The market has gotten off to a positive start in 2026, with the S&P 500 advancing over the first 5 days of the year and finishing up slightly for the month of January. Historically, the combination of a positive first 5 days and full January has been significant. This has happened 36 times since 1950 with 33 positive years (92%) and an average full year return of 18%. Since 1950, years with a negative January have been positive just 47% of the time with an average full year return of 4% (all data from Fundstrat). Based on this data, January’s results do raise the probability for a positive 2026.
Corporate earnings results have been strong so far. With just over 40% of S&P 500 companies having reported, profit growth is currently 15.6% over last year according to data from Factset. We expect corporate earnings to continue to be strong throughout 2026, which provides support to the stock market.
However, the modest gains in the index disguise the turmoil beneath the surface of the market. The technology sector, the largest component of the market, has experienced a negative return and is the worst performing sector so far this year. Meanwhile, the energy and materials sectors, which combine for only about 5% of the weight in the index, are both up double digits percent. It is rare to see this wide of a dispersion in sectors so far this year.
There are two takeaways from this, according to our process. First, it is a positive sign for the market that other sectors, including former dramatic underperformers, have picked up the slack from technology. The equal weight version of the S&P 500 has outperformed that of the market cap weighted S&P 500 by about 6% over the past 3 months, indicating broad participation in the market. Other measures of market breadth are also at new highs. A broad market is consistent with a high probability for further gains over the course of the year. However, the market cannot be led by such small sectors indefinitely. And if a sector as large and important as technology sneezes, it makes it more likely that the overall market catches a cold.
We continue to think there is a high probability of a meaningful pullback this year. In addition to the factors we’ve previously mentioned, the Federal Reserve will have a new chair beginning in the spring. Of the 13 Fed Chairmen since 1930, 10 of them saw a 10% or greater correction in their first year. Uncertainty around monetary policy may be a contributing factor to market angst at some point in the year. That said, we don’t think investors should be overly cautious just yet. Rather, they should prepare themselves emotionally for a potential market pullback and decide how they will respond ahead of time. The weight of the evidence continues to suggest that any pullback will be a temporary pause in an ongoing bull market.
This is being provided solely for informational and illustrative purposes, is not an offer to sell or a solicitation of an offer to buy any securities. The factual information given herein is taken from sources that we believe to be reliable but is not guaranteed as to accuracy or completeness. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation or needs of individual investors. Employees of Janney Montgomery Scott LLC or its affiliates may, at times, release written or oral commentary, technical analysis or trading strategies that differ from the opinions expressed here.
