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January 20, 2026
Good Morning,
U.S. equity and bond markets were closed yesterday in observance of the Martin Luther King Jr. Day holiday. Markets have reopened today and are operating under normal trading hours.
Markets
For the week ending 1/16/2026:
- The S&P 500 decreased .04% to close at 6,940.01.
- The yield of the 10-year Treasury bond increased from 4.17% to 4.23%.
- Oil increased from $59.12 to $59.22.
- The CBOE Volatility Index (VIX) increased from 14.49 to 15.68.
- U.S. dollar currency exchange rates were:
- EUR/USD: 1.16 (USD stronger from a week ago)
- GBP/USD: 1.34 (USD stronger from a week ago)
- USD/JPY: 158.08 (USD stronger from a week ago)
Market Headlines
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Earnings Season: Despite the market still awaiting reports from big players such as Nvidia and Microsoft, U.S. chip stocks rallied on Thursday as TSMC (Taiwan Semiconductor) reported better-than-expected earnings. TSMC's strong results have led to increased positive sentiment around the AI sector, with many forecasts remaining bullish for 2026. Meanwhile, major U.S. banks saw mixed earnings reports. Wells Fargo, JPMorgan, and Citi reported earnings that fell short of predictions, while banks that prioritize wealth management such as Morgan Stanley and Goldman Sachs beat expectations and saw their stocks rally.
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Oil: Prices were volatile throughout the week due to geopolitical tensions in both Iran and Venezuela. Iranians continue to actively protest their government amidst economic hardship and a collapsing currency (rial), which resulted in fears of oil supply disruptions that helped drive prices as high as $62.36 on Wednesday. However, President Trump indicated late Wednesday afternoon that U.S. military action in Iran is not imminent, which eased tensions and caused oil to close below $60 on Thursday. Meanwhile, the fallout from the U.S. capture of Venezuela’s President Maduro on January 3, 2026, is ongoing, with the U.S. reportedly completing its first sale of Venezuelan oil for $500 million on Wednesday. Administration officials revealed that more oil deals are expected in the coming days and weeks, leading to markets anticipating an increase of supply.
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Inflation: Tuesday’s Consumer Price Index showed prices rose only 0.2% in December 2025, which is less than economists had predicted, putting the year-over-year figure at 2.6%. Despite inflation remaining above The Fed’s 2% target, overall figures provided a hopeful sign for cooling inflation. However, underlying costs such as shelter and food prices continued to rise significantly, indicating that inflation isn’t fully under control yet.
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Small-Cap Rally: U.S. small-cap stocks continued their rally to start 2026, as Friday was the 11th consecutive session of the Russell 2000 beating the S&P 500. The small-cap index has gained more than 7% to start the year, its strongest start since 2021.
Key Takeaways
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In the coming weeks, be prepared for earnings reports to continue to drive headlines. Markets generally experience heightened volatility during earnings season due to information overload and potential discrepancies between future forecasts and analyst predictions. Sharp price movements in individual stocks can be expected as reports are released, as demonstrated by TSMC (up over 6% during Thursday’s session) and Wells Fargo (down over 4.5% during Wednesday's session).
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Expect The Fed to hold interest rates steady at their next Federal Reserve meeting on January 27-28, 2026. Last week’s jobs data indicated that the labor market is stabilizing (lower unemployment, fewer layoffs), but this week’s CPI data shows inflation remains above the 2% target, which will undoubtedly caution The Fed from rushing to cut rates.
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Despite a strong start to 2026, investors should be wary of overallocating in small-cap stocks. Small-cap stocks have surpassed the S&P 500 in only two of the past ten years (2016 and 2020). With small companies relying heavily on debt financing, the small-cap market has a high sensitivity to interest rates. The early rally to start 2026 is in large part due to the market pricing in 2 interest rate cuts by The Fed in 2026. However, with rates expected to hold at the January meeting, investors have begun to scale back their predictions on interest rate cuts in 2026, which might hurt smaller companies in the long run.
The Week Ahead: January 20-23
- Tuesday: Bank earnings (KEY, USB, FITB), Netflix earnings report
- Wednesday: Pending home sales, Tesla earnings report
- Thursday: PCE Price Index & Core PCE Price Index (key inflation indicators)
- Friday: Consumer sentiment
Until next week,
Weller Financial Group
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