What is not specified is the path of that appreciation. Markets rarely rise in a straight line. The wiggles in the path offer opportunities to enhance returns.
Midterm election years often carry uncertainty around outcomes and policy shifts which has historically weighed on markets ahead of Election Day. Since 1990, average Q2 and Q3 returns of the S&P 500 have been negative in midterm election years.
The average 3-month, 6-month, 9-month and 12-month returns following the election have been positive since 1990.
Market Update
This first full week of the year gave us a clue how investors are positioning their portfolios for 2026. The answer was a continued shift away from the Magnificent Seven tech/consumer stocks that have done much of the market’s heavy lifting the past few years. While the stock market broadly has pushed upward to new records, the tech/consumer heavyweights have traded flat for four months now. The Trump Administration’s capture of Venezuelan leader Maduro dominated the news and sent internationally-focused oil stocks surging Monday. Commodities added to their months-long uptrend on the news; while banks and financial companies also leapt. The S&P 500 gained +0.6% on the day. Tuesday saw another +0.6% rise with the AI trade expanding out to memory makers and disk drive companies. Defense stocks moved higher as the Trump Administration signaled a willingness to push for a much higher defense spending budget. A bit of a rest Wednesday with a -0.3% retracement. The weakness in the labor market came forward again with ADP reporting that the number of unemployed persons exceeded job openings for the first time in four years. The news pushed interest rates lower on the day though they remain stuck in a months-long range. A rally in regional banks helped small caps post a +1% move Thursday while large-cap stock were little changed. The small cap move continued Friday when the Trump Administration proposed having massive mortgage bond buyers Freddie Mac and Fannie Mae purchase bonds on the open market in an effort to bring down mortgage interest rates. Housing stocks blasted upward on the news to add further fuel to the small cap rally. Industrial and material stocks also pushed higher as Meta detailed plans to build nuclear facilities in support of their AI data center needs.
A very bullish week for stocks found the S&P 500 (SPY) higher by +1.60%. The Nasdaq 100 (QQQ) rose +2.21%. Both of those indexes were held back by the relative weakness in Mag 7 stocks. Small caps (IWM) told the underlying tale of the market with a +4.60% blastoff to a record high.
Warm wishes and until next week.